s expect, this week on the XAO was a down week, moving a total of almost 150 points.

Friday closed slightly below a short term support line but there is a weekly support line just below. When looking at the daily chart it was an obvious down week but looking at the weekly chart, it has only been a sideways move. Overall the XAO has been pressurised into a corner at the top of the long term down channel. Keeping in mind the Bearish Flag Pattern that has a target level below 3000, it is a higher probability that next week will show a break to the down side.

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Lately the XAO has been climbing up on the daily chart, which could lead some to believe the market may be turning. The weekly however shows us a different picture.

The last 4 weeks have been a sideways movement. Now it is clearly at the top of a down channel. The higher probability move would be down next week as it continues to respect the down trend line. There is a support line around the 3350 mark that has been holding the XAO up. If this holds and the XAO breaches out of the down channel, the next expected resistance would be around 3680, but until there are clearer signs of this happening, the XAO is more likely to continue with the current trend of down.

After another down week on the XAO, it has produced a potential Inverted Head and Shoulders (INH&S) Pattern.

There are two possible scenarios that we could see this week. First would be a continuation of the short term down trend that started last week. If the XAO continues with a negative sentiment this week we could see it hit at least the previous lower trough of 3700.

The second scenario is that it bounces back this week with a positive sentiment, which will be what creates the left shoulder of the INH&S. Should there be a rally this week we could see it reach the neckline at 4300. A breach of the neckline will be a confirmation of the pattern and see the XAO run the same distance of the tip of the head to neckline which is a target of 4800. Supporting the formation of the left shoulder is the indicators on the weekly which are all showing very bullish signals for the short term.

(click on image to enlarge)

XAO Head and Shoulders

Last week we saw the XAO close below a weekly support line on low volume and questioned if it could sustain the move due to the low volume and RSI divergence.

When we look at what happened this week we can see the XAO could not sustain the down move and though it travelled south about 250 points at the beginning of the week it gained back the losses,  plus 40 points.

The market has broken up through the weekly resistance that was breeched last week, and has closed above on good volume. Now we can see a down trend channel is evident and in play for next week. Will the XAO be able to break out of the channel that is currently pushing it down or will it respect the channel and continue down.
(click on image to enlarge)