Technicals | Jun 25 2012
Bottom Line
22/6:
EW Trend: Corrective
Price Trend: Down
Trend Strength: Weak
Technical Discussion
22/6:
LAYMANS:
There was plenty of evidence suggesting a relief rally was going to be seen following our review last Friday which actually kicked into gear very nicely indeed. We also put forward a revised target for the anticipated show of resilience which came into play at 4162. Although we weren’t quite expecting it to be tagged so quickly Wednesday’s high came within three points of hitting our target before sellers came out of the woodwork in force. In fact the past three days have been very negative indeed with the same type of price action early next week cementing an interim high as being in position.
We’ve been expecting the zone of support circa 3800 to come under pressure at some point in time and taking into account the current weakness it could well be revisited sooner rather than later. The million dollar question is whether it’s going to hold or not. All things being equal we’d expect those lower levels to entice buyers back into the market which was certainly the case back in August and October of last year. However, we aren’t in “normal” times and if overseas markets are to embark on a longer and more sustainable downtrend then the XJO is highly unlikely to buck the trend.
TECHNICAL:
We took a more in depth look at some time analysis last week and I want to start off in the same vein this evening. I often talk about a retracement needing to take at least 38.2% of the time taken by the prior trend which is very pertinent in regard to the chart here. Not only has the recent a-b-c correction hit the wave equality projection very precisely indeed but it’s taken exactly 38.2% of the time taken by the whole move down to wave-(i) or-(a). Coincidence? I think not. It happens far too often to be coincidental. It’s also worth remembering that when price and time align (as in this case) a reaction of some type is almost always seen.
In this instance price has kicked lower with a degree of attitude which could well mean that wave-(ii) or-(b) is in position. As mentioned above, continued weakness here will be a confirming factor in regard to the counter trend move having done its dash. It also opens the door for our much vaunted 3800 area to come under some serious pressure once more. The less likely scenario over the short term is that the corrective movement higher still has a little more time to run which will ultimately result in the typical retracement zone being tagged over the coming weeks. However, we’d need to see buyers reappear early next week to put a halt to the recent decline.
The other the reason keeping the door open for a possible rotation to slightly higher levels is the fact that our static time count put forward last week doesn’t come into effect until the 26th of June. In normal circumstances I’d have expected that time projection to prove to be an interim top although it isn’t always the case. In fact a continuation lower could well result in the zone of support being met on or around the aforementioned date. Price action early next week will be the determining factor in regard to whether the relief rally has a little further to travel although I’m leaning toward an interim high as already being in position.
TRADING STRATEGY
22/6:
We’ve been concentrating on the smaller degree patterns of late which up to this point in time have continued to unfold in almost textbook fashion, especially from the high of wave-(B). With the prior price action being very choppy and difficult to decipher we’ll continue to focus on the smaller time frame which isn’t looking overly bullish to say the least. I’d be more inclined to be looking at companies with downside potential as opposed to upside, especially over the coming weeks. It’s also quite interesting that many of the Blue Chip stocks like BHP have broken down through support levels, tried to rally higher to retest new resistance and again reversed lower. The only reason for mentioning this is that many of the charts are portending to the same thing. That is that further weakness needs to be seen before a major low is in position.
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