It’s the elephant in the room, the bull in the china shop and it stands out like a sore thumb! The 5000 level on the ASX is THE level on the lips of traders right now. Will we bounce? Will we break? What, if anything, will happen if we do break?

In this blog today I will be giving some possible scenarios for both a bounce and break which will guide me through today’s trading and into next week.

Let me start with the weekly chart …

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It is clear based on the weekly that 5000 is a significant number, especially over recent months with several tests of 5000 - with no candles closing below it. What is apparent is the lower highs coming into 5000 this time. Something else I am noticing which has me decidedly more bearish is that there hasn’t been a big move down into 5000 like there had been the previous tests. What I mean is that price isn’t extended from the moving averages like it was in July of this year. Usually price does not remain extended from its moving averages for too long before it snaps back. This time, price has receded slowly onto the 5000 level, moving averages keeping pace, building possible momentum for a potential break this time around.

The interaction with 5000 on the daily chart below, shows just how strong it has been. What I like here again is that the moving averages are just starting to “fan” out which is good if you want to have the trend on your side.

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On the 4 hour chart …

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Right now the 4 hour has a strong downtrend, price is in the moving average sell zone and there is currently a small bearish candle at the time of publishing this post. If this candle remains bearish and small and the following candle was to break the lows then this would be a bearish signal for a likely move lower into 5000. We may see 5000 broken with ease or it may hold strong like Ali on the ropes before exploding out.

So where will the ‘bounce’ come from? There are a couple small indications that price may bounce, the first being on the daily chart where price is ever so slightly extended from the moving averages meaning one last bounce off 5000 into the declining moving average would ultimately set the scene for a strong push through the floor. The second indication will come from the 4 hour chart and how price interacts at 5000 in the next day or so. I am eagerly watching this level for if a higher low were to form then this would signal that brief bounce up on the daily.

The analysis in this post is based on technical analysis alone. I don’t have a feeling, I don’t listen to commentators for this view and I don’t put my heart into this because it is my home index. I look purely at the facts presented to me on the chart at this moment in time and look at the highest probability based on these facts. It’s how I trade, it’s what I do and I love it.