In my last update I highlighted how the index had recently broken above the top of my resistance band defined as 5403-5425, an outcome that triggered an upgrade of my recommendation to one of a strong buy. My fresh target price of 6175 remains valid.
Since that note the ASX 200 has outperformed, having risen over 150 points, or 2.9%, throughout the holiday-shortened fortnight. Many of the challenges facing the Australian economy remain, however, the currency is still stubbornly strong. China continues its necessary slowdown, the mining investment boom has slowed, and, increasingly, commentators believe (mistakenly in my view) that interest rates are set to rise. Perhaps this breakout to a new and higher trading range is simply a case that all this ‘worrying’ news is more than priced in, and investors had become overly cautious. It may also send a signal that the cloud over the mining sector the past couple of years is lifting.
Whether the Australian share market becomes the leading indicator to a fresh breakout by other global indices, or is a one-off unique situation, remains to be seen. As the chart clearly highlights, however, there is little in the way of immediate resistance to inhibit the near-12% advance required to fulfill my new target.
Recommendation: buy or stay long. Target 6175. Stop-losses can be applied on momentum below 5200.