Technicals | Sep 19 2012
Bottom Line 18/9/12
EW Trend: Corrective
Price Trend: Up
Trend Strength: Strong ?
Technical Discussion
LAYMAN'S:
Our rhetoric has continued to side with the Bulls regardless of negative overall sentiment. And I guess the main reason for this, in regards to the U.S Indices at least, has been the ongoing robust nature of price that has consistently refused to break lower. I have to say though yet again, from an Elliott Wave perspective, I am finding it very difficult to get a definitive wave count on this. And what this basically means is that defining exactly where the trend presently sits has become quite clouded. What I'd like to see is price break out of its choppy routine and finally find some upside motive. You'll notice on the chart an impulsive interpretation of the move off the early June lows. Yet I'm not a big fan of continually looking for subdivisions within the patterns when they are clearly choppy. And that really is a big lesson when it comes to Elliott Wave analyses. If you find yourself forcing the count to match your bias, then there is a very good chance you are going to be sorely disappointed.
Or maybe we just have to sit back and say that Elliott Wave presently doesn't sit comfortably with what we are presently witnessing. And therefore focus on other forms of technical analysis until clearer wave patterns become available to us. Presently I'm comfortable with what I am presenting on the chart, yet any further crossing over of price and we may just have to focus on other indicators for a period of time. As such we are also bringing the Transports into focus today. Especially as it has failed to follow the Industrials higher to this point. So a big question mark still sits with what we are witnessing here from a bullish viewpoint, until the Transports can start playing catch up.
TECHNICAL:
So basically we have a non confirmation pattern with the Industrials and the Transports. Price in the former sits in 4 year plus high territory, where as the Transports continues to fail to be able to break higher above its overhead resistance line circa 5600 . Monday night was a pretty poor session on the Transports as well with price dropping a solid 1.45% or 75 points compared with the DJIA only marking itself down by 0.3% . Yet we mentioned in another review recently that even though the Transports was failing to impress, it did appear to be building some energy within a bullish looking Elliott a-b-c-d-e symmetrical triangle. The breakout trigger for this pattern was a move above the wave-d high at 5224, and this has occurred a couple of sessions back via an intraday high being tagged at 5231. So if this pattern is to now prove itself as a bullish continuation pattern, then what we are going to expect next is for a higher swing low pattern to trigger over the next week or so, with price finally making its way towards 5600 to test resistance.
Yet any break below 4939 or the wave-e low is going to put things in a very precarious position in my view. With such a move likely to drag the Industrials down with it. So for mine 4939 is a very important level to keep close tabs on over the coming weeks. In fact anything below 5050 now, which is the 61.8% retracement area of the most recent move higher on the Transports, will be starting to ring alarm bells for me. If the symmetrical triangle pattern had evolved above 5600 resistance, then I would certainly be a lot more confident that any breakout of the triangle was going to stick. Yet as this is not the case, there is no other way to proceed right at the moment other than with an element of caution.
And like I said on the Industrials in regards to the Elliott Wave labelling we have applied, there is really very little scope now for a lot more weakness to be witnessed. Overall I'm continuing to like what I see from a bullish stance on so many levels. Yet the fact is we have the Transports non confirmation and the Industrials potentially only chopping higher. Which means even though it is acting robust, impulsive price action is not really being witnessed to this point. Especially as we are now expecting some form of Wave-C , either intermediate or higher degree, to start kicking into gear. And these patterns are generally 5-wave and impulsive in nature. The juncture we are at right here could not be more significant in my view.
Trading Strategy
We've found it very difficult to position ourselves for a trade on this. So at present we continue to remain sidelined. We are now long the Hang Seng with the FTSE-100 also very close to triggering a trade on the long side as well, be it at higher price levels than we would have liked. And it may just be the case that these two end up being our global markets of choice this time round to run with the next proposed moves higher. I must say though, I'm continuing to treat this trend with a fair bit of caution. There is enough evidence to justify the longer term bullish stance, yet shorter term over the next couple of weeks, a brief period of weakness may well be witnessed before things can really start kicking into gear. Price remains in a rising support channel on the Industrials be it the upper boundaries of such a pattern are now being tagged, with price in an overbought position. So we could have painful timing issues if we were to just jump on board at present levels. And overall , based around the nature of this move, and my lack of confidence with the immediate wave count, trading such uncertainty just seems to be fraught with danger right at the moment. If we miss the boat on this so be it. Keeping a disciplined approach overall in our trading is what is more important. Stand aside.
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