Technicals | Aug 17 2011
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LAYMANS:
Our market has now risen over 14.0% from the low made six days ago which is a decent rally whichever way you want to look at it. For the symmetry of the patterns (which we’ll discuss below) a retest of those significant lows would be ideal though it’s looking less likely as each day passes. Remember, the alternative was that price continued up to around the 4400 mark before looking for another pull-back. With that target now within reach it seems more likely that a significant low could well be in position. It’s worth reiterating that if our wave count is correct trying to pick the exact bottom is not only fraught with danger but a pointless exercise if significant upside potential lays ahead – which we think it does. The more bullish case means the main move higher we’re looking for is going to kick into gear a little earlier than first thought. Today was certainly a pause for breath though that’s only to be expected having seen what’s transpired over the past few days. After seeing a parabolic decline from the late July high it’s unlikely that the same type of price action will occur on the way back up. It’s not to say it never happens but it’s definitely the exception. At some point consolidation needs to take place before momentum can once again take hold.
TECHNICAL:
Strictly speaking, from a pure wave structure point of view we’d still like to see the triangle we portended to on Tuesday start to form. Although it’s still a possibility the chances of it evolving are fading. The reason being that wave-iv is usually a shallow correction and as can be clearly seen that’s not what’s been unfolding. As such the alternate count we’ve been working with is the one we’ll be concentrating on as it’s certainly staking its claim for recognition. This of course suggests the recent low is the full extent of the larger counter trend move that commenced way back in April 2010. If correct, our long awaited “bigger buying opportunity” has arrived already although as we’ve mentioned our timing has been out. Backing up the bullish case is the powerful reversal from the 61.8% retracement zone which was coupled with ultra high volume. A very positive attribute in its own right. What we’re looking for now is a smaller degree a-b-c correction though in a perfect world the resistance zone just above will be tagged before it kicks into gear. If this is to be the way forward it’s imperative that any decline is associated with low volume and is clearly corrective in nature. The one thing we don’t want to see is a powerful reversal from these levels or the typical retracement zone is going to be revisited. Either way, last Tuesday’s low should only be breached by a small margin even if the more bearish count plays out so a deeper decline is not expected. If the minor degree wave-i is to conclude shortly look for bullish divergence on the weekly chart once the subsequent retracement meets its target. This would be a very bullish characteristic indeed and give us every confidence that the next significant move is going to be to the upside.
Trading Strategy
16/8:
Whilst we’ve put forward the bullish interpretation tonight I wouldn’t be keen to jump in with all guns blazing at this point just for the sake of it. If you’re looking at the longer time frame then certainly continue to take selective positions around current levels though just be cognizant of the possibility that a short pull back may cause a little pain initially should it transpire. Short-term trader’s should be on the lookout for the anticipated a-b-c retracement over the next week or two and look to be a buyer once the counter trend move has run its course. We’ll continue to look at the XJO twice a week as the smaller degree patterns will give us a massive clue in regard to the medium term trajectory as they evolve. For now, our focus of attention needs to be on the resistance zone and what reaction occurs at those slightly higher levels. Ideally, a weak meander lower will be the way forward from that point.
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