Will the ASX 200 Hit 7,000 points Next Year?

The S&P/ASX 200 is Australia’s premier share market index. It’s widely followed and represents Australia’s top 200 stocks by market capitalisation.

Since the index bottomed after the financial meltdown of 2008/09, it’s now up a staggering 73%. This is nothing compared to the US S&P 500 ­­— the most followed index in the world — which is up over 188% since its bear market low in March 2009.

You may think, surely the market can’t go up forever. Let’s face it: a lot of mainstream commentators and analysts have been calling for an end to this bull market for some time.

This begs the question, where is the market going next?

On this I’m with Kris Sayce. The Australian stock market is extremely bullish technically at the moment.

Let me show you what I mean. The chart below tracks the S&P/ASX 200; each bar represents one week:

The chart above shows that the market is going through a staged rally, shown by the black line. This is a technically bullish pattern for the ASX 200.

I’ll explain this further.

There have been three share market rallies over the past 18 months. The first rally, between November 2012 and March 2013, re-rated the market from 4,400 points to 5,146 points.

This was an exceptionally strong rally for a major index, returning 17% in less than four months. Before the rally, the market was very cheap on a price to earnings valuations multiple. In this case, the rally took share valuations back to a historically normal level.

Considering the strength of this rally, the market became sceptical and sold off much of the gain. This defined the first significant resistance level of 5,146 points.

Read the rest of this article at Money Morning