XJO dropped 30 points at the open but recovered all losses by the time of the close. Volume was above average and the close is strong. Demand had to absorb further supply which is encountered at the current resistance level. We discussed in the previous two reports that prices reached an area of overhead resistance. This is a logical level for market participants who got scared by the selloff to now take their chance and cover their longs and short-term traders to take profit from the bounce of 5800 support. Additional pressure comes from new shorts from market participants speculating on renewed weakness at the current level. Demand is able to absorb all these orders which keeps prices supported. However, prices remain at the current resistance level and the proof lies with the bulls to push higher. The Chart-of-the-Day shows the same Intraday chart of the S&P/ASX-200 (XJO) as in yesterday’s report, updated for today’s session. Prices remain in the uptrend channel and respect the demand line. However, the bounce looks tired with prices not able to break above 5940 resistance and remaining below the yellow uptrend line. Not only do we need to see a sustainable break above current 5940 resistance but also the area of overhead resistance discussed in our previous reports between 5925 and 6000. While downside pressure is eased, only a close above the 6000 level would improve the otherwise negative technical picture. Market Condition remains in Stage 3.
The NH-NL Index remains neutral. Daily NH-NL indices remain in their neutral zone and below their zero line. The Bounce Signal did not trigger. 52-Week New Highs – New Lows are making progress which helps to improve the Weekly NH-NL index. A recovery back above its zero line would give a positive message for the market.
The Secondary Market Internals are positive with the NH-NL Ration and its moving average rising. Nervousness is easing further with the Volatility Index continuing to fall.
The Breadth Indicator is technically positive. A reading of 5.8 in the McClellan Oscillator is not quite a message that bulls are in charge and a Summation Index a little above its +600 neutral line is not quite a message for ample liquidity in the market.
The Bottom Line. Prices are holding up after its bounce from 5800 support but failing to break above 5940 resistance. Prices are back at their means (moving averages) while Market Internals are largely neutral. This is one of those situations where a feathers light can tip the scales to either side. Going forward we need to see a sustainable break above the area of overhead resistance between 5925 and 6000. A Daily close above the 6000 level would improve the otherwise negative technical picture. Expect more lateral movement going forward. Trading Mode remains Protective.