The All Ordinaries has formed a descending broadening wedge over the last two weeks: a rare pattern that normally resolves in the direction of the long-term trend (in this case up). Friday's long tail signals buying support above the first major support line (from the previous peak in the primary up-trend) at 4250/60. Attempts to enter at this point are inadvisable because of the high failure rate. Thomas Bulkowski (Encyclopedia of Chart Patterns) recommends waiting for a close above the upper trendline or a partial decline: a trough that is higher than the preceding trough.
Twiggs Money Flow (21-day) has fallen below zero, signaling short- to medium-term distribution. If the index respects initial support at 4250/60, that would be a bullish sign indicating that the up-trend has sufficient strength to test 5000: 4600 + (4600 - 4250) = 4950. This is in the same ballpark as the aggressive target calculated by projecting the previous up-swing from its' peak: 4250 + (4250 - 3450) = 5050.
Failure of support at 4250, on the other hand, would mean a test of primary support at 3900. The primary trend would reverse in the at present unlikely event that 3900 fails. However, a primary trend reversal on the Dow or S&P 500 would have a domino effect on the Australian market, placing severe pressure on primary support levels.
DOW Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
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