The theme of this week’s report can be summed up:
The market has sold off for three weeks, the retracement may be at an end. But caution is still required.
Despite the weakening of the market over the past three weeks, the medium/long term trend of the market remains positive. That doesn’t mean it can’t change. The market is dynamic. But, at the moment, while the medium/long term is still sound, we can adopt a “buy the dips” policy. But don’t pre-empt the market – wait for the hook-up from the downtrend before entering. This dip is not yet complete.
The Dow Daily Chart has been performing better than the Australian market. If you look just at the chart of the Dow Jones for the past week - you would have no idea that the news media has been crying woe over Ireland and Korea.
The Ozzie Dollar is at a critical support level. Because of the global flows of capital, a positive Australian Dollar is crucial to the inflow of money to the Australian stock market. This is a fundamental that cannot, I believe, be ignored.
Shanghai and Commodities are both looking weak and, like the AUD, are at critical support. Both are fundamental to the health of the Australian market. Further falls would be very negative for our market.
I’d still like to see a switch to the bullish side by the Weekly Slow Stochastic before jumping in with both feet.
The best leading evidence I can find to support future increases in the market is the Cumulative AdvVol/DeclVol Line. No pullback is evident in November. That's an amazing divergence - and prospectively positive.
After some early weakness, I’m expecting next week to finish positive.
Cheers
Red
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