Technicals | Feb 13 2012
LAYMANS:
One of our main concerns over recent weeks has been the lacklustre price action of late, especially when compared to the U.S. indices. As an example the DOW has added over 24.0% from the early October low where as the XJO has only managed a mere 11.8% rise. Not only that but our local market has been very choppy and messy indeed making a sustainable breakout a lower probability scenario. That’s not to say strength can’t kick into gear though this current region has been tested on several occasions since August of last year and failed at every attempt. As such it’s an undeniably significant area and it’s going to take a stellar effort to get up through the 4400 region.
We’re certainly going to need to see a good increase in volume during any attempted breakout or it’s almost a dead certainty that rejection is going to transpire either here or at slightly higher levels. So at this juncture it’s still touch and go as to whether a more sustainable trend is going to unfold and it’s by no means a given that our target area is going to be reached in quick time. Obviously that would be the ideal scenario though there is plenty of work to be done with little room for weakness from this juncture. There isn’t a great deal of momentum behind the push up from the late December low so it’s imperative that a deeper pull-back doesn’t kick in from here.
TECHNICAL:
With a sideways drift unfolding over the past couple of weeks or so little changes from a technical point of view with our wave count remaining in position. The one aspect we can’t get away from is that overlapping wave structures dominate from the low of wave-C with very little progress being made. Still, wave-iii or-c is underway and in theory should push up to the wave equality projection without too much difficulty. That’s purely from an Elliott perspective. However, we’re not Elliott purists and need to take into account other technical aspects. In this case there are two points of interest to focus on. On the positive side of things price is making a series of higher lows evidenced by the diagonal line of support which has been tagged on three separate occasions resulting in buyers stepping in. Hopefully this trait will continue.
Here at The Chartist though we tend to focus more on horizontal support/resistance which is significant in this instance. Whichever way you look at it 4400 needs to be overcome with a degree of attitude as it would give us increased confidence that the sideways meander with a bias to the upside that’s been unfolding for many months has drawn to a conclusion. The wave equality projection is our initial target though if resistance can be overcome with some conviction then there is no reason why the high of wave-B circa $5000 can’t be achieved over the longer term. There’s no point looking any further ahead at this juncture though we can say that a much larger counter trend move is unfolding as opposed to the start of a longer term bull market. This could change in due course though the evidence is irrefutable at this time. For now let’s see if the recent consolidation can break higher – as it definitely needs to if the bullish case is going to be the path taken.
Trading Strategy
10/2:
For the discretionary trader there’s no doubting that trading conditions remain very difficult and this will continue to be the case until the line of resistance just above can be overcome with a degree of attitude. As such, concentrating on the money management side of things continues to be of paramount importance. When the trends finally arrive (which they will) we need to be in a position to profit from them. If you continue to follow the mechanical portfolios then adhere to all entry and exit signals to the letter. There is absolutely no room for “second guessing” so discipline is required. Let’s see if next week can be the kick start to our wanted rise with price breaking through the overhead line of resistance with some impetus. If the U.S. markets continue to show strength one would assume that we’re going to follow suit – at least to some degree.
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