Alumina Ltd An Upside Play

This story features ALUMINA LIMITED. For more info SHARE ANALYSIS: AWC

Bottom Line 01/04/13

Daily Trend: Down
Weekly Trend: Up
Monthly Trend: Up

Technical Discussion

We took a look at the larger degree patterns last time via the weekly chart which showed that although Alumina Ltd ((AWC)) has suffered severe technical damage from the 2007 highs a decent bounce was taking hold.  The ideal situation over the past few weeks was to see more of a sideways consolidation pattern before taking on the line of resistance circa $1.40.  As can be seen though sellers have entered the fray in numbers driving price down with some conviction.  That said, this fact doesn’t move us to a bearish stance although the clear line in the sand to concentrate on is $1.12.  A push beneath that level would ring the alarm bells and suggest lacklustre price action is once again going to be the way forward.  And that’s exactly what transpired between April and December of last year meaning it isn’t something we want to see replicated.  So it’s now put up or shut up time for AWC with demand needing to return pretty much immediately.  Days like yesterday haven’t helped matters with a strong intraday move higher being sold into which resulted in a close near the sessions lows. Today however was much better which will hopefully continue.

We’ll check in on the daily time frame this evening which shows a clear 5-wave movement up to wave-(i) or-(a).  The fact the bounce hasn’t been corrective in nature is a big step in the right direction for a company that’s been absolutely smashed with all the prior impulsive price action being to the downside.  It doesn’t guarantee anything but it is reason to sit up and take notice in regard to a much larger bounce unfolding.  The recent pivot high completes wave-(i) or-(a) with an expanded flat correction ideally completing the subsequent retracement.  Within these types of corrective movements wave-c often travels 1.618x the length of wave-a projected from the high of wave-b.  That level wasn’t quite attained but note that it shows good confluence with the 50.0% retracement level making it a logical area to see a reaction from. Thus far that’s exactly what’s transpired.  Whether we are seeing wave-(iii) or-(c) higher is immaterial as both should be strong, clean trends meaning we have a guideline to adhere to.  Anything other than impulsive price action here on in means our wave count is likely incorrect.

Trading Strategy

We are viewing Alumina as a recovery play with plenty of upside available should the patterns unfold as expected.  So if you’re interested the aggressive strategy is to buy following a break above today's high at $1.245 whilst placing the initial stop one tick beneath the low made three days ago at $1.13.  The target is the wave equality projection which sits at $1.54 which would be our minimum expectation and assumes a corrective pattern higher is unfolding.  Of course should a 5-wave movement be the way forward the initial target is going to be overcome by a substantial margin.  If the 61.8% retracement level beneath current levels is overcome before the trade triggers all pending orders should be cancelled.
 

Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not by association FNArena's (see our disclaimer).

Risk Disclosure Statement

THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.

Technical limitations If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms