Technicals | Mar 16 2011
LAYMANS:
"… If we are correct substantially lower levels should be tagged over the weeks and possibly even months ahead." There's no doubting that the decline over the last few weeks has been a very strong, powerful move which gives us every confidence that the ultimate target down toward the $0.60 area is going to be met over the weeks/months ahead. Inevitably there will be bounces along the way so it could well be that some bargain hunting is going to appear over the next week or two. Either way, it's highly unlikely that any strength is going to be sustainable with further weakness likely being the way forward over the medium term.
With a push up from around $0.52 back in May of last year to the recent high at $0.995 you'd be forgiven for thinking a decent trend has been seen. Unfortunately, we have to remember this was almost a $5.00 stock back in 2007 so looking at the bigger picture only a small amount of those losses have been clawed back. If our analysis is correct it's unlikely that further inroads into that substantial decline is going to be seen any time soon. The bottom line is that the company remains weak with this characteristic likely to continue into the foreseeable future.
TECHNICAL:
We suggested wave-B was in position during the last review with the first two legs of the subsequent anticipated decline also in place. To keep the bearish case alive it was imperative that a forceful push lower was seen, remembering that wave-iii is usually the most powerful of all the impulse waves. We couldn't have asked for too much more in that regard. There is no doubting that the current leg is extended with the 1.618x projection of wave-i already exceeded. As a rule of thumb when this happens price will continue down to the next possible target which in this instance is the 2.618 projection at $0.695.
Should the road map put forward be taken there would then be scope for a small consolidation into wave-iv before the final probe lower kicks into gear. With price pretty much meandering sideways for almost two years, trying to make a high probability count is next to impossible although having said that our labeling remains intact.
We continue to look for a combination pattern with the first stage of the correction completing as a zigzag. With wave-B penetrating the high of wave-(X) we're looking for the second stage to complete as a running flat. This means it isn't a necessity for MRE to head down to the low of wave-A to complete the larger correction. However, we'd expect $0.65 to be tagged as a minimum before any sustainable trend higher commences. For now we'll concentrate on the shorter term patterns and see if a 5-leg move is going to come to fruition from the high of wave-B. The evidence at hand suggests it will.
TRADING STRATEGY:
We mentioned the Type-A bearish divergence on the weekly chart last month which added weight to the bearish case. Our oscillator has now moved into the oversold position though in itself it's not a reason to anticipate higher prices ahead. It's quite feasible for the recent weakness to continue with the oscillator bouncing around current levels over the next few weeks. Indeed, if our wave count appears to be correct that's exactly what is likely to transpire.
At this stage there is no reason to be involved with Minara with longer term investors interested in the company being better to stand aside until the current retracement runs its course. More nimble traders could look for a shorting opportunity once wave-iv has worked to a conclusion though that time should be a couple of weeks away as a minimum.
Re-published with permission of the publisher. www.thechartist.com.au
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Technical limitations
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