The All Ordinaries pushed through a barrier – but is this a permanent break?

The bullish case for the All Ordinaries Index (XAO) continues to unfold – it’s great to see some positive news in the market.

Let’s have a look at the weekly price chart below (dated March 5, 2014) from a technical point of view. The key point of focus is the well defined zone between 5000 and 5200.

Up until recently this was a significant hurdle that the market could not overcome and is commonly known as a resistance zone. Eventually we have seen prices break up and through offering bullish momentum. As is commonly seen this same zone of resistance now becomes an important area of support as well as being a staging point for a possible continuation of the bullish trend higher.

Should this foundation hold then the next major move to the upside is a target of 5900. This would be our minimum expectation with even further upside potential ahead if more bullish patterns start to take hold.

As always we need to assess global markets alongside our domestic picture. Rarely will Australia diverge greatly from its Western counterparts, especially the US, which is continuing to punish the bearish pundits calling for a major reversal of form.

Yes, the US markets are heavily over extended but the market pendulum has always shown itself to swing to extremes in both directions. In early 2008 many analysts suggested global markets had little leeway to fall further, yet down they went for many months. The nature of markets, or should we say the emotions of market participants, mean that we will always see higher degrees of extreme price momentum in both directions. Whilst we can always look for signs of faltering, the only real determinant of trend is price action itself. Currently US markets are very strong and there is no indication of that trend reversing.

So with the US trend strong, and the Australian market showing positive technical traits, we should retain a bullish positioning. However, whilst it’s easy to focus solely on the positives, good traders and investors are also aware of when their analysis will fail and be on alert to take defensive action.

The basic measure with the XAO is a penetration back below that support zone, specifically back and through 5000. This would certainly suggest near term targets will not be met and that the market will require some more sideways foundation before it can start higher.

Nick Radge heads a team of technical analysts at The Chartist, reviewing individual stocks and markets. AFSL 288 2000.

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