XAO Technical Analysis

[be_8_el]

Re: XAO Analysis

Here is an updated chart but with my seasonal timing dates added in. The horizontal lines are typical seasonal changes in trend and you can see that of late they hold well against the EW counts that I have. Note to the far left that Mar 2 was the start of seasonal strength and also coincided with the significant lows.

Green means seasonal strength coming in
Red means seasonal weakness coming in
Grey means sideways.

We've possibly got a wave-(iii) in place (mentioned a few days ago) which coincides with seasonal weakness starting on or near May 14 and running through to May 21. Therefore I'd be looking at this period as the wave-(iv) decline to unfold down to the support area.

hi N Radge, im newbie to chart.
From your chart here is that means that the major correction will not happen till 24 june?

 

[nizar]

Re: XAO Analysis

I think the bull is back guys.

We havent had this sort of action on the XAO on a monday morning for a while now.

After sideways for most of May, i think its time to begin the next upleg.

After going up for a bit, then maybe we can have a correction.

But for now, just sit back, and enjoy the ride

 

[hacheln_mice]

Re: XAO Analysis

Don't think it's time to sit back just yet. Still need to get above that broken trendline. The turn cycle is also approaching.

 

[nizar]

Re: XAO Analysis

Looks to me like a classic break into blue skies

 

[Sean K]

Re: XAO Analysis

Looks to me like a classic break into blue skies

Could be, but it's also poked it's head up through the BB, moved a long way from the 200d ma, stochs moving to overbought, and the MACD is diverging from the chart. Spells consolidation at least to me. But, I've been saying that for 6 months.

I'll be right one day.

 

[hacheln_mice]

Re: XAO Analysis

I think one always needs to keep in mind 'dynamic' resistance such as the underbelly of a broken trendline or the upper rail a channel before considering a breakout into 'blue skies'. That's why I was somewhat skeptical of the breakout on Monday. I'm not saying that we can't go any higher, just that we need to keep in mind that the upside will tend (but not guaranteed) to be limited by the resistance areas shown.

That said, if 6286 holds for a few days, then this would be somewhat bullish in the short term.

 

[hacheln_mice]

Re: XAO Analysis

Mind the broadening pattern, and the divergences. Just something to think about...

 

[CanOz]

Re: XAO Analysis

Agree HM, nice charts too.

Got to get some shorts on me thinks!

Cheers,

 

[dodgers]

Re: XAO Analysis

Here's macquarie's view..

Prices traded through critical support at 6232 today, closing below this level. Given the break there is a high risk that the 6428 high of recent days ended wave v of 5 of a sequence from the June 2006 low (how this fits into the longer term structure is less clear), implying that a major downturn has begun. Further trading below 6232 and a break of lower support at the 6149-57 region would strongly suggest that this is the case, with downside risk then to the 5614 March low and potentially further. Prices need to recover through resistance at 6340 to negate the downside risk and to signal that the advance is not yet complete.

 

[dlineinvestor]

Re: XAO Analysis

hacheln mice's chart reminded me of the T/A signal of when an instrument comes up to meet a broken trend line. You short it, something I missed.
The points about the broadening out trend angles are very powerful factors too. The news released this week about US bond yields jumping past 5% hasn't help either. With lower base metal prices at the moment no significant news can offset these factors. As strong demand for base metals are still in effect perhaps a second run will take place on stronger base metals news.

 

[Sean K]

Re: XAO Analysis

6250 looks more important now. Should probably see a rise back to 6300 ish, on Monday with US recovery, oil off, and with the US expected to continue gains next week, perhaps there's a little left to run.

MACD still diverging, and the markets about 11 % above the 200 d ma. Was about 13% in May 06. Other indicators on 6 month chart look pretty bearish!!

On down side, support should remain at 6250 ish, minor 6150, then 6000, and 5700 ish on the long term chart. Potential collision with 200d ma at 6000 ish should be a floor IMO, with long term bull in tact.

Will be a mountain of resistance at 6400 now, but the longs will hope Shane Oliver is right.

When was he predicting the XAO to double by?

