The Dow and the XAO

  1. 6,975 Posts.
    G'day folks,

    A few days ago, when there was much chatter of the Dow tanking, I said it wouldn't and that profits would improve with the economy and the Dow would rise. I am not looking for applause here but wanted to explain some of the reasons for my thinking.

    If you look a Dow chart (daily or weekly) you will see that after the plunge last September it made a higher low at the end of January and then a higher high (over the end of Oct) in Mid March. This was followed by another higher low at the end of April/early May indicating we had a true reversal on our hands. What we have seen since is the confirmation of that low, first with the initial move last week which has been followed up by the last two days of activity.

    What the technicals were saying to us were 'yes we are in a recovery, expect profit regeneration to lead the way'. Now what we really need is for the Dow to break over 10,500 to break above the long term down trend and then above 10,650 to better the last high of mid March. Then we really will be cooking with gas.

    What does this mean for the ASX/XAO? Well our market has been behaving differently to the Dow, we made a new all time high in March and have been trending down since with no sign of a turnaround. However, we have been approaching a major support zone and it is unlikely we will continue to ignore the market signs coming out of the US for much longer so get ready for a turnaround.

    Gold was off three bucks or so last night as confidence in the economic recovery gathered strength. Does this mean the end of the gold run then? Well it looks like it may be but the fat lady has not taken a bow yet so keep an eye on it just in case.

    Have a good day - you should be long and not short.

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