The ASX 200 lost more than 350 figures during the last month. Should investors be worried or this is just another “buy-the-dip” opportunity?
On July 25 we showed you a forecast of the ASX 200 index, where we assumed, that the Australian index is in the final stages of an ending diagonal. That is why we were expecting a reversal to the downside soon. Now, two months later, it looks like the ASX 200 index has confirmed this bearish idea, because on the 4-hour chart we are able to see a very clear five-wave decline.
According to the Elliott Wave Principle, we should now expect a three-wave rally in wave (2), before the trend resumes in wave (3) to the south. These short term expectations are supported by the RSI indicator as well. As visible, it shows a double bullish divergence between waves 3 and 5. In addition, wave 4 looks like a triangle. Triangles precede the final move of the larger sequence, in this case – wave 5. If this is the correct count, the rest of 2014 might be very disappointing for the Australian stock market in general.