Technical Analysis - Dow Up but All Ords Crawling

There has been a lot of talk of a two speed economy in Australia but perhaps there is a bigger two speed economy when we look at the world as a whole. The developed world which has slumped during the GFC is showing signs of recovery, slowly but surely. The high-flying GFC defying developing economies led by China and dragging a resource economy like Australia (it's more relevant here to classify Australia as a resource economy than a developed economy for our current argument), are showing signs of braking due to overheating. Let's look at our usual comparison of Gann angle charts for Dow and All Ords to compare.

Looking at the Dow first, today's news announced the Dow has doubled its GFC low, meaning it's now over 12000 while the GFC low was 6000. This has much less importance though than the half way point between the Peak and Trough of the GFC. Roughly, the Peak-Trough is 14000-6600 = 7400. Half of this is 3700, but clearly, the DOW is way above 6600 + 3700 = 10,300. So the half way point is clearly broken and not relevant now.

What is interesting from the Gann angles is that the current rise in the Dow sits very nicely at the Gann +10 line and has been doing so since mid 2010. The mid 2010 point, from our previous analysis, was where it looked like it was a double top. Since then the Dow has powered ahead. There are no visible signs of breaking any angles.

Going on to the All Ords, our previous review stated that a triple top has been confirmed. This was the right call but since then it has reversed quickly. The result for the All Ords is however a bit lack lustre. Since the reversion from the triple top, the All Ords has climbed but only very slowly. At the moment it is at the level similar to the peak of the triple tops between Oct 2009 and mid 2010. In fact the current All Ords is hugging the top of the Bollinger Band and there is no evidence of violating any Gann angles soon.

So what do we make of all this? Though the All Ords is moving very slowly, both All Ords and Dow are still on a very firm positive trend. Unless there is any reason to doubt, we can play the market with the continuing trend but keep your fingers on the button since it can turn absolutely at any moment.

Technical Analysis - All Ords Double Top, Dow faces Gann Resistance

All Ords Double Top - Dow faces Gann Resistance

This is very exciting times, not because of my investing position, but because of what's coming ahead. I will explain why it is time to go short. But before that, I'll candidly reveal that for the past 2 weeks I went long thinking that the correction was minor and will turn upwards as we have seen previously over the last few months. So that was my mistake, not too costly if I get out soon, because the pattern after just last week is almost a classic double top setup.

Anyone who has been following David Bowden or Gann's techniques realise the double top or double bottoms are among the easiest signals to trade because a few things need to occur before we can conclude the double tops or bottoms.

The Aussie All Ords has just form a double top at the end of last week, in fact it is on the down-leg. The double top setup consist of the first top, around early October, then hit a low around November and climbed to a top in early January. Since then it has declined with full force and the current position is slightly lower than the tip of the double top. This shows the second top has a down leg which has broken an important support position. If this double top is like most others, given current position, the only way is an emphatic downward move. If it goes a little further to break the brown Gann angle support, then it will go down further.

Interestingly, the Dow Index does not show a double top. What it does show is that it had just broken back down the Gann-5 angle. Not too long ago, the Dow powered upwards and broke the Gann-5 angle, but that was short lived. It then reversed and came down to break the Gann-5 angle and now it seems the Gann-5 has become a strong resistance. Although we should wait a while, and Gann himself would suggest we wait, the trend is now on the downwards.

So to play safe, we can wait a week or so to have confirmation of a major correction to come. Those who have the risk appetite may choose to go in soon.