Deja Vu For The All Ords

12/16/05 09:39:11 AM

by Arthur Hill

The current setup in the All Ords looks similar to the June-July flag and breakout that preceded an 8% surge.

Security: $AORD
Position: Hold

First, let's look at the June-July setup. The Australian All Ordinaries Index ($AORD) was testing resistance near 4270 and consolidating in early July. The consolidation pattern extended for four weeks and formed a falling flag. These are bullish consolidations and the breakout at 4270 signaled a continuation higher. The index broke resistance and never looked back.

FIGURE 1: $AORD. A move below 4500 would raise the prospects of a larger double top.

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

Flash forward to December and the index is once again trading near resistance and consolidating. The consolidation slopes down and looks like a falling flag. A move above 4630 would break the falling flag high and forge a new high for the index. Just like in July, this would be bullish and open the door to higher prices over the next few weeks.

While a breakout would be bullish, I am concerned with a negative divergence in the relative strength index (RSI). The stock managed to equal its late September high, but the RSI formed a lower high. This shows less momentum than before and could come back to haunt the index. RSI is currently trading around 50 and still gets a bullish bias as long as it holds above 50. A move below 50 in RSI and below 4500 in the index would be bearish.

A move below 4500 would raise the prospects of a larger double top. This reversal pattern would not be confirmed unless the index breaks the October low at 4277.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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Deja Vu For The All Ords

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