@chesku wrote:Technical Analysis view on ASPI – where is it headed?
The All Share Price Index (ASPI) dropped sharply in the past few days with the index falling to its lowest on Thursday to 6,282, which is a 5.6% drop year to date and 7.4% drop month to date. Market analysts have been predicting the overheated market to correct over time but most of them did not expect such a dip within such a short time. While the ASPI picked up today, my view is more on the negative side based purely on technical analysis. Other market participants too seem to have mixed feelings about market performance going forward. The market reversal that took place can be explained by technical analysis as well.
“Head and Shoulder Top Reversal Pattern” is the best known and most reliable of all major reversal patterns according to technical analysis. This pattern contains three consecutive peaks with the middle peak (head) being the highest and the other two peaks (shoulders) being low and nearly equal. The lowest point (trough) in between the peaks can be connected to form a support level, or a neckline. When building such a pattern, there are few key points to identify it. When analyzing the ASPI we can find most of those key points in the past two years.
Go through the graph noting the following key points.
1. There was a prior up trend, which started from 2009 December (Red line) during which time the index hovered around 3,000 to 3,200.
2. In the left shoulder (ASPI value close to 7,150) there was a heavier volume followed by a corrective dip to the next trough (October 2010).
3. The Head of the pattern, rallied to a new high on lighter volume in February 2011 when the index reached 7800.
4. New trough (July 2011) came below the previous peak (7,150) at left shoulder. And also it approached the previous trough at around 6,250 in November – December, 2010.
5. Third rally or right shoulder was at lighter volumes in August 2011. This right shoulder (7,100) failed to pass the Head.
6. This month (October 2011) the ASPI started to go below the neck line. This completes the head and shoulder pattern.
Since, the ASPI met all the above points in the head and shoulder pattern; technical analysis indicates the next down side index value could be at around 5,200 for the ASPI. However, we might be able to see a little bit of support at around 6,250, at which point the index might pick up slightly. Since this is a not so strong support level, and as the ASPI just completed a Head and Shoulder Top Reversal Pattern, we can expect the ASPI to go down to 5,200 levels by end of this year.