July 4

Market Update for Mon 7 July 2014

Aggressive buying is pushing prices higher and  XJO continued its rally for the third consecutive day. Prices are stalling just below 5535 resistance. The chart-of-the-day shows beautifully the trading ranges XJO has been in since the beginning of the year. The 50% retracement in an area between 5450/65 remains a key pivotal level which is now important support. Personally I don’t want to see prices to slip below 5470/80 for the uptrend to continue. Resistance at 5535 has to fail for a new multi-year high. Watch for an upthrust above 5535 with rejection. Such price action at current levels would be a bearish sign. Market Conditions are in Stage 1, all trends up.

The 161.8% extension suggests a possible target of 5640. I am not suggesting or forecasting that XJO will get there or will get there in one straight direction. Anything can happen and markets never go up (or down) in one straight line. There will be profit taking, re-test of support levels, maybe a pullback, a bit of backing and filling before the next upmove, anything can happen. While the possibility exists, there is nothing which guarantees us that XJO will make all the way to 5640. 5640 would still be within the confines of a rising wedge on the Weekly chart and a next level of resistance. For now we will take care of that resistance when we get there.

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All NH-NL indices are in bullish territories and at multi-month highs. New Highs expanded while New Lows are only a handful. 1-Month New Highs are at 182. 200 denotes a level of extended readings which we last saw in the rallies in July 2013, October 2013, February 2014. Readings above 200 could only be observed in January 2013. My data goes back to January 2011. ASX NH-NL Index The Secondary Market Internals confirm the uptrend with the NH-NL Ratio in bullish territory and the Volatility Index in its hole. The NH-NL Ratio (blue line) is in oversold territory. It is not unusual for strong rallies for the NH-NL Ratio to remain in oversold conditions for an extended period of time. For as long as the NH-NL Ratio remains above the 50% line in bullish territory higher prices can be expected.ASX Secondary NH-NL Index The Breadth Indicators shows initiation with the McClellan Oscillator piercing above a +30 reading and the Summation Index rising. Such initiations show strong demand and suggest higher highs will be made. Breadth Indicator The Bottom Line. Strong buying pulse suggests sustainable strength in the market with higher highs ahead. But nothing goes up (or down) in a straight line. Prices are at resistance levels and a pause or pullback at current levels would not be anything out of the ordinary. “All in gear” and Trading Mode remains Aggressive.