Australian stocks face more pain ahead - chartists

SYDNEY, July 11 (Reuters) - Australian shares are due a
bounce soon, after slumping to fresh 2008 lows this week, but
technical analysts say the longer-term outlook is bleak and
shares could hit their lowest in about 2-½ years by October.

The benchmark S&P ASX 200 index has fallen about 17
percent from its May highs as investors, worried that credit
market troubles and sky-high oil prices would continue to
darken the outlook for company profits and economic growth,
shunned equities.

The index, which is set for its eighth straight weekly
decline -- the longest such losing streak since July 2002, has
fallen 22 percent since the start of the year, putting it on
course to post its first annual loss in six years.

Technical analysts, who favour tracking chart patterns over
fundamental factors to predict future price movements in
financial markets, said Australian shares could fall to new
lows in the months ahead.

"The 50-day moving average has rolled over under a falling
200-day moving average and that tells you that the picture is
very negative at the moment," said Paul Nesbitt, a technical
analysis director at Fortis Private Bank in London.

"Sentiment is very, very poor at the moment and people are
very bearish."

Citing technical indicators such as the relative strength
index and Elliot wave theory, Lawrence Balanco, a Hong-Kong
based technical analyst with CLSA, said the Australian market
could fall to 4,700-4,750 by October, a level not seen since
December 2005.

"To get down to that level by an October date wouldn't
surprise me," Balanco said. "If you look at seasonality
patterns, Octobers have marked some significant lows globally."

Should the index fall below the 4,700 level, it could test
its July 2005 lows of 4,290, he said.

Another key level for the index comes in just under 4,800,
which would mark a 50 percent retracement of the market's rally
from March 2003 to a record high of 6,851.5 hit in November
last year.

IMMINENT BOUNCE

While the share market may see a recovery soon, any rise
would simply be seen as a "dead cat bounce", where a prolonged
decline is followed by a temporary gain, before a resumption of
the downward trend.

"Everything's very oversold right now and theoretically,
the market should be ready for a bounce anytime now," said
Fortis' Nesbitt.

He said the market would require a catalyst to provide the
spark.

"That may well be the oil price coming off $15 in a day.
That's a possible trigger because it's very high on everyone's
agenda."

"But at the moment, it is very clear that the trend is
still very much down. Whatever bounce we'll get is likely to be
a correction to a downtrend, not the beginning to a new up
trend."
($1=A$1.04)
(Editing by James Thornhill)