Technicals | Nov 09 2011
LAYMANS:
There was strong evidence suggesting that a pause for breath was going to follow last week’s review which is pretty much what’s transpired. The ideal situation would have been to see more of a sideways meander though importantly the patterns, and therefore the bullish case remain intact. There is always the chance that the target area just beneath current levels is going to be tagged though with today’s strong price action it’s still seen as a low probability scenario. In a perfect world follow through strength will unfold next week which should overcome the recent high by a significant margin. Technically, a probe above 4417 is a major step in the right direction and confidence builder in terms of our anticipated trajectory. Although there is still some room for a sideways movement it certainly wouldn’t be ideal. If we take a look at the price action from mid-August the XJO has basically tracked sideways with no progress being made. At some point in the near future our market needs to break up through 4400 with a degree of attitude. Our main concern over recent reviews has been the declining volume during the attempted show of strength. This is still of slight concern. In reality if we are to see a sustainable trend higher this trait to needs to change. It doesn’t necessarily mean that momentum can’t be gained but it isn’t going to take much in the way of selling pressure to halt any attempted rally without the help of the masses.
TECHNICAL:
From an Elliott Wave point of view it was likely that smaller degree wave-ii was already in position though we did discuss the alternative during the video. That suggested more of a flat pattern was going to be the way forward which has proved to be the case. It certainly isn’t textbook with wave-b heading a little higher than would be deemed ideal though the basic pattern remains intact. The one thing that’s for sure is that if wave-iii is underway nothing other than a strong, impulsive leg north pretty much immediately will suffice at this stage of the trend. In other words today’s strength needs to continue well into next week to give us confidence that price can finally break out of the trading range that’s been unfolding over the past 2 ½ months or so. We noted the Type-A bearish divergence last week which coincided with the clear rejection of higher prices last Friday. If there’s one tool you need to have in your toolbox it’s our divergence oscillator which very rarely lets us down. Although a sideways meander would have been more preferable a slightly deeper retracement has unfolded though in reality very little changes. If higher levels can be seen over the coming days then a running flat has completed wave-ii which is a very bullish proposition indeed. This type of correction usually crops up in the wave-iv position which is due to the fact that the trend is already well underway giving confidence for traders and investors to buy into any dip. So if our short term labelling is correct we’d be expecting a move at least the same length as wave-i from