Click on chart for larger image
To see the forecast of 7th February 2008 for the XAO (Australian All Ordinaries Index) click on the following link to the appropriate Blog Archive:
http://donoghuecomputersystems.blogspot.com/2008/02/thursday-7th-february-2008-1127-pm-in.html
The XAO was then at 5668.3 and was breaking out downside of a rising two-week wedge. It was stated that it would probably shortly visit an area of support at about 5350.
As you can see from the chart above, the Index did indeed continue to drop the 300+ points until it visited the forecast 5350 area of support which proved to be from about 5368 to 5130.
5350 was not selected by random. Nothing in Technical Analysis ever should be so selected. Why was 5350 selected, then?
There are a number of reasons, some of the main ones being:
(1) The 150 Day Simple Moving Average was heading south. This was a strong indication that the Bear move for the XAO was going to continue.
(2) In the prior Bull Move Up, in November and early December 2006, an area of mild Resistance to the Bull’s Advance had occurred in the 5300 to 5460 area.
(3) Earlier, and most significantly, a stronger area of Resistance to the Bull’s Climb occurred in May, 2006 at 5352.10. This was the principal reason for selecting 5350 in the forecast of 7th Feb 2008.
5350 was not selected by random. Nothing in Technical Analysis ever should be so selected. Why was 5350 selected, then?
There are a number of reasons, some of the main ones being:
(1) The 150 Day Simple Moving Average was heading south. This was a strong indication that the Bear move for the XAO was going to continue.
(2) In the prior Bull Move Up, in November and early December 2006, an area of mild Resistance to the Bull’s Advance had occurred in the 5300 to 5460 area.
(3) Earlier, and most significantly, a stronger area of Resistance to the Bull’s Climb occurred in May, 2006 at 5352.10. This was the principal reason for selecting 5350 in the forecast of 7th Feb 2008.
In the buying and selling of millions - indeed billions - of dollars worth of securities around the globe, patterns reveal themselves. One of these pattern phenomena is known as the Area of Resistance or the Area of Support, depending upon whether it appears in an uptrend or a downtrend. In general it may be said:
Areas of Resistance on the way up, once broken through, become future Areas of Support on the way down and …
Areas of Support on the way down, once broken through, form future Areas of Resistance on the way back up.
Note how the forecast Area of Support at about 5350 back in March ’08 subsequently became an Area of Resistance for July, August and early September ’08.
Good luck to everyone in these most troubling times.
James Leo Donoghue
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