Market swings mirror history


Published in the Geelong Advertiser, January 2013 by Dale Gillham

The Australian share market has now risen for ten straight weeks, and while this news is exciting we need to ask if it is sustainable.

Traders work on the premise that history repeats, so we analyse the future direction of the markets by studying the past.

If we look at the current rise in the All Ordinaries Index we see that since the low on November 16 last year, the Australian market has risen over the 46 trading days to January 24, gaining 482 points or 11.06 per cent in price in that time.

We have not seen a rise of that length in time since February 2010, when our market rose 12.6 per cent before falling heavily in May 2010.

Before that was the move up out of the long-term low in March 2009 in which the Australian market rose to about 26.0 per cent as at the open on day 46.

So what does this tell us? First, that sustained strong rises such as this are not common.

You will also find that even strong bull markets rises like the current one are rare and generally last about seven weeks before a down move occurs.

The market is travelling at a pace that is 40 per cent slower than 2009, and is more in line with the speed of past longer-term bull runs.

Unlike the run in 2009, the current run may not fall heavily when it does fall.

So what do we expect in the market? 

As you could guess from the above, we are now entering into a period that is rare for our market, and I would not be surprised it we see our a fall for one to two weeks before it climbs back up.

If the market does fall, my current target is that it will find support between 4600 and 4650 points before rising again. 

If the fall is longer than two weeks and larger in price, I will need to re-adjust my thinking on how high the next bullish move will rise, but for now I still believe our market will rise to between 5000 and 5200 by March or April.

It is also possible our market will keep rising into June but, for now, I would like to be conservative until the market does fall and I can get a more accurate picture of how strong the future will be.


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