Technicals | Jun 07 2011
LAYMANS:
Although there was the potential for the $44.00 zone to attract a few buyers we were looking for a continuation toward the target area which has now all but been tagged. As Nick mentioned last month the positive thing here is that volume has been subsiding during the recent decline which is actually a positive attribute. It implies there is no great selling pressure occurring meaning something much more sinister is unlikely to be unfolding. With the target more or less met a decent bounce should be expected in the not too distant future though we reiterate our view that a sustainable trend is unlikely to kick into gear from here. The pull-back should ultimately reach slightly lower levels although it would take a penetration beneath $41.00 to raise a red flag. Definitely possible but not our favoured scenario. From this point forward there are two alternatives. The first is that a more substantial rally occurs with the all-time highs circa $50.00 being approached over the next couple of months or so. Should this be the way forward a further decline back to around current levels would be anticipated before a significant bottom is in position. The alternative is that more of a lacklustre bounce eventuates which should result in the lower boundary of the target being tagged late in the year. We’ll have a better clue as to which route is going to be taken over the coming week or two with much depending on how any rally unfolds.
TECHNICAL:
In terms of price the retracement could theoretically have run its course though as always we can’t just focus on price action. Symmetry needs to be attained in terms of time which in this instance hasn’t occurred. If our labelling is correct with wave-1 or-A in position the counter trend move has much further to run before terminating. In a perfect world it should continue to unfold until at least early August which is the 38.2% projection of the prior leg. No Elliott rules would be broken if a sustainable trend higher kicked in before this date although it is a guideline that is usually adhered to. As mentioned above with the 50.0% – 61.8% retracement zone already coming close to being tagged it opens the door for a flat to be the corrective pattern of choice. If so it means the April high is going to be re-visited before the final leg lower within wave-2 or-C kicks in. Definitely a possibility though in the current environment it’s difficult to see such a strong rally taking hold. The more likely scenario is that a zigzag is going to transpire meaning a deeper pull-back is going to come to fruition. Either way, our wave count portends to higher prices over the longer term though a little patience is going to be required during the interim. BHP doesn’t tend to trend particularly well over the longer time frame though if our analysis is correct there is no reason why $60.00 can’t be achieved although it’s going to take until much later in the year to get up to those heights. For now though we’ll concentrate on the more immediate patterns where we need to be vigilant to how any bounce unfolds and whether it is corrective or impulsive in nature. With the information at hand it seems the latter is going to win the day.
Trading Strategy
6/6:
As we mentioned last time signs of a reversal once within the target area could be an opportunity for aggressive traders to look for a quick swing trade higher. That said, right here and now weakness continues to be the main theme giving no reason to be looking to jump on. Interestingly, there is the possibility for some Type-A bullish divergence over the coming days though importantly it has yet to trigger. Our oscillator is also well into the oversold position on the weekly chart (not shown) adding weight to the case for a bounce. However, a sustainable trend isn’t expected to materialise so a little caution is required. Longer term traders and investors are better continuing to stand aside and await the bigger buying opportunity later down the track.
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