Technicals | Sep 07 2011
BHP Billiton ((BHP))
LAYMANS:
“If $36.44 is breached then a much longer and possibly even deeper pull-back is going to transpire…”. With our line in the sand now penetrated we’ve had to reassess the patterns though over the short term little changes. The small bounce that we were looking for now appears to have completed with the final leg lower looking like it’s well underway. A deep retracement at this stage isn’t expected and it could well be that the early August low remains intact though it should be challenged. We can’t ignore the strong buying demand that occurred at those slightly lower levels made four weeks ago and as long as the broader market doesn’t roll over in a major fashion those same buyers are likely to return. If they do then it would open the way for a strong bounce, with every chance that the all-time highs are going to be re-tested though obviously it’s not going to happen overnight. As long as $31.00 isn’t breached the longer term bullish case remains in position with plenty of upside potential ahead. Although possible, a push straight down through that region from here is highly unlikely to transpire. There’s definitely been some selling pressure over the past few days but although price is heading in the right direction from a pattern perspective we’d like to see the severity of the fall subside. An aggressive sell-off at this stage of the trend should not be materialising so sellers need to either get filled or back off, especially as our target circa $35.00 is being approached.
TECHNICAL:
With the May 2010 low having been breached a much larger degree 3-wave move is confirmed as having completed the rise up to the much larger degree wave-[A]. Not the ideal scenario but the patterns are clear to see. What this means is that over the longer term the current retracement is likely only in its early stages despite the fact the typical retracement zone has already been tagged. Remember, we need to see symmetry both in terms of price and time with the latter nowhere near being achieved. Our guideline stating a corrective move should take at least 38.2% of the time taken by the prior trend gives us a date in March of next year. However, the fact that the 50.0% retracement level has been met implies we could be seeing a much larger flat pattern taking hold. So even within the realms of a correction the all-time highs have a good chance of being achieved over the coming months. However, to stay true to the Wave Theory a leg lower should again kick in once the anticipated larger degree rally has run its course. Still, we’re looking a long way ahead at the moment with much water to be passed under the bridge before getting anywhere near those higher levels. Back to the shorter term patterns, wave-iv appears to have done its dash with the final leg south at this degree of trend already in motion. The recent pivot low should entice buyers back into the stock meaning a deep retracement from here is a low probability scenario. Once the current probe lower has drawn to a conclusion we’d be looking for a large bounce into wave-B toward the $50.00 region which should be corrective in nature meaning overlapping wave structures are likely to be the way forward. If we start to see impulsive price action to the upside we’ll have to reassess but either way a multi month trend higher should unfold.
Trading Strategy
5/9:
If you took a short position following the a-b-c correction into wave-iv the trailing stop should be set at $40.28 lowering the risk. If our labelling is correct those slightly higher levels shouldn’t be penetrated any time soon. Should our road map be followed then look for signs of buyers emerging around the lows of wave-iii. Yes, a much larger corrective move higher is anticipated though there is still plenty of upside potential to be had to meaning it’s certainly worth looking for an entry point over the next couple of weeks or so. As mentioned above a probe beneath the 61.8% retracement level would be reason for concern which in turn would give is no reason to be looking for a trade. For now though, the short-term patterns continue to show symmetry and that should be our focus of attention for the moment.
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