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FTSE All-Share (ASX)

On 10 January we remarked that the UK’s broadest market index had to find support at 3080 or it would test 2,760, an aggressive call for a fall of some 12%. Our bearish expectations were borne out with the index hitting a low of 2,730, some 12 days later. Subsequently we have seen a bounce and a move to try to retest this level for support. What should we be expecting from the portents of the charts now? Bears will be awaiting a clear break below 2,730 with any such move set to target 2,540, the 50% retracement level of the 2003 to 2007 bull market move and also a level around which the index has congested and found both support and resistance during late 2001 and early 2002, and again in early 2005. We are obviously now in a bear market characterized by lower lows and lower highs, on this broadest of measures it is clear that the index would need to climb and close back above 3,121 to negate this condition. Ahead of any test of this level the 50-day average, currently at 3,000, would be expected to attempt to constrain the market. Until such moves occur we must expect further weakness to test support rather than advances testing resistance.

Nikkei 225 index (NIK)

Last time we discussed the Japanese bellwether index in mid-January it stood at above 14,000 and we were bearish suggesting that it could drop to 11,715. In the event the index subsequently dropped to a low so far of 11,691 last week. That has been a 17% decline in a little over two months against a backdrop of general commentary that was pretty much all bullish at the start of the year. If only they looked at the technicals first! So far, so good, but where to now? Panning out, the chart shows the index has reached an interesting technical level. We can see that it has tested support from old congestion levels which were previously highlighting resistance in 2002 and again in 2004 and 2005, and it has also dropped to test the nearby upward sloping support trend line drawn off the lows seen in 2004 and 2005.

Equally important, 11,688 is the 61.8% Fibonacci retracement level of the 2003 to 2007 up move and would be the last correction level expected to hold up if the up trend were to resume. So it’s now or never, bounce from these levels or risk a retest of the 7,604 lows. For the brave this is the time to start buying in with the safety net of a close stop. However, any move and close below 11,450 would scotch these upside expectations.