Market Comments, week ending 27/11/09

The market is currently in a counter trend channel (see bottom chart) within the main uptrend channel which began in early March. That’s the dominant force in the market. Chances are that the market will resume the uptrend in the near future as the first half of each month recently has been strong. But – a break of the red-dotted channel line and a drop below 4515 would be very bearish.

The Bollinger Band chart (at top) provides another way of conceptualising the trend. The mid-line shown above is the 50-Day Simple Moving Average. Above and below are three lines each is One Standard Deviation further away from the mid-line. Since this bull rally began in early March, the XAO has spent most of its time above the +1 Standard Deviation Line. This is the Buy/Sell Line. Pull-backs are clearly shown dropping below that line, and the resumption of the trend has been signalled when the XAO climbed back above the +1 SD Line. Only once (before Friday), has the XAO fallen below the Sell Short Line, which is -1 Standard Deviation below the 50-Day SMA. That was not a decisive break and the XAO quickly recovered. It also dropped below the -1SD Line on Friday. If it recovers quickly, as it did in July, then the probability of the major uptrend reasserting itself is strong. If the XAO continues to drop below that line, then this market is in trouble.