It's been a tough few years for share investors but for the first time in a long time there is some good news coming from the Australian sharemarket.
As this week's analysis provided by Alan Clement, an international futures trader and member of the Australian Technical Analysts Association, shows, the
S&P/ASX 200 Index has been trading within the symmetrical triangle formed by the two dashed red lines on the chart since 2009.
In heavy selling in mid-2011 the index was sent tumbling from the upper boundary of the triangle to the lower boundary in one quick move, which ultimately exhausted the sellers and marked the low point for the year.
Following that fall, the market spent seven months consolidating in a tight wedge formation, only to fall through the bottom last May.
Buyers then quickly stepped in following the breakdown and have since pushed the market higher to recover almost all the losses, turning May's selloff into a "higher low", which Clement sees as a bullish sign.
At present the index is testing resistance at 4370 and actually broke through this level last Friday. However, we may see a short-term pullback as the market struggles around this resistance point.
"Ultimately, though, the market looks poised to break through the resistance and make for the upper boundary of the triangle, currently at around 4780," Clement says.
While Australia's economy is better than its US counterpart, Clement sees two factors holding our market back as Wall Street nears 2007 highs. The first is a high correlation with commodities markets, which are in consolidation phases of their own at present, with many commodity prices weakening this year. The second is the high Australian dollar, which stifles overseas investment by making stocks comparatively more expensive.
Those factors could impede upward momentum in the market. If and when the S&P/ASX 200 reaches the upper boundary of the symmetrical triangle there is more likely to be further consolidation within the triangle between 4700 and 4100 for about the next six months than an immediate move to the upper resistance level of 4900, Clement says.
Keep an eye out for a breakout from the triangle in either direction before the year's end, as that would demand a rethink of strategy. Investors can gain exposure to the ASX 200 Index via CFDs, the SPI futures contract or
exchange-traded funds such as State Street's STW.
This column is not investment advice.