The Aussie stock market index XJO 200 & AUD/USD currency pair has followed the US markets bouncing off the lows hit in late March, rising roughly 1,200 points & 7c from trough to peak. With many on fintwit suggesting the lows in stocks are in & the markets are now starting to price in the reopening of the global economy.
However the price action of both markets suggests this bounce is just a counter rally within a bear market for a number of reasons. Firstly, discussing the XJO 200 recovery so far off the lows are much weaker than the sell off trajectory. The long term 52 day moving average (green line) is sloping down, as well as the price action is currently below the MA which means the index is still in bearish mode.
In addition, the volume during the sell off was much more significant than, the volume average in the counter rally so far (see chart), suggesting caution & hesitation is still present which is a red flag.
Currently the price action in the XJO 200 is still forming higher lows & is also sitting above the 10 day moving average (black line). So I’m not suggesting we will see a roll over this coming week as of yet. But instead I’m watching for signs of a reversal pattern & the start of a roll over emerging.
The AUD/USD pair below has similar characteristics to the XJO 200 price action set up overall. However the counter rally in the AUDUSD off the lows has been much stronger than the move soon in the XJO 200. This is evident as the pair has recovered to the 52 day MA rising slightly above it before falling just below it again recently.
Similar to the XJO 200 more recently the AUDUSD has been forming higher lows, however as seen in the chart below, has run into resistance of the downtrend line that started back in Dec19. For the AUDUSD pair to begin to turn bullish, we would need to see a breakout out of the downtrend line, as well as the most recent high formed last week as it moves towards 0.65c, with the price to remain above the 52 day MA line.
Given the overall setup presently with the downtrend & the 52 day MA sloping lower, I’m expecting most likely another retest of the downtrend line towards the red box shown, for a lower high formed. If this occurred this week with a breakout to the downside closing below 0.6320 support this would confirm a reversal of the counter rally seen.
In the meantime we need to wait and see how the price action plays out to determine future direction, including whether the bullish run is maintained on the XJO 200 & AUDUSD, or whether the momentum begins to fade & we see a rollover / reversal pattern follow through in the next few weeks.
The bullish thesis with Aussie stocks & AUDUSD many are suggesting may not be warranted, based on the overall price action setup of the charts, with the probabilities of a roll over to either form a higher low or a retest of the low quite high based on technical evidence. But like all trading we need to allow the charts to dictate the required actions first.
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Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.
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I am a private trader and equities investor that loves the trading and investing world, following the markets and everything in between.