Technicals | Oct 05 2011
LAYMANS:
Todays chart is a weekly view of this market back to 2007 and enables us to gain an insight into two significant patterns, which we'll discuss below. The corrective move we've been watching has taken on a more sinister look and has broken some minor support levels. Whilst the price action over the last several months retains the look and feel of a correction it does appear that it will be a longer consolidation before prices resume higher. Currently we're seeing a significant line of horizontal support and diagonal support being tested. Whenever we see this kind of intersection we should take note because it usually leads to a reversal of form. Add to that the market is very much oversold, so I would not be surprised to see some kind of a short term bounce before weakness resumes. As mentioned above, it does not appear we're in a strong downdraft like what was seen during 2008 but more of a casual decline that could take numerous months to be resolved.
TECHNICAL:
It's a clear cut Elliott Wave structure; a large and swift impulsive decline during 2008 followed by a counter trend rally unfolding in three clear waves. That retracement also tagged the 61.8% level which is very typical of counter trend moves. With this information we'd now expect prices to surge lower again, however, ideally that push should be clean and impulsive – like we saw in 2008. You can see this time around though that prices aren't overly impulsive. They are meandering lower so it could well be that we're seeing a much more complex corrective pattern than what has already been presented. The key rule of thumb is that if a pattern does not unfold as expected, then chances are there is some other pattern taking shape or we're en route to a pattern failure. If so then one would expect difficult trading conditions for some time to come. If this horizontal support hold at 300 then we may be readying for a bounce back to the 50% retracement nearer 333.0 before heading lower again. I would be more inclined to await that bounce to set positions. Looking back over the last 15 years (not shown) we did complete a major 5-wave impulse into the highs of 2008 which started back below 150.0 in 1999.
Trading Strategy
4/10:
Interestingly enough we're hearing a lot about the impact of inflation yet we're seeing commodity prices fall. The Global Macro Portfolio has started initiating short positions across a variety of commodity markets including Lumber, Soybean Meal, Natural Gas and various Wheat markets. Many other markets, such as Cotton are also lining up sell signals. Energy products are consolidating but starting to trend lower and most metals have had the wind knocked out of them over the last few weeks. Those trends haven't turned down, but some peripherals such as Copper and Platinum are make a concerted effort to push lower with a possible longer term trend change at hand.
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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.
