Still a reality that Wall Street and DOW Jones Industrial Index leads the world stock market. If Dow is significantly move up or down more than 150 points then the rest of the world will follow the movement. (If Dow’s movement is less than 100 then condition of local market will have higher impact)
Wednesday, 19 Nov 2008 – Dow Jones closed 5 years low after tumbling 417 points to 7997. This 5% drop – as expected – followed by the rest of the world including Australia. Thursday, 20 Nov 2008 – ASX down 127 points to 3515, a level not seen since 2004
The next day, the Dow make another dramatic fall just in the last hour of trading to close 11 years low after shedding another 445 points to 7552.
And again as expected, the index of the world follow suit. ASX is down as low as another 132 points to 3201 – a 5 years low. Another bad day in the market ? Wait a minute, look up the chart !
Yes, ASX has beaten Dow Jones ! Just after 1 o’clock – as if every trader and investor in Australia have a magic lunch and back to trade with new attitude – the index just climb and climb without a breather and finish in positive territory with plus 79 point. Total swing of the day is 211 points or around 6.5% ! I repeat, despite Dow Jones fall more than 400 points, ASX is up 79 points ! This is very very very rare occasion Once, ASX pull this bounce, the rest of Asian and European market follow suit and refuse to follow the Dow !!
So what’s really happened ? I search and search what the occasion locally, regionally and globally – nothing happened at that particular time – no news , no announcement, no nothing. Is it really the magic lunch ? We better send everybody to the same restaurant every day then…. After I open my historical chart, I found the very answer: THE POWER OF TECHNICAL ANALYSIS. Believe what you see below…..
First , around 2000-2002, we can see very clearly that there is a resistance around 3200 point marks. After failing to get trough that resistance, the market heading down until 2003 when it start the long bull journey to all time high in 2007. This significant resistance obviously become strong support during the retracement. What a simple technical analysis !
Secondly, if you draw a fibonacci retracement from 1987 – Yes, it was the Black Monday in Oct 1987 the biggest stock market crash to date – to all time high in 2007, we can see approximately that 3200 level is on 61.8% retracement. As you know 61.8 is the strongest level of all fibonacci number.
Coincident ? You may say so. But this is exactly what technical analysis is all about. People try to search the reason to buy. This time Technical Analysis with simple support/resistance and fib level give people exactly that. And if a lot of trader / investor (I mean really a lot) apply the same analysis above, then it become self fulfilling prophecy – that’s the power of technical analysis.
If you only understand just a part of what I write above, feel free to go to “Share Trading By Me“, a fast growing website, where all stock market related aspects are explained in plain English for the very beginner to advance trader/investor. “Have a look !
In the mean time, happy trading and don’t forget buy your protection to avoid capital loss ! I’ll pop my champagne and celebrate this Australian trader achievement…..
‘Til the next article !
— The Smiling Investor