The close on All Ordinaries and ASX200 on Friday last week, 11th December, took both of the ASX’s main benchmark indices to the bottom half of a significant support zone. On the All Ords between 5030 and 5175, and on the ASX200 between 4950 and 5050.
The two and a half year daily chart of the All Ords below shows this key support zone and the current All Ords ‘price’ resting near the floor of the zone. It’s a significant support zone for a number or technical reasons:
- The 50% retracement line of the 2008 bear market runs just below it on the All Ords and straight through the middle of the zone on the ASX200. A 50% retracement area is typically a strong support and resistance area.
- This has been an area where the All Ords has found support on no less than eleven previous occasions. Similarly for the ASX200.
- Before becoming a key support zone this area was a resistance zone no less than six times. A strong resistance zone becoming a key support zone is a text book technical analysis trait.
- The support zone coincides with the lower half of a down trending channel as shown by the red trend lines on the chart.
Furthermore, our medium-term market timing system provided a medium-term horizon exit signal on the All Ords on Friday 4th December to exit the market on Monday 7th December with medium-term horizon positions.
Following Friday’s lead on Wall Street this significant support zone is going to get a really good test.
How can this play out?
Firstly, if the support zone doesn’t hold and the All Ords falls below for just one or two days that’s OK. If the All Ords falls below for more than a week then that would be cause for concern of the weakness lingering around a bit longer and falling further.
Secondly, the All Ords could fall further and find support at the lower red trend line of the down trending channel. This would be around 4870 on the All Ords and around 4780 on the ASX200.
Thirdly, support does not hold at the lower channel line and the All Ords falls even further below the lower channel line. The next support zone below the key one being discussed is between 4525 and 4615 on the All Ords and 4500 to 4625 on the ASX200.
On the other hand, if support holds despite Wall Street’s weak lead from last week, this would re-inforce the significance of this key support area. The odds of this being yet another low for an upward thrust would increase greatly.
Keep an eye on the scenarios just discussed as this coming week plays out with an announcement on interest rates in the United States and the continuing negative news on all commodities, not just oil. Will the support zone be tested and found wanting? Or will it withstand the onslaught of downward pressure over the next few trading sessions?