ASX 200 Forecast 2023-Jul-04
Continuation of bounce/rally
Summary
Next several days
Higher. The ASX 200 should continue moving higher for another 1-3 days before a modest retracement becomes likely.
Next several months
Significant rally. The ASX 200 will exceed 8325 points in the next 6 months.
2024-2025
A new secular bull market, defined here as a significant multi-decade advance, will commence. Long-term wave structure and price behaviour suggest it will be the greatest bull market in the history of Australian equities.
YEAR-END FORECAST: 8150
Disclaimer: at end.
Forecast
The significant rally that I have been calling for looks to be underway for Australia’s benchmark share market index, the S&P/ASX 200 (ASX 200).
Exhibit 1 below reveals the monthly high-low chart for the ASX 200.
Price action since the October 2022 low appears to be unfolding as a NEoWave Neutral Triangle (A-B-C-D-E). See Exhibit 2 below.
A Neutral Triangle consists of three directional (waves A, C & E) and two non-directional waves (B & D). Wave-C is the longest of the non-directional waves.
Per the monthly chart, it is likely that Wave-B terminated last month at 7054 points. If the interpretation of a Neutral Triangle is valid, this gives a minimum target for Wave-C of 8325 points.
If Wave-C is approximately 138% of Wave-A, that projects a target of circa 8800 points.
For the time being, we will operate on the assumption of a move to at least 8325 points by December at the latest. The faster the rate of ascent, the more likely the final target will be well north of 8325 points.
Seasonality
Exhibit 3 below reveals three daily seasonal blueprints for the month of July, All Years1, Similar Solunar Years2, and Year of the Decade3.
No matter which data series you use, July is a strong month.
But if you look at only the conventional All Years data series, which is what you typically see published in the media, you will significantly underestimate just how strong the seasonality tailwind for this July is.
Short the market at your peril.
Market internals (Vital signs)
Exhibit 4 below compares the ASX 200 with the Composite Advance-Decline Line (A-D Line), the classic measure of market breadth (how many stocks are participating in a market trend).
Tuesday 04-07-2023 data not included in the chart above.
The Composite AD Line is the cumulative total of the number of stocks that close higher, less the number of stocks that close lower, each day. More details about this indicator can be found further below under the heading Lexicon.
The AD Line has shown significant vigour since Tuesday last week. In fact, it has moved up at a slightly faster rate than the ASX 200 itself. This is bullish, even if only for the short term.
Smart money
Exhibit 5 below compares the ASX 200 with the Last Hour Index, a gauge of what participants with deep pockets (smart money) are doing.
The Last Hour Index is the cumulative measure of the net change in a share market index during the last hour of trade. More details about this indicator can be found further below under the heading Lexicon.
The Last Hour Indicator shows a reasonable amount of vigour over the past two weeks. This is bullish, even if only in the short term.
Portfolio Management
While wave structure and price behaviour point to the likelihood of much higher prices for the ASX 200 over the remainder of the year, this rally will likely be concentrated in fewer and fewer stocks as it progresses.
You need to continue running a tight ship in terms of being very selective in what stocks you own.
Disclaimer
This market letter was prepared by Daniel Goulding and represents the views and opinions of the author. It does not constitute investment advice. My work is didactic in nature, serving to increase readers’ awareness of an alternative philosophy of financial markets. I write generally and cannot determine whether an investment is appropriate for your particular needs, individual circumstances or risk profile. You should consult a financial adviser if you require professional assistance with your portfolio. I am not licenced or affiliated with any licensee. Therefore, I am free to speak my mind.
Lexicon
Advance-Decline Line (A-D Line): the cumulative total of the number of advancing issues (stocks that closed higher) less the number of declining issues (stocks that closed lower) each day. The A-D Line is the classic measure of market breadth – a term that describes how many stocks are participating in a market trend. When the majority of stocks are moving higher, this is reflected in a rising A-D Line. A declining A-D Line, on the other hand, indicates that the majority of stocks are moving lower.
Elliott Wave Principle: the idea that market behaviour is self-affine in nature due to recurrent oscillations in public opinion across different but simultaneous timeframes. It posits that price action can be defined, quantified and classified, and used to project the future evolution of price.
Price behaviour: the qualitative assessment of price action. Essentially, the largest, fastest moves are always in the direction of the prevailing psychological trend.
Last Hour Index: the cumulative measure of the net change in a share market index during the last hour of trade. The idea behind this indicator is that smart money is most active in the last hour of trading when liquidity is at its zenith, as well as being the last opportunity for them to change their minds ahead of the close of trade.
Wave structure: the quantitative relationship between different waves of price action.
Transmission time:
Sydney: 04-Jul-2023 16:07
Ljubljana: 04-Jul-2023 08:07
London: 04-Jul-2023 07:07
New York: 04-Jul-2023 02:07
All Years - the price progression averaged over the course of the calendar year for all years.
Similar Solunar Years - the price progression averaged over the course of the calendar year for all years with similar lunar phases (2023: 2015, 2012, 2004, 1996, 1993, 1985).
Year of the Decade - the price progression averaged over the course of the calendar year for all years by year of the decade (2023: 1983, 1993, 2003, 2013).