ASX 200 truncated fifth? Why the Australian stock market fails

6 thg 4, 2020

In my July 2019 analysis, I assumed ASX 200 was going through a Wave 3 and will go up to 8300 in a year. However, XJO failed epically, it did not even come close to the 1.618 projection at 8300, when the American stocks were strongly bullish. During the February and March 2020 corona virus panic, XJO dropped much more than Nasdaq Composite and some other American indexes. Comparing to American market, all those failures point to some underlying weakness in the Australian stock market and broad economy.


Another alarming fact is that the February 2020 all time high is 7180, right below the 3.618 projection of the 1982 to 1987 Wave 1 at 7200. In Elliott's Wave theory, Wave 5 often has some fibonacci proportionate relation with Wave 1. The Australian market is hinting here, February 2020 is the top of a truncated, 'failed' wave 5, as it failed to go significantly higher than the November 2007 top of Wave 3. If we take inflation into account, 7180 in 2020 might be actually lower than 6850 in November 2007.

Fundamentally, Australian stocks perform worse than their American counterparts because we have a crazy property bubble here, making many young and old Australians curb consuming and stock investing to save for mortgage deposits. My impression is that most immigrants or new Australians prefer to invest in real estate, not old fashioned shares. Australian immigration intake has been decreasing since 2017, corresponding neatly with the first wave of housing market crash. Unemployment caused by corona virus in 2020 make the rise in property prices since late 2019 look like a dead cat bounce, a Wave B. Unfortunately 2020 might be the start of a lost decade for Australia, featured with decreasing fertility, decreasing immigration, decreasing property and stock market, rising inflation, and collapsing Australian dollar. Indeed we are similar to the Japan of 1990, just awakening from decades of dreamlike growth, easy money and unrealistic confidence.


In the short term, ASX 200 is likely to try to approach 6000, getting close to 10 and 200 week moving average as resistance. This short term recovery will probably not change the bleak big picture though. My bottom line is that Australian market will drop more when the American market drops, and rise less when the American market rises, so overall Australian shares are much more bearish.