Noel Campbell
Noel Campbell

Many investors right now will be watching the equities markets with baited breath, wondering what is going to happen next!?! Over the past three to four weeks the SPI200 (SPI) has threatened to push higher, taking the ASX200 and the majority of its constituents with it. As a general rule, the futures market leads the physical (cash) market when it comes to stocks and stock indices. But each time the SPI threatens to break away, the sellers come back, albeit with only temporary success.

Back in early October, in Trading Tutors Newsletter Ed. # 178
I indicated that my analysis was based on the belief that the market would move up and take out the May top. This has come to fruition, but it hasn’t exactly been the break of the century. Many a trader, or more particularly a ‘speculator’, might have thought the top in early November was worth ‘having a go’ at for a short, or to lock in some profits on the long side. The early November top was always a date to watch coming from the May top.

Chart 1 – SPI200 Futures Daily Bar Chart

click chart for more detail

In Chart 1, I show the recent market action on the daily bar chart for the SPI200 with a line running across the chart at 5355, the highest close in May. The market over the past month has dipped and gyrated, but only once ‘closed’ under this magical number. On closer inspection though 5358 is actually the magical number but I’ll leave you to work that one out for yourself. However, 5355 was only a false break back below the May close, which is nothing to get too concerned about for now.

You can also see that on the chart I’ve marked the recent rising lows following the November 7 high, another sign that the market is getting ready to break away to the upside. However, trading can be like taking part in a street fight and things can get a little nasty, so don’t be surprised if we see a little bull trap to the downside before the break away occurs. But it also pays not to be too paranoid when trading. This thing may just break away and off we go, and forget all about the trap!

I’m looking for much higher prices in 2007, but it will most likely end in disaster. However, the next stop for a trader to keep an eye on, if this market does break to the upside, will be around January 6 to 11 or thereabouts. It could certainly take a short rest at that point. All in all the pressure is building for both the bulls and bears, but as long as prices stay above 5355  I know what team I’m leaning toward over the medium term.

This being my last article for 2006 I would just like to wish all of our readers the very best for the upcoming festive season and a happy and prosperous 2007. Thank you for your support.

Until next year… 

Noel Campbell