Technicals | Dec 22 2011
LAYMANS:
With the severity of the fall over recent months showing no signs of abating it’s now highly likely that a significant top is firmly in position. Remember this company has been a star performer from the November 2008 lows adding well over 2000% up to the June highs of this year. This puts into perspective what’s been unfolding over the past six months. Yes, a significant sell-off has materialised although in the bigger scheme of things it’s not yet a major concern. In fact as deep as the retracement has been there’s still some scope for even lower prices to be tagged before even a bounce kicks into gear. In theory today’s low has tagged a major target area offering some upside potential though it isn’t our highest expectation. The reason being that in terms of time symmetry is lacking which is something that can’t be ignored. It’s more than feasible that a sideways meander lasting several months is going to be the way forward making for tough trading conditions. Not really what we wanted to see though of course it does fit better with what the broader market is doing at the present time. Over the short term the company is looking oversold so it would come as no great surprise to see a quick rally though it isn’t expected to amount to agree a deal.
TECHNICAL:
The push lower from the high of wave-(b) isn’t quite parabolic in nature though it’s definitely impulsive which is exactly what wave-(c) should be. It appears that the first two legs are firmly in position with minor degree wave-iii looking like it’s drawing to a conclusion. Zooming into the more recent price action the move south from the high of wave-ii also appears to be subdividing into another 5-leg pattern which is a confirming factor in terms of our labelling. In a perfect world we’d like to see some strength returning over the next few days although a significant rally isn’t anticipated. It’s far more likely that a sideways meander is to be the way forward which could even morph into a triangle pattern which should last several weeks. Adding weight to this scenario is that Type-A bullish divergence is in position on the daily time frame although it hasn’t triggered as yet. A continuation lower without pause will invalidate the setup though it’s also worth mentioning that our divergence oscillator is well into the oversold position on the weekly time frame (not shown). If a triangle or flat is to complete wave-iv in a few weeks’ time then there’s still one leg lower to come. The 61.8% retracement level sits way down at $3.55 and has a realistic chance of being tagged further down the line. Interestingly, the 38.2% retracement level of the whole move up to wave-(1) gives us a date in early May which is the minimum amount of time a retracement should take. In theory this implies corrective wave structures are going to dominate until well into next year before another strong trend higher unfolds.
Trading Strategy
19/12:
As mentioned above from an Elliott perspective we’re in a position to see a reasonable bounce or at least a sideways meander though it’s not something I would be looking to trade with upside appearing limited. Longer term investors looking for potential opportunities should keep a close eye on Medusa Mining ((MML)) as it shows very strong relative strength over the longer time frame. However, right here and now we’re better off sitting on the sidelines and letting the smaller degree patterns run their course. As long as the larger 50.0% – 61.8%retracement zone isn’t breached the bullish case remains firmly intact although patience is going to be required.
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Technical limitations
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