This week started out slow and steady, trading in a small range bound to the 5200 level. Wednesday had a close towards the low of its range and then things got a little crazy, closing at 4983 – a drop of nearly 4%.
Thursday and Friday saw the market drop 177 points driving the XJO chart through the rising trend line. At one point today the XJO was trading at 4954, but traded up in the last 90 minutes of the session.
From the chart right you can see that the market is approaching an intersection of 2 lines, a horizontal support line and a rising Fibonacci line, I would expect the XJO to pause and perhaps consolidate at this point. The chart should reach this zone quickly, perhaps Tuesday of next week.
Of interest we can see a clear picture of divergence on the MACD indicator, this occurs when the peaks (or troughs) of the main chart are going the opposite direction to the MACD. This is generally a sign that the market is going the wrong direction and will correct shortly – unfortunately for traders the pattern cannot be confirmed until after the change of direction where the peak or trough has been fully formed. It does however give you an insight into the potential direction of the market. Divergence can be seen on a few different technical indicators.
The chart right combines the Top 200 (XJO) and the major sectors on a common base. We can still see that the Finance sector well above the XJO, with Industrials Energy and Materials lagging behind.
Looking towards the right edge of the chart you can see the size and shape of the last downturn over the last week. By far the most effected sector was Finance, with the least effected being energy and materials. The finance sector has been under pressure this month with 2 of the big 4 banks going ex-dividend, NAB will add to this downward pressure as it goes ex-div next week.