Technicals | Jun 15 2011
LAYMANS:
Although the more immediate bullish case still has a chance of coming to fruition we can’t ignore what the markets are telling us. They’ve certainly been weak over the last couple of months or so and there is little evidence suggesting a major low point is upon us. If a sustainable leg higher is to kick in there is no room for meandering from this point forward. The 4500 region has attracted buyers in the past and is a very critical juncture in regard to the larger patterns. The line in the sand is 4477 with a breach below adding weight to the case that the more bearish scenario is going to be the path taken. We’d then expect the May 2010 low to be re-tested before a major reversal higher commences. Nick sent out a special report on Thursday with the same outlook concerning the XAO weekly chart which portends to weakness potentially lasting the rest of the year. Looking at the shorter term prospects there is the potential for a bounce to materialise shortly if it hasn’t commenced already. Our focus of attention now should be on how any rally unfolds. If it’s messy and choppy in nature it will give us further confidence that there is still a leg lower to be seen before the bigger buying opportunity presents itself. On the flip side, if it’s strong and powerful the fast fading bullish case will gain a little more credibility though whichever way you look at it the 5000 area needs to be breached with some impetus before moving to a longer term bullish stance. Possible, but not looking overly likely with the markets in their current state.
TECHNICAL:
During last week’s video we spent some time looking at the more bearish scenario implying the much larger flat pattern we were focusing on back in March still had credibility. Due to the lacklustre price action of late this labelling now becomes our main focal point which we’ll take a look at in more detail this evening. It definitely isn’t perfect from an Elliott perspective on the shorter time frame though as we’ve been mentioning over previous reviews the “perfect” pattern simply hasn’t transpired. Back to the count. The good news is that a clear 5-leg move transpired off the March 2009 lows which of course cannot complete the counter trend move. It can only bring to a close a much larger degree wave-(1) or-(A) though in this instance the latter is the most probable. The not so good news is that the ensuing correction is far from textbook and continues to elongate into a complex retracement. That said, corrections are often choppy and difficult to decipher so in the bigger scheme of things it’s really nothing out of the ordinary. If the larger running flat comes to fruition it’s going to take many months to run to a conclusion. If we trace out the smaller degree count from the high of wave-B it looks like wave-v could well be in position. The fact the support zone is managing to hold adds weight to the possibility of a bounce unfolding within wave-(ii) or-(b) although it’s by no means a foregone conclusion. The bullish divergence is also still just about intact though thus far it’s proving to be fairly ineffective. If a weak rally unfolds the final decline should then follow with the lows of wave-A circa 4200 being revisited though it’s going to take several months to get down to those levels. The more bullish labelling of price we’ve been working with recently is still worthy of consideration although it needs to prove itself before getting overly optimistic. In reality an impulsive leg higher is required without pause to kick start the now annotated secondary count. Possible, but it’s difficult to envisage such a move transpiring taking into account the many headwinds Australia appears to be facing.
Trading Strategy
10/6:
The Growth Portfolio continues to be in protection mode which is always a good indication of where the trend presently sits. That section isn’t interested in trying to predict what the future holds. It simply focuses on what’s transpiring right here and now. If the bearish case proves to be the path of least resistance some shorting opportunities will start to appear within our various portfolios though at this stage a little caution is required. A corrective move higher over the next few weeks would gain our interest from a trading perspective. However as always evidence that another leg lower is in its early stages would be required before getting involved. Also be aware that the support zone could prove to be a tough nut to crack – at least at the first attempt. For longer term traders and investors caution is still required though if the larger flat pattern develops over the coming months another buying opportunity similar to that seen at the March 2009 lows should present itself.
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