FYI | Mar 09 2011
A market update provided by The Chartist:
LAYMANS:
We are certainly at a very critical juncture right here in the Dow Jones Industrial Average. As mentioned in our last couple of reviews our bias based on the technicals at hand has been that a decent retracement was potentially brewing here. Although further evidence is still required that this is what is occurring, we continue to believe that an extended breather, perhaps even lasting up to a few months, is what is continuing to unfold. The next stage we were looking for to add further credence to the bearish rhetoric was a break down of 4954 in the Transports. It failed to do so on the 28th January yet on second attempt on 23rd February, this price zone did finally break to the downside. The DJIA has yet to confirm the break. An area that aligns 11451. We said the Bulls would not relinquish control without a fight and that is certainly the case right at this point in time with quite radical daily price swings being witnessed over the past week of so. The next stage to back the analysis that a deeper retracement is evolving here, will be a break of 11983 on the DJIA, especially if driven by higher than average volume. Until then, anything can still happen here.
TECHNICAL:
Volatility has certainly entered the fray and as we always say, volatility generally means that the dominant party, in this case the Bulls, may be starting to lose an element of control here. As mentioned, shorter term a break below 11983 is key here. This is likely to driver prices lower towards 11875 initially which aligns wave-a vs wave-c equality, be it any extension lower could trigger a potential smaller 5-wave move to the downside as part of a lower degree wave-(a) within an (a)-(b)-(c) downside move. Wave-(a)'s can be 5-wave or 3-wave patterns so it really is just a matter of watching prices intentions over the coming weeks. Although we continue to look for a higher degree type corrective move to the downside here, we really do require price to prove itself ongoingly throughout the process. The Transports is certainly happy to get on with the job here thus far, yet to this point in time , price in the Industrials continues to remain within the prevailing rising wedge pattern, with a downside break yet to be confirmed. It is not uncommon for the Transports to lead the way, yet no matter what we think and what history dictates to us, our analysis will only start to gather momentum here if the prevailing pattern that has been unfolding for over 7 months now, can officially breakdown. It is interesting to note as well that our critical number at 11983 also aligns the aforementioned breakdown. Wedge breakouts commonly retrace 30% – 100% of the pattern so in this case the move if and when confirmed, would be targeting a retracement anywhere between 9614 & 11558. Its a very wide range so to better identify a narrower zone we look to what is the more typical retracement area after any 5-wave type move has completed, along with any corresponding price confluences. If we now have some form of top in place here labelled as a Wave-1 or A high, then the 50.0% retracement zone targets 11000 almost to the tick which from a psychological perspective also holds an element of interest. And the 61.8% retracement area aligns 10674 which sits right on a strong line of horizontal support. So if we get the break down we are looking for, then these are the two areas that price has a very high probability of heading towards.
TRADING STRATEGY:
At this point in time our trading strategy continues to remain unchanged. First things first. We require the bearish patterns to confirm themselves, with the analysis gaining strength if price can break below 11983 and swing lower. A move that would also potentially signal a break down of the prevailing wedge pattern. If this can be achieved, then we would remain on track that a larger corrective phase is what is now unfolding. Due to the potential choppy nature of any corrective move, we will continue to remain on the sidelines in regards to trading the Index. Our focus is therefore on trading with the trend yet from lower prices. Our retracement targets are now in place, yet confirmation that price is about to head south is still required.
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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.
