The All Ordinaries Index may sink to 2700 points as the Australian economy slows, according to Incredible Charts founder and technical analyst Colin Twiggs.
The index may hit this level within months as the economy suffers from lower commodity exports, while the property, construction and banking sectors contract due to a lack of credit, Twiggs said.
The fact the All Ordinaries has broken the so-called key support level of 3400 points was also a sign of further weakness to come, he said.
The market may see consolidation and sharp rallies before it gets to 2700. The last time the Australian equities index was at that level was in February 2003, when the United States was emerging from a recession and the commodities bull run began.
Twiggs said there are two major issues facing Australia.
"One is obviously declining commodity exports. On the other side, the property, banking and construction sectors are in for a hard time because of the contraction in available credit.
"I do not see Australia as being unscathed by the current turmoil... we are in this with everyone else."
Twiggs uses a blend of technical and macro analysis to gauge global stock market movements. On October 20, he correctly predicted that the All Ordinaries would reach 3400 points.
Comparatively, the Dow Jones Industrial Average and the S&P 500 benchmarks are headed for 6000 points and 700 points respectively.
It would be madness to buy stocks now and investors are better off buying currencies of nations with healthy trade surpluses such as China, Japan, Switzerland and Saudi Arabia, as they should appreciate against the greenback, Twiggs said.
