Originally published by guppytraders.com
Flash crashes are interesting because they reveal the structure of the market. They are too often dismissed as mechanical aberrations, but the history of so-called flash crashes reveals they have a much more useful predictive power.
Like a long-tail dip and rapid rebound, the flash crash can reveal long term support levels in the market. Its no quick guide to near term behaviour, but the low points in the flash crash are often subsequently retested.
The January flash crash in the Australia Dollar drove it to a low of $0.67. This was a catastrophic low dismissed as an aberration but now that target is looking more achievable. The AUD drop below recent support near $0.70 has an initial downside target near $0.685. This is based on lows in 2016.
The trend with the AUD is steadily down as shown by the Guppy Multiple Moving Average indicator. The long-term group is resolutely well separated. When the AUD has rebounded and touched the lower edge of the long term GMMA then the AUD has rapidly retreated. This is evidence of a sustained downtrend pressure.
The short term GMMA has shown compression and expansion actbity but the short term GMMA has not moved up to the lower edge of the long term GMMA in the past 12 months. There is limited bullish pressure on the AUD. The dominant pressure is down, so the move below temporary support can move quickly to test historical support near $0.685.
Daryl Guppy is a leading international financial technical analysis expert and special consultant to Axicorp. Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.