 

[nomore4s]

Re: XAO Analysis

Was looking at the XAO on a weekly chart (over 5 years) using a logarithmic axis. It looks to be in a fairly tight up trending channel, but what got my attention was that every time it looked to push through or did break the top line it pulled back into the channel and toward (generally came down to meet) the 30 week MA. Maybe we could be due for a pullback toward the MA?

As per post 415 above, updated chart. Just pulling back into channel now but 30week MA is at around 5925.

 

[nomore4s]

Re: XAO Analysis

And here's a 2 year weekly chart. Been in trading channel since around Sept 06, now hitting support at 6200 (also some support on daily chart at this level), maybe interesting if it breaks this level considering it didn't break this support even during the "May correction" last year, next support at 6120 ish? Then after that under 6000?

 

[theasxgorilla]

Re: XAO Analysis

I use the 40-day and 200-day simple-moving-averages as reference points to ascertain whereabouts the index is relative to previous measures.

From my observations anytime the closing values on the XAO start to toy around with the low side of the 40-day SMA its been a sign to pay closer attention as a correction might be around the corner. For obvious reasons downside penetration of, and in particular a daily or more significantly a weekly close below 6200 must suggest that we can expect to see a deeper pullback than what we have.

As per Kennas's observations, the index is a LONG way north of its 200-day MA. A rebalancing of this relationship may be due. Its probably worth stating that I wont actually make any trades based on this information, so its put here simply for interest sake and a bit of fun.

 

[Magdoran]

Re: XAO Analysis

I use the 40-day and 200-day simple-moving-averages as reference points to ascertain whereabouts the index is relative to previous measures.

From my observations anytime the closing values on the XAO start to toy around with the low side of the 40-day SMA its been a sign to pay closer attention as a correction might be around the corner. For obvious reasons downside penetration of, and in particular a daily or more significantly a weekly close below 6200 must suggest that we can expect to see a deeper pullback than what we have.

As per Kennas's observations, the index is a LONG way north of its 200-day MA. A rebalancing of this relationship may be due. Its probably worth stating that I wont actually make any trades based on this information, so its put here simply for interest sake and a bit of fun.

Seeing a moving average style of analysis prompts me to make an observation about why I think this type of approach at this juncture in the market is potentially flawed. Moving averages in my opinion are a very rough tool at the best of times, and are fundamentally flawed because they are a lagging indicator. Hence as wavepicker says quite rightly that you need to account for the lag in an effective way if you’re going to use them.

The chart shown here looks great if you believe markets are static, and will always have a uniform trend. Unfortunately this is a mistake. Sometimes markets will trend in a fairly consistent manner, and sometimes they don’t.

What I think is happening currently is along a key concept McLaren covers in his “Foundations” DVD set, and that is understanding blow off moves. The core characteristic of blow off moves is that the upward slope of multiple trend lines gradually become more and more acute till the underlying is almost vertical, and “screams” into a top, and either distributes, give a false break and reverses, or has a sharp counter trend and continues.

This is why moving averages can get you in at the wrong time and out at the wrong time (McLaren covers this in telling detail in the “Foundations”). They can’t differentiate between normal tends and blow off moves. They just don’t understand different types of trend, period. (RSI for instance can give misleading “overbought” signals in a bullish blow off and get you out or short at the wrong time).

Indeed, oscillators and the moving average class of indicators also misread bearish capitulation moves, where the rate of descent INCREASES, and spikes down hard. Or, the opposite occurs, and the trend slackens off and the angle of the trend becomes more mild, and the oscillator/moving average gives a false positive, and gets you into a trade against the trend at the wrong time, or out of a position when you should be entering it or holding on.

I agree that there should be a correction at some point, and probably a strong one retracing at least somewhere ranging from one quarter to three eighths (or more) of the whole 2002 bullish campaign onwards, but the question is when? In a blow off move, it is very difficult to tell at this point, since the apparent pattern can be misleading.

I know the levels look ripe for a major pull back right now by conventional means, EW, and even some forms of envelope analysis. But what I see is a set of cycles still showing bullish attributes that for me are still compelling (by non conventional means). What I see in the pattern is a set of potential ending diagonals (that wavepicker is a master at), but still think there is strong enough demand to push the market higher currently, or even blow off into a tip of some sort.

