Technicals | Jul 11 2013
Bottom Line 10/07/13
Daily Trend: Flat
Weekly Trend: Down
Monthly Trend: Down
Technical Discussion
If you take notice of the media then you could be feeling pretty bullish at the moment with global equities in general showing some strength over the past few weeks. And it’s not beyond the bounds of possibilities that this trait continues though it isn’t our highest expectation. As far as we are concerned further confirmation is required. In regard to the Materials Sector (XMJ) shown here the line of support has failed to hold with price comprehensively breaking down through 9000. Yes, a rally has ensued but until old support/new resistance can be overcome we have to remain highly sceptical in regard to the current show of resilience. Furthermore, volume has waned substantially during the recent bounce which suggests it’s only a few bargain hunters taking an interest. If the smart money was accumulating we’d expect to see volume levels increasing – not decreasing. And of course we have to factor into the equation that the Miners remain unloved though at least the severity of the downtrend has subsided for the moment. That’s not to say it can’t continue once the current rally has done its dash as it certainly can. It’s also worth noting that all the strong clean trends are cropping up during weakness with moves in the opposite direction generally being choppy and messy. This is also indicative of another probe south in the not too distant future.
The bounce we were looking for didn’t amount to a great deal and definitely didn’t get anywhere near our short term target which was the May high. As such we’ve had to amend our labelling slightly which now suggests that wave-B is already locked in position. The reason we weren’t going with this count is because the typical retracement zone wasn’t tagged and the counter trend move lacked symmetry in terms of time. It didn’t even reach the 38.2% time extension which is generally the minimum expectation. Still, the impulsive movement down from the recent pivot high confirms that wave-C should be underway, and likely has further to travel before terminating. Right here and now it appears that minor degree wave-ii or-b is evolving which should take price up toward the line of resistance which shows good confluence with the 50.0% retracement level as shown. Should that target area be tagged and rejected our confidence increases that another period of weakness, likely lasting a month or two is going to follow. Downside target 7250.
Trading Strategy
The only positive on the chart here is Type-A bullish divergence evident on the weekly time frame (not shown). This means that price made a lower low whilst our oscillator failed to confirm by making a higher low. Unless we start to see some impulsive price action to the upside it could take several weeks for this divergence to unwind. Not that I think there’s enough upside potential to look for a long trade but bullish divergence usually means that the recent pivot low will not be overcome until our oscillator works its way back into the overbought position. In fact rejection at the line of resistance or even slightly above would be reason to look for short set-ups, especially if broader market conditions permit. For now though, we remain cautious and certainly aren’t getting carried away with the recent turnaround.
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