Last Thursday, a "line in the sand" was established by the Australia 200 index at 5108, and the potential for a rally highlighted. Here's how it looked last Thursday:
The long awaited Santa Claus rally arrived. Here's how the picture looks now:
The chart shows the rally has lifted the index back to the 5400 level, a 61.8% retracement of the November fall. This level acted as resistance on two immediately preceding occasions. What are the likely paths from here?
The MACD continues to widen, suggesting increasing positive momentum. The RSI is in positive territory, yet has not reached overbought levels. These indicators combined suggest there may be further steam in this rise. However, given the coincidence of the resistance and the 61.8% level, some caution is advisable.
A fall back through the 50% retracement level around 5342 would suggest the current rally is corrective, and the trend is down. While it remains above this level, there is potential for further gains. One prudent approach for traders already long may be to take profit here, and re-enter longs if the index trades up through the spike high on November 26 at 5420
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