The threat to all markets currently is the price action in the US bonds, and potentially crude oil from what I can see. The T bonds look like they may recover in the interim, but I am swayed by McLaren’s position that these are just stating to trend down (effectively increasing interest rates) for at least the medium term one a bullish counter trend fails (assuming it fails). Add in the prospect of oil resuming bullishly (it’s looking bullish in the charts from what I can see), and this may have a negative impact on Equity indexes.

The question is if and when this may contribute to a corrective move of some sort, and then if one does eventuate, how far will it move? My best shot guess is not yet – I expect bullish activity till at least the middle of July, and if the pattern sets up right, may continue and extend beyond this after some kind of halt or pull back. Just read through my various post on different threads to get the picture. Of course this is just what I’m seeing, and of course I will modify my views as the market plays out.


Regards,


Magdoran

 

[Sean K]

Re: XAO Analysis

Seeing a moving average style of analysis prompts me to make an observation ........................ Of course this is just what I’m seeing, and of course I will modify my views as the market plays out.

Regards,

Magdoran

Hi Mag, Thanks for your extensive post, once again. (you must be a damn good typist! I think I've said that before)

In regard to the indicators, I think most of us posting in these threads are generally only using them i as confirmation of a trend, or event, and they are never used in isolation. I really only comment on them to show new investors interested in TA what to look for in conjunction with the chart/price action. I agree, laging, lagging, lagging...

Yes, bound to have a correction, and you don't need to be Mr Elliot to come up with that conclusion. (I'll be right one day!) So, very interested in your time analysis.

As far as time goes I remember you had a date in June as being very important. Was it 12 June? Since that has passed what was your next date for a significant event? Some time in Aug. Sorry, I can't remember where it was posted.

I am very interested that you mention some fundamental factors in your analysis such as demand and oil, but I had the impression that anything outside of the chart was irrelevant in EW/Gann?

Can I also ask, what are the bullish attributes to the time cycles you talk about. Can you paste a chart to identify these for me?

I am in a quandry at the moment as to where the general market is going. There is so much liquidity out there trying to find a home and the economy seems sound. RBA Stevens came out with 7 more years of good times yeaterday, but I think that was just in relation to his tenure as Governor. I'm also thinking the the industrialisation of Chindia is having a more significant effect than even the bulls anticipated. We could be riding the back of a resources boom never seen in history for some years to come. Perhaps any short term corrections are just a waste of time analysing?

Cheers,
kennas

 

[Magdoran]

Re: XAO Analysis

Hi Mag, Thanks for your extensive post, once again. (you must be a damn good typist! I think I've said that before)

In regard to the indicators, I think most of us posting in these threads are generally only using them i as confirmation of a trend, or event, and they are never used in isolation. I really only comment on them to show new investors interested in TA what to look for in conjunction with the chart/price action. I agree, laging, lagging, lagging...

Yes, bound to have a correction, and you don't need to be Mr Elliot to come up with that conclusion. (I'll be right one day!) So, very interested in your time analysis.

As far as time goes I remember you had a date in June as being very important. Was it 12 June? Since that has passed what was your next date for a significant event? Some time in Aug. Sorry, I can't remember where it was posted.

I am very interested that you mention some fundamental factors in your analysis such as demand and oil, but I had the impression that anything outside of the chart was irrelevant in EW/Gann?

Can I also ask, what are the bullish attributes to the time cycles you talk about. Can you paste a chart to identify these for me?

I am in a quandry at the moment as to where the general market is going. There is so much liquidity out there trying to find a home and the economy seems sound. RBA Stevens came out with 7 more years of good times yeaterday, but I think that was just in relation to his tenure as Governor. I'm also thinking the the industrialisation of Chindia is having a more significant effect than even the bulls anticipated. We could be riding the back of a resources boom never seen in history for some years to come. Perhaps any short term corrections are just a waste of time analysing?

Cheers,
kennas

Hello Kennas,


The 12 June date was the one forecast by Bill Mclaren as a potential date of interest given it was 90 calendar days from the major low. He has since revised this to the June 01 high, and has also altered his cycles to line up with that high.

I posted this up out of interest since the cycle he was using is different to mine, which is why on that post in the “Trading the SPI Gann techniques” thread I included his cycle as a potential flaw in my thinking at the time. The cycles I was using lined up around mid July, but noted that this may only be a resistance point in a strong blow off move based on the pattern of trend at the time.

