Technicals | Dec 15 2011
LAYMANS:
The reason for taking a look at AUT over the past few months is that it shows strong relative strength which is always a positive trait. This means it outperforms the broader market, which in this case has been over the longer and the shorter time frames. As can be seen a significant high is within touching distance again and is likely to come under pressure in the not too distant future. In the meantime, there is scope for slightly lower levels to be tagged although whether our target put forward last month is going to be tagged is questionable. With the evidence at hand it’s more than feasible that more of a sideways meander is taking hold from the mid November high which is actually a very positive characteristic. It tells us that any minor dips are attracting buyers which means investors and traders are confident in the company’s ability to head higher with some vigour once the current pull-back has drawn to a conclusion. Whichever way you look at it a comprehensive break up through $3.80 is very positive indeed and would open the door for a multi-month trend to unfold which is something we’d want to be part of.
TECHNICAL:
We’d pencilled in intermediate degree wave-(i) as being in place last time noting that the stock was in a position for a retracement. As a general rule of thumb wave-(ii) will unfold as a zigzag and hit the typical 50.0% – 61.8% retracement level. Whilst this is technically still feasible it appears that a flatter corrective structure is transpiring. In fact it could almost have worked to a conclusion in the form of a running flat. This means wave-b probes above the previous pivot high by a small margin with wave-c terminating just above the lows of wave-a which is exactly the position here. It could morph into an expanded variety with the only difference being that the current leg down will complete at slightly lower levels although not significantly beneath the prior pivot low at wave-a. Either way, wave-(ii) would be in position shortly which offers significant upside potential ahead. Also bear in mind that flat patterns at this stage of the trend usually crop up either during or preceding strong trends though in this case both could be true. The other pattern of interest here is the gap that was left in early November. It’s not essential that it is filled though we have to be cognizant of the fact that it is a possibility. If it is filled with buyers stepping up to the plate immediately then the bullish case becomes an even higher probability scenario. Elliott aside, the significant highs just beneath $3.80 need to be overcome with a degree of attitude to imply a longer term impulsive move is still only in its early stages. As long as market conditions don’t deteriorate substantially the next major move should be to the upside.
Trading Strategy
12/12:
Whilst being involved with companies showing strong prior trends (as in this case) doesn’t guarantee that strength will continue into the future it stacks probability on our side. As trader’s this is the best we can strive for as no technical analysis is 100.0% accurate despite what many educators will have you believe. If you like the company there is nothing wrong with accumulating partial positions in this general region though just be cognizant that slightly lower levels could be tagged over the coming week or two. Positions could be topped up following a break above the significant highs at wave-(b) which would undoubtedly be a bullish attribute. That said, we’d be more confident that any breakout would be sustainable if it was accompanied by high volume coupled with some high closes.
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Technical limitations
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