By Boh Burima

Technical analysis is arguably the oldest tool used to help analyse the market. Its history originates back to Charles H. Dow in the Wall Street Journal between 1900 and 1902. However evidence of the use of technical analysis can be traced back to the early 18th century in Japan with rice markets.

Technical analysis is the study of supply and demand within markets. The technical approach to investment is the idea that prices move in trends that are determined by the changing attitudes of investors toward a variety of economic, monetary, political, and psychological forces.

The chart below displays the Australian All Ordinaries Index from March 2011 to February 2012.

The recent formation from October 2011 to February 2012 highlights a formation called an ‘Ascending Triangle’, a bullish formation that generally indicates accumulation of stock within the market. The straight line shown at 4,400 points is known as a strong resistance line for the market, a short term market ceiling which means the market will struggle to surpass this level in the short term. However it is also an indicator that when the All Ordinaries index appreciates above 4,400 points it is more likely to ascend towards the next resistance point of 4,800 points.

The chart above also displays an oscillator referred to as the moving average convergence divergence (MACD) which is a trend-deviation indicator using two moving averages. The MACD histograms are the white bars displayed in the chart above. These bars are made from the distance between the MACD line (green line) and the signal line (red line). The yellow line drawn with the histograms displays a trend referred to as a bearish divergence. This indicates that in the short term the All Ordinaries market has a higher probability of falling in value.

In conclusion, the current medium term outlook for the All Ordinaries is positive with an Ascending Triangle formation forming. However in the short term we expect a short retracement in the market towards the 4,200 point resistance.

This chart is just one of many technical indicators that RBS Morgans advisers use in conjunction with stock specific and market research to advise our clients on the most appropriate investment choices for their objectives.

Boh Burima Authorised Representative # 341081 Phone: 07 4639 1277 begin_of_the_skype_highlighting 07 4639 1277 FREE end_of_the_skype_highlighting Email: boh.burima@rbsmorgans.com RBS Morgans Limited A participant of the ASX A professional partner for the Financial Planning Association of Australia A.B.N. 40 010 669 726 AFSL 235410

Disclaimer- RBS Morgans Limited The information contained in this report is general advice only, and is made without consideration of an individual’s relevant personal circumstances.