MARKETS SPECTATOR: Short-term sell down

After a bullish eight weeks, the Australian market has flinched at the 4800 mark and looks set for a period of consolidation.

After a cracking start to the new year for equity markets, it looks like the buyers are becoming a bit weary and we may be in for a bit of a pullback/consolidation period.

Mind you, this is hardly surprising after gains of 10.1 per cent in the last eight weeks.

After jumping out of the blocks this morning and briefly trading above the psychologically important 4800 level, the sellers/profit takers quickly moved in, driving prices back down.

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Source – Iress

The above chart of the ASX 200 shows the rally since the lows of mid-November. As you can see, the sharp uptrend line has been breached indicating momentum looks to be slowing.

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Source: Iress

Moving down a time frame and looking at the hourly chart, we can clearly see that this is the case.

The morning’s failed breakout from the bullish consolidation pattern indicates buyers are unwilling to support prices around and above the 4800 level.

The failed breakout into key resistance around the 4800 level is a classic telltale sign of a market that has run out of steam in the short term.

Purely from a technical analysis point of view, it looks likely we’ll see a pullback/consolidation to around the 4740 to 4750 support zone. This would correspond to the breakout level from the previous bullish consolidation zone and should provide significant support for the market.