Charting Wisdom – Aussie Market Report 18 Oct 18

Charting Wisdom Aussie Market Report 18 Oct 18

Aussie Market Report 18-October-2018

It only took 7 trading days to reach the 5962.9 target level from the Flag pattern I spoke about in my last update back on the 2nd October. We didn’t just reach it we smashed well below it on the day and continued to push lower in the days which followed. In fact we extended the Fibonacci 161.8% of the first leg down or the Pole of the pattern. The bottom on the 15th October was 5796.0 and the Fibonacci 161.8% extension was 5795.1 just 0.9 of a point shy from being spot on.

Given this 161.8% extension down of the first leg, made me think of Elliott Wave which some of you may be familiar with. Put very simply, Elliott Wave Theory states that the direction of a trend is broken down into 5 waves. Waves 1, 3 and 5 are impulsive waves and waves 2 and 4 are corrective waves. Generally after this 5 wave move there is a 3 wave A, B and C corrective move before the next 5 wave move starts again. These waves can be broken down into much larger or smaller degrees.

If we have started a 5 wave move down then we can clearly see wave 1, 2, 3 and we are establishing wave 4 now. This would mean that once wave 4 is completed wave 5 will start its move down. This will take the Aussie market back down below the recent 5796.0 bottom and lower meaning that the recent move down hasn’t finished yet and is still playing out. Currently this move down is following the pattern, price retracements and extensions of a nice clean Elliott Wave move.

I must confess that I am not a master of Elliott Wave, but I am very familiar with it, and will use it if it’s setting up in the classical way and it’s easy to see. This is when I believe it’s at its most useful for analysis and prediction of targets etc. and at present it’s doing just that. After the 5963 target, I was watching with particular interest the 5795 target and as you can see that’s where we stopped and reversed. If you have spoken with me over the last week you would have known about this.

Now we are looking for confirmation that wave 4 up has ended and there are a number of reasons that we may be doing that around here today. First of all today’s high was 5942.8.

  • There is a long term up trend line, best seen on a monthly chart, that starts from the bottom in Feb 2016 and runs through the Nov 2016 bottom and again (very close) to the April 2018 bottom and as of today this trendline cuts through 5934.3 only 8.5 points shy of today high.
  • The 25% retracement (5940.4) of the whole move down from the Aug top (6373.5) to the 5796 bottom.
  • The Fibonacci 38.2% retracement (5950.0) of the last range down.
  • Looking intraday (30 min chart) the first range up (A wave) from the 5796 bottom was 88.7 points add this to the bottom of the swing down (B wave) 5853.2 sets up an A=C target of 5941.9.

Here there are 4 reasons which are very close to today’s high which could be reasons why we may find resistance around here. If this proves to be the end of Wave 4 up then we shouldn’t have to wait too long before Wave 5 down kicks in.

Australian Stock Market (XJO)

Australian Market (XJO) Daily Chart – last 5942.4, Thursday 18-Oct-18

Australian Stock Market XJO 191018

Australian Stock Market XJO price candle chart 191018

Above on the 30 minute chart you can clearly see the first move up from the bottom (5796) on the 15th to the top on the 16th being wave A. Then the move down being wave B and then the target for wave C (being equal to wave A) 5941.9. You can see just how much the market tried to push higher yesterday (17th) and today but greatly struggled to move much above 5940. We have been clearly finding sellers at this level.

Wave C can extend 161.8% of wave A, which is a possibility, then this gives us a target of 5996.7 which also happens to be the 50% (5997.6) of the last leg down and the next real potential resistance level I am watching if we break above here (5942.8).

Generally wave 4 should be not much more than the Fibonacci 38.2% retracement of wave 3 and we are very close to this here today. I will work out potential targets for wave 5 once wave 4 is confirmed which could be as early as tomorrow if we get a down day confirming today as a top. We only need to trade down below today’s low (5914.9), a fall of 27.5 points, to form a down day.

Knowledge before the fact is when it’s the most useful.


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About Shane Langham

+61 (7) 3338 3838 Email Profile

Shane has passionately followed the markets since the age of 16, and has been an adviser in the financial markets since the year 2000 having worked for a range of firms, including one of the world’s largest investment banks as well as smaller boutique broking firms. Shane is also a past Vice President of the Australian Technical Analysts Association (ATAA) Brisbane, a position he held for 6 years.

Shane is currently a Senior Private Wealth Adviser at Phillip Capital and can assist you with all of your stock market needs - whether you are looking to buy or sell shares, set up a portfolio, grow your SMSF, protect your portfolio, or trade the market. He specialises in technical analysis, risk management, and options trading and focuses predominantly on the Aussie markets.

Shane also writes two key market related technical analysis reports (including a free weekly Market Commentary Report), designed to give traders and investors the best chance possible to get the results they are after from the markets. To find out more about these reports please click here.

Shane lives on the sunny Gold Coast with his wife and two dogs. He loves chatting about the market with other like-minded people, so don’t be afraid to pick up the phone or send him an email.

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