ASX200 Analysis: Is a Correction or a Crash coming?

Obviously we had a double top in our market at 5425. The market pushed up strongly since April and has been due for a correction.

Correction or Crash?

I presume this is a fair question given the market reaction at the start of the year and the high volatility since.

Correction : Yes, very likely

Crash: Possible but unlikely

I don’t believe the trend will change – a double top doesn’t usually change the trend- and so far this is what we can see on the charts.

Let’s have a closer look at the daily chart of ASX200 and some popular technical indicators – see chart below:

On the chart there are two sets of  Fibonacci retrenchments:

• One from the low on the 10th of Feb  – considering this as the major trend and
• Second one from the low on the 8th of April – considering this a minor trend

To change the trend (i.e. crash scenario) the ASX 200 index should fall below 0.618 Fibonacci level of the major trend -which means 4980 level.

Current correction I believe should find support at 5130- 5150. This would be 0.382 Fib level of the major trend or 0.50 Fib level of the minor trend. Also it happens that this is a 200 MA level as well.

Given that these three technical indicator are pointing to same levels – somewhere between 5130 to 5150 – we expect that the market to find a strong support there.

In conclusion, a correction is expected and therefore the risk is on the upside at least for the next few days and maybe weeks.