Far East Capital Newsletter
Correction digested, the charts give us positive guidance
18 Feb 2018

In This Issue


Correction digested, the charts give us positive guidance

We have just survived a wicked correction as opposed to the beginning of the end - at least as far as ASX stocks are concerned. The All Ords had been exceptionally strong for a couple of months, surging way above a long term uptrend that commenced in early 2016. It had blown through the upper resistance line that keeps an uptrend from getting out of hand, but the effort to stay above this line became exhausting. The buyers dried up. Sensing this, the traders could see the path of least resistance was down, so we had our correction. This has taken the All Ords close to the support line, but falling a little short. So, it could fall a bit further whilst staying within the two year uptrend.

A very similar pattern occurred with the Energy Index, though in this one the fall has only taken it back into the uptrend, just below the resistance line. There is precious little room for this Index to move higher, so it looks like it could crunch down further before resuming a sustainable uptrend.

The Metals and Mining Index gives a different picture. You need to look back three years to identify what chartists call a rising wedge, beneath a long term resistance line. Some weeks back I referred to a breakout above the resistance line that signalled a game changer. I said that we should expect that action to be above this line in what will be a much stronger market. Immediately prior to this we had seen the first push through this resistance line, followed by a healthy pullback, then a very aggressive surge that seemed to say “game on guys”. The correction of recent
weeks was a pullback in the order of magnitude of 50% of the previous rise (a common move), and last week we saw a surge through the pullback pattern.

Of three indices, the Metals and Mining looks the strongest and the most expansive. As I said last week, the wicked correction was a great buying opportunity. 

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