Of course a major correction can come at any time now, all the key EW practitioners agree on this - wavepicker and Nick Radge for instance – both are seeing ending diagonals, and wave structures that suggest a terminal wave structure is in place (see earlier comments on this thread).

I agree with their interpretation of the EW structure, but the time cycles for me don’t line up to suggest the same probability for a high coming in until mid July for a range of indexes (around the 15-20 July) – I have posted up my current actual projections on various threads. These are contingent though on the pattern playing out.

And yes, this could extend to a number of later dates in August and October, but posting these up now will only confuse people – if I posted up a sea of dates with no analysis or explanation in context with the underlying, this would be of little value. I try to give my best shot interpretation of what the time point could mean in the context of what the underlying is doing, and once the time point has passed give an appraisal of what this means, even if it is to say the cycle is no longer valid, or that the way the underlying moved into the date suggests a modification to the original interpretation.

Why I look at other charts outside of the actual chart I’m looking at, is when another factor (oil or a metal for example that is relevant to the underlying you are looking at) could effect the underlying you are currently forecasting, especially something relevant say like Zinc prices are to ZFX. Also, currency fluctuations, interest rates (bonds) etc are all relevant to major indexes, aren’t they? Not to take the potential effect these have into account is possible; I just don’t think it is prudent. What they can do is to ameliorate or magnify the patterns I am seeing, and can accelerate of slow a trend sometimes if you can work out the effect accurately enough.

As for the future, I really don’t know if a catastrophic crash is around the corner or not. The reality is that this bull run is statistically within the top 10 runs in history, and may move even higher up that ladder in the near future – hence some caution is certainly prudent. But statistics are just that – statistics. As Douglas says, “every moment in the market is unique” and “anything can happen”.

What I can say is that the China bubble is huge, and parallels bubbles in history such as the British South Seas Bubble in 1720 and the Tulip bulb mania in Holland in the 1630s. When the Shanghai composite collapses, who knows what the effect will be outside of China. But that’s the problem, when is the music going to stop, and who’ll be holding the parcel?

Another point to consider is the effect hedging and being able to use bearish instruments will have. Whether this works to insulate organisations from risk via hedging, or if in fact these instruments will accelerate any bearish effects is uncertain.

What I can say is that I’d expect a retracement of at least 25% of the run up in the XAO from the 2002 low to whatever the high will be, maybe 33%, maybe 5/8ths of the range, maybe more – 50%, who knows. What it will probably be when it gets going is short and sharp (reads deep). Recovery times may be quick like the 1987 scenario which saw a sustained rally from the bottom, or maybe recovery will be slow and drawn out like the post 1929 market that took decades to really recover.

The big changes in our times are technology and consequently productivity. How commodities will react will be telling, but I suspect that the commodity boom is only really mid way through, although of course some commodities may well correct while others stagnate in the midst of many booming. Since the XAO has benefited from the resources boom, this is the Achilles heel. If commodities such as LME metals fall, this could be disastrous for the whole resources sector. But this is the moot question.

Add to that inflationary factors such as Crude Oil prices, US bond rates, and currency fluctuations, and this makes the whole exercise a nice tangle of interrelationships, hence the plethora of “Experts” commenting currently.

As for posting up my full working charts – this will just confuse people since I have pioneered a unique style of analysis (I believe so since I haven’t seen anything like I’m doing anywhere else), and a lot will look bizarre if you don’t understand how it all works. Also, once the indexes trade into key time increments, then I will be able to better interpret what may be going on. Currently the DAX is the clearest index I can see at the moment, and my projections for it and relevant chart is on the “International Index Trading” thread if anyone’s interested.

As for the XAO and the US markets, the fact that the bar on the 12th of June traded down into the increment for me suggested a bullish pattern, wheras if it screamed into a top here, then McLaren’s forecast may have proven correct. I still think the cycle I’m using is effective, hence I’ll stick with it, but the 90 cycle he is using is still working in tandem to locate pivot points, so it is useful. When the two line up, the effects have been evident.

Hope that helps!


