Technicals | May 14 2014
Bottom Line 13/05/14
Daily Trend: Up
Weekly Trend: Up
Monthly Trend: Up
Support Levels: 16632 / 16312 / 16015
Resistance Levels: Back in historical highs (blue sky)
Technical Discussion
The US Dow Jones Industrial Average (DJIA), or "Dow", pushed into record highs on Monday night. We only reviewed the Index a week or so ago yet any market is worthy of a revisit when it enters blue sky territory. Internet and smaller cap stocks were the winners on the day with company deals continuing to indicate that overall confidence is still bubbling away nicely in the world's largest economy.
Reasons to buy:
→ economic reporting continues to buoy the market. Jobless claims lowering
→ mergers an acquisitions remain active which reflects a bullish environment
→ trend remains very strong. Dips remain shallow and well supported
→ 200 day moving average keeping price well supported longer term
Technically, the bullish uptrend that has been in place since the March 2009 lows were tagged is continuing to bubble away nicely. What we are liking most about it is that it is refusing to overheat. A steady ebbing and flowing to the upside is a very healthy way for a market to act, and a great way to ensure that the prevailing trend can sustain. There has been no rush to this at all. Nice forward moves north, followed by well supported shallow dips. Even the most recent consolidation phase has been evolving throughout the whole of 2014. So over 5 months in the making, and forming as a bullish ascending triangle fulfilling the criteria of having 5 internal swings before breaking higher in the direction of the trend. Text book stuff ! From an Elliott Wave perspective, we are running with this next move being a Wave-5 of (3) of [3] which as a trend interpretation, is still strongly bullish for some time to come. Once the Wave-5 of (3) completes though, the higher degree Wave-(4) , or the next expected resting phase, is likely to be quite a drawn out process. We will worry about that when the time comes. For now, the triangle breakout target sits at 17880. So some reasonable upside to potentially be attained over the coming months if it can be fulfilled. The only negative shorter term variable is the Type-A bearish divergence that has now come into play post Monday night's swing higher. Yet whether it triggers or not remains to be seen. Red flag only below 16000.
Trading Strategy
Our trade recommendation has triggered after last night's session. So we are long at 16632 with the stop positions initially under 16015. The Type-A bearish divergence is a little concerning so lets see if price can ignore it in similar vein to what we have recently seen on the weeklies. We will manage the trade with a trailing stop initially, with the aim being to cut our risk in half over the coming days.
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