Beyond 6000

After three attempts over the past 10 years, the S&P/ASX 200 index finally got there - it broke above the formidable 6000-point resistance level.

The Australian equity market's benchmark index closed up by 1% yesterday - a hefty day index return by anyone's measure. But what's more significant is its closing level of 6014.34 points - the highest since the 6078.70 points it closed at on 8 January 2008.

For sure, 6000 is just a number but for market technicians it represents an indicator of the S&P/ASX direction. Note that the index's previous attempts (and failure) at conquering the 6000 point mark.

The first attempt was in May 2008 when it reached a high of 5908.08 points that year. The global financial crisis, the European sovereign debt crisis, the Arab spring, and China's slowdown (which battered Australia's mining sector) prevented the index from revisiting this level over the next seven years.

The second attempt was in 2015 when it reached 5973.32 points in March of that year, aided by the RBA's 25 bps interest rate reduction to 2.25% in February and the corresponding drop in the Australian dollar exchange rate which hit a low of US$0.6843 in the same year.

The index made another run for 6000 again earlier this year but made it only to a high of 5956.52 points on 1 May before faltering once more.

It's still early days but if the index could manage to stay above the 6000 resistance level for longer, that resistance level becomes its near-term support level that should help propel its towards the next one which is the next round number - 6500 points - and upwards towards the all-time peak of 6828.71 points it closed at on 1 November 2007.

This is because in technical analysis parlance, a break of the resistance level - a heavy one at that - suggests that the sell-orders waiting to be filled have been filled (those who want to sell at the prices they set - usually a round figure - have already sold). What remain are buyers wanting their buy orders executed, sending prices higher.

Higher share prices then create a wealth effect that should produce a virtuous cycle of increased investment and spending.

For sure, there will be profit takers if share prices continue to go up but this is where the just a number 6000 point resistance level becomes important - it becomes a support level. Those who missed out on the previous rally beyond 6000 become buyers at this level.

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