Warm Regards


Magdoran

 

[theasxgorilla]

Re: XAO Analysis

Seeing a moving average style of analysis prompts me to make an observation about why I think this type of approach at this juncture in the market is potentially flawed. Moving averages in my opinion are a very rough tool at the best of times, and are fundamentally flawed because they are a lagging indicator. Hence as wavepicker says quite rightly that you need to account for the lag in an effective way if you’re going to use them.

With regards to accounting for lag, you are probably right. There could be another dimension added to this analysis that accounts for lag using rate-of-change or some other measure to quantify how strongly the index is pulling away from its moving average. And perhaps a better moving average could have been chosen, like an exponential. And with regards to being "rough", again, yes, you are probably right. But for those who are reading this and wondering if moving averages are a useless indicator and ought to be immediately ditched in exchange for something more sophisticated or refined, a balanced answer should include reference to those people who use something as "fundamentally flawed" as an average in their trading and continue to make profits.

To quote Ed Seykota's site (http://www.seykota.com):

"A trend is a general drift or tendency in a set of data. All measurements of trend involve taking a current reading and a historical reading and comparing them. If the current reading is higher than the historical reading, we have an up-trend. If lower, we have a down-trend. In the improbable event of an exact match, we have a sideways trend."

Using a moving average can be a simple, visual way of determining if you have a trend, how far that trend has moved over a period of time and how far away it is from a reference point. Its simple and effective. You could say my preference is to be "The Beatles" in my analysis, rather than say, Stevie Ray Vaughan or Tommy Emmanuel. Or as Miles Davis would put it, "I always listen to what I can leave out,". I'm keen to eliminate that which seems superfluous.

The chart shown here looks great if you believe markets are static, and will always have a uniform trend. Unfortunately this is a mistake. Sometimes markets will trend in a fairly consistent manner, and sometimes they don’t.

The use of the MAs on a market that has shown patterns in its trending for the last 4 years can be a form of adaptive analysis. Think of it like a blue print for a trading system that has a set of paramaters determined from back testing on a large body of historical data. If the market steps outside of the parameters of that blue print then it suggests we are in uncharted territory. Time to find a system, or in my case, a new reference model. Markets are always the same in that they're always changing. We know this.

This is why moving averages can get you in at the wrong time and out at the wrong time (McLaren covers this in telling detail in the “Foundations”). They can’t differentiate between normal tends and blow off moves. They just don’t understand different types of trend, period. (RSI for instance can give misleading “overbought” signals in a bullish blow off and get you out or short at the wrong time).

When we discuss a good trading system that uses moving averages getting you in and out at the wrong time, we're probably refering to whip-sawing, right?? Its real, it exists, and its part of trading. Moving averages can be used effectively in trend following systems that rely on high R multiple trades to offset the +/-1R trades that occur during whip-saws or false positives or whatever you want to call them. For this reason systems such as this can often be "wrong" more than 50% of the time. We should not confuse being right with being profitable. They're two different needs. Given enough time a trader will adopt a system which suits his/her needs and personality.

My analysis is backward looking. And it will always lag the market, as I am using purely price as an indicator of price. I don't pretend to be able to see beyond the last bar on the chart and I don't need to be "right". Hunches are good enough. What I can tell you is when price is behaving differently in this move than what it has done previously, the signficance of that is up to each of us to weigh.

I agree that there should be a correction at some point, and probably a strong one retracing at least somewhere ranging from one quarter to three eighths (or more) of the whole 2002 bullish campaign onwards, but the question is when? In a blow off move, it is very difficult to tell at this point, since the apparent pattern can be misleading.

This doesn't really tell us anything new. I remember going to numerous market presentations around 2001/02 and being told by suited-up "experts" what to expect. Single digit returns for the remainder of the decade was bandied around repeatedly. Nobody saw this bull market coming, nobody saw the duration or strength that it has shown and nobody will see its end. If you are going to forecast, forecast often...isn't that how the saying goes??

 

[Wysiwyg]

Re: XAO Analysis

Put your hand up if anyone sees a smarter bull market now.opcorn:

 

[Lachlan6]

Re: XAO Analysis

Thought I'd pull this one up. Pretty interesting as it shows that two corrections in 05 were proceeded by bearish MACD divergences. However the one in 06 and earlier this year were not. Notice the large bearish divergence in the index at the moment.