Doing a bit of insomniac analysis again, and wondering if we've seen the bottom of this 'correction'. On the 'yes' side (1) is the spike low or dragonfly doji on the 14th. This is bullish as long as xjo doesn't fall below the low of the dragonfly. A spike low can also be a sign of capitulation, which is when everyone who wants to get out of the market has sold. The price should then, theoretically, reverse or bounce off the lows (which it did). In other words, true capitulation is the sign of a bottom. High volume on a capitulation day is desirable, but the volume picture is clouded by the futures expiration today. The volume on the spike low was not as high as preceding days however, indicating that it may not have been capitulation. (2) the bullish divergence on the daily rsi. Unfortunately this does not relate immediately to an end to the downtrend although it may indicate a need for a relief rally.(3) A possible deeply diving wedge on the daily chart. Falling wedges are usually bullish but this one is so steep with so little convergence in it that its difficult to see much bullishness in it. Yet on an intraday basis such falling wedges have occurred recently and have had bullish resolutions (4) volume - the volume on the red days seems to be falling and the volume on the green days seems to be increasing in the past week. Still, high volume is not necessary for significant falls in price but is necessary for a credible upside breakout. (5) On a fundamental basis, given that this decline has been a liquidity event - that is, driven by a decline in liquidity - the recent increase in the price of gold indicates that there is still higher than average liquidity available. The gold price is my liquidity gauge. Further, there have been signs of continuing good growth globally.
On the 'no' or 'not yet' side we have (1) bollinger bands still extremely wide, indicating continuing volatility (2) bearish macd (3) extremely high volume today with a long tail above, indicating solid selling of the rally. Today was also futures expiry day which has typically got very high volume anyway, so not sure of the significance of the volume spike today but the selling of the rally was real. (4) No bullish cross of 10 and 30 day mav. (5) Continued separation of long term averages on the Guppy mma and no bullish penetration of the long term group by the short term group. (6) Suspicion about futures and option expiry effects: that is, that the xjo rally of the past two days and on the us markets over past two days or so might be more based on the quadruple witching day on Fiday US time. This is expiry of all futures contracts and options on stocks and bonds. It is common for there to be a rally at this time because short players cover their positions in the process of exiting a contract, unless they let it run to expiry which is not usual. This covering creates demand for stocks, but that demand evaporates once the transition to a new contract is made. The intraday decline in xjo today after the opening was probably a short term example of this effect (6) The down trend line has not been breached. (7) In regard to fundamentals, recent data simply confirms the inflation/high interest rate scenario with the growing likelihood of medium term increase in stagflation in us and aust. The risk premium on stocks is still minimal and likely to get smaller as deposit rates increase.
All in all, imho at a minimum it is too early to say that this decline has finished. There is certainly a short term rally happening, but it is fraught with extreme intraday volatility and overall may relate mainly to the expiry of futures contracts. Aggressive traders may take this opportunity to establish long positions, and short term long trades may be profitable, but I'm inclined to wait until Monday at a minimum to see what happens after the contracts expiry day in us tomorrow before I start investing again (as different to day trading). Cash remains king for now. cheers!
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