Forum Archive Index - June 2001

["Peter Maiden" <pmaiden@xtra.co.nz>]

Phaedrus gave us a very illuminating insight to charting last week. For the doubters Phaedrus put a pretty convincing case around the use of charting techniques in analysing the movements in the Frucor share price.

 

The point that came out of it the discussion was the power of trends. Trend theory is also an interesting subject.

 

The power of trends is best demonstrated by this story about how something (something that has a profound affect on NZ's well being) has been battling a downward trend for 21 years - and has failed to beat it's power.

 

Yes - the 'little aussie battler' (otherwise known as the Australian dollar) has been losing it's battle over the power of the trend for many years.

 

For the last 21 years the A$ against US$ has seen (on a monthly chart) a series of waves with lower lows and lower highs.  Certainly a well defined  downtrend. It has also been currently trading under the 50 month moving average with little indication of pulling back to it in the near future. Long term chart curtesy of investorweb.com.au

 

Over the last 21 years you can bet that foreign exchange experts, economists, politicians and the Reserve Bank of Australia have said that the A$ is 10-15 cents below it's real value. Even today the cry from across the Tasman is 'the dollar is undervalued'

 

But the power of the trend prevails.

 

No matter what is said and what is done to strengthen the A$ the downward trend continues. The trend keeps winning the battle.

 

There has been some recent signs of improvement in the A$ by a series of higher highs on a daily basis but with a history of only ever going down. Any rallies can only be treated as just a pullback to the longer term trend. Any fast moves higher would be treated by technical analysts with even more suspicion.

 

On one hand popular opinion is for A$ to get back near US$0.60 next year. The trend says unlikely.

 

The monthly chart would say a new support level for the A$ is around US$0.47

 

The Australian press seems to think this week could be an interesting one for the A$ - things aren't quite going right for it.

 

As our fortunes are tied to the A$ we should be wary of these trends. Those banking on recovery of some NZ stocks because of a stronger NZ$ might be disappointed.

 

My guess is that many NZ companies (those dependent on imports) will continue to have stressed margins.

 

Trends are a powerful force.

 

Cheers

 

Peter