Australian All Ordinaries Index (XAO) for week beginning August 16, 2004

What an interesting week just gone! My bias last week was that the market would head back up and eventually make new all time highs. It never! I also mentioned in my report last week “If the index falls below 3489 watch out!” Now I need to explain why I said this:

The All Ordinaries has a “Primary Cycle” of 19 weeks with a tolerance of plus and minus 1.5 weeks. This means over 70% of the time the index makes a significant decline or trough between week 16 and week 22 from its previous Primary Cycle low. From the study of cycles we also know that if the cycle is to remain bullish (end higher than it started) then it must make higher peaks in the second half of the cycle and it rarely goes lower than the very beginning of the cycle. The beginning of this 19-week cycle started May 18, 2004 at 3346.8, and it rose to its peak on August 3 at 3572.5, 11 weeks and 225 points from the beginning.

This could still be a ‘centre translation’ cycle (the highest peak happens in the centre of the cycle troughs, between weeks 9 and 11) indicating the possibility of a double bottom around 3346, certainly not a short term bullish sign.

Another reason I mentioned that if the index falls below 3489 watch out, was that the All Ordinaries index is now in the period for a decline to the "20.5-month cycle" trough! The 20.5 month cycle began March 13, 2003 at 2666.3 therefore this trough will fall between August 6, 2004 to February 28, 2005 with the low expected between 3012 and 3226 with major support at 3119. That is a minimum decline of 346 points.

As “Advanced” Students know, the one day counter trend last Thursday confirmed the high on August 3, 2004 (a time-by-degree turning date) giving the confirmation to short the market. Breaking of the 50% support level of the Primary Cycle at 3460 would indicate further weakness.

The outlook for this week is decline until Wednesday, August 18. Wednesday is a strong reversal date with all time indicators pointing for a sharp reversal; which means a change in direction which ever way the index is going.

As mentioned last week, expect the market to be more volatile and less predictable and trader’s analysis skills to be distorted. If you do trade this period from August 10 – September 2, be nimble …. Take profits often and early.