Technicals | May 28 2012
Bottom Line
25/5:
EW Trend: Corrective
Price Trend: Down
Trend Strength: Weak
Technical Discussion
25/5:
LAYMANS:
It’s no secret that our local indices haven’t been following the positive lead in the U.S. markets over recent months and it seems this trait is continuing unabated. For example if we take a look at the Dow performance over the past couple of sessions it’s actually showing some good resilience. Probes to the downside with the closes pretty much on the session’s highs. Once again the XJO has failed to pick up on this fact and continued to sell-off. Definitely not as significantly as over the past three weeks yet the weakness is plain to see. If you’re looking for slight positives then at least the severity of the decline has abated for the time being with more of a sideways chop developing over the past week or so. In a perfect world I’d still like to see one brief probe higher if only lasting two or three days. One thing’s for sure, a low volume rise from here keeps the door wide open for another decline which could well see the much talked about zone of support revisited. That level is going to be the key area with the reaction seen at those lower levels being exceptionally important in the bigger scheme of things. For now though we’ll just continue to concentrate on the shorter term price action which will hopefully show us the way forward.
TECHNICAL:
As mentioned a couple of days ago there is an argument for suggesting the current bounce is a smaller degree wave-iv which adds weight to the case that slightly higher levels are going to be tagged before the impulsive movement lower takes hold once more. In reality it would take a push up above 4304 to suggest our wave count is incorrect though having seen what’s unfolded recently I’m not holding my breath in regard to that area being exceeded. Anything is possible of course, especially if the U.S. markets can continue to show some resilience.
One would assume that if the U.S. markets can kick start the larger trend to the upside then we’ll follow suit to some degree at least. On the flip side, weakness overseas is not going to be ignored here in Australia. Whilst much of the focus of attention is on the Euro zone the potential problems touted by some commentators in regard to the Chinese economy are weighing heavily on our market. Back to the chart at hand. Volume often provides us with a clue in regard to where the trend lays and there is a very good example here. We’ve been commenting on the increased volume during the retracement from the high of wave-(B) recently which is undoubtedly a bearish sign. Also notice how volume has started to subside over recent days as the attempted rally has tried to unfold. It just reiterates that buying demand is scarce to say the least. Yes, sellers have backed off for the moment but if they return in force (as they have over the past few weeks) then the current pause for breath is going to come to an abrupt halt as further weakness ensues.
Trading Strategy
25/5:
Nothing has changed from a couple of days ago in regard to the expected trajectory with the risk still being to the downside, albeit possibly after seeing a brief probe higher early next week. Unless a magic potion can be applied to the Euro Zone making all their troubles disappear it’s difficult to envisage any sustainable strength transpiring any time soon. All the technical evidence purports to the zone of support being re-tested meaning our focus of attention needs to remain on those lower levels. If the Elliott purists are correct then the lower target is going to be exceeded by a significant margin though from our perspective it’s far too early to be making that call. There was massive buying demand around the zone of support late last year which clearly made a statement. All things being equal accumulation should be seen at those levels again notwithstanding a major negative news event.
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