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As with all global share indices, the SMI established its major low in March 2009. Since it broke cleanly above the line representing a 50% advance from this low – which occurred in August 2012 – the index has been targeting 8470, a level that would complete a 100% rise. This target was fulfilled in January this year, and retested again last month. The SMI is currently residing around 100 points beneath this major resistance.
Despite this major target having been achieved, the behaviour of the index following its most recent retest is sending positive signals. Last May, as the SMI approached this resistance on its first attempt, a rapid correction took place that eventually measured 12.5%. After successfully hitting 8470 in January, the index again took fright, rapidly falling 6% soon afterwards. However, following the latest retest the index has traded calmly and shows no obvious signs of intimidation. This bodes well for the future. Any break above 8470 can now be used as the trigger to buy the index.
Recommendation: neutral. Buy on a break above 8470. The index will then trade immediately to 8674, before pausing. Ultimately, longer-term targets are beginning to emerge in the band 9390-9520.