What a good way to end the first week of the new year. As I have mentioned before – I love the first week of trading as so often such important moves take place.
I still believe that the S&P topped at the end of September. However, I do admit that the Christmas Eve low was pretty impressive particularly as one of my main indictors gave a buy signal. But as I have maintained throughout this past few months, it is up to the market now to prove to me that the bull market has not ended. As mentioned previously, after such a dramatic low, I favoured seeing the S&P rally back up to 2600 before the next down leg of the bear market got under way. Maybe a bit higher than 2600 as all my targets are being exceeded in this very volatile environment. From where I sit, this would be a C wave up of an ABC corrective phase.
And on that subject of volatility, I had mentioned some time ago that I anticipated the extreme moves would last into the new year. I have had another close look at this matter, and I think it could last into the third week of January and perhaps even into the fourth week. After that I think trading might start to get back on to a more even keel. Wouldn’t that be nice.
However, what really impressed me from Friday’s trading was the way the Shanghai index bounced after hitting a four-year low in early trading. And even London bounced – if the London market can bounce, anything can!!
Gold saw the correction get underway but both palladium (another new all time high) and platinum were very strong. Also lovely to see the buyers back in the copper market. Mentioned yesterday that the grains were better and perhaps there were positive moves going on in the background bringing some support back to the sector. Another up-day here.
I have mentioned a few times that it is easier to make a bullish argument for the Australian market than the US particularly as we have been showing such impressive relative strength. I think we have formed a little schizophrenic head and shoulders base pattern (you would be feeling slightly schizophrenic if your neckline was a bit crooked like this one) which gives an initial target of 5900 – perhaps even 6100 but let’s worry about the second possibility later.
Banks – If our market is going to rally to the level suggested, then banks are going to have to participate. There is considerable comment around regarding what the effect of the forthcoming report from the Royal Commission will have on this sector. I am beginning to think the result has been discounted or substantially so.
My upside target on the XGD of 5600 ended up being nicely exceeded as the stocks in the sector took off and finally tested the 2016 high. However, on Friday I was suggesting a little care here as so many stocks were getting overbought. What is going to be interesting now is how the stocks behave on this correction which I have mentioned before will probably bring the gold price back to around 1265. A well-behaved correction and I can give some fancy upside targets – but one step at a time.
But having written about rallies across stock markets, I must make it very clear – at this stage all I am talking about is a rally. I still favour the option that markets have topped and we are just waiting for the next leg down of this bear market. Be prepared.
(20min delay)