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Fade the Australia rally

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Is this current rally the rebound? We don't think so.

This burst of bullish activity is a relief rally rather than a change in trend direction. Note that the market can rally to 5050 to the value of the downtrend line and still remain in a long term downtrend.

The XJO Australian Index is using the upper edge of the down sloping trading channel as a support level. Market volatility rules.

Note that the market can rally to 5050 to the value of the downtrend line on the weekly chart and still remain in a long term downtrend.

A move below 4950 gives a technical target near 4560. This is below the head and shoulder pattern target projection.

Here's the bearish factors for the XJO.

•The XJO is using the top of the downtrend channel as a support level – but its still sliding down this down sloping line

•Support near 4950 has been tested and retested. A sustained fall below 4950 confirms the continuation of the downtrend.

•The long term GMMA has not turned upwards and nor has it developed any bullish separation. Investors are not supporting the rallies, but they are happy to join the selling

•A fall below the support near 4950 has a downside target near 4700 based on the lower edge of the trend channel.

•This downside target is near to the head and shoulder reversal pattern target seen on the weekly chart below.

This is an economy and market, in serious trouble.

The weekly XJO chart delivers the message. The head and shoulder pattern on the weekly chart sets the downside pattern target near 4600. The fall below support near 4950 confirms the downside target near 4600.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com.. He is a regular guest on CNBC Asia Squawk Box. He is a speaker at tradingconferences in China, Asia, Australia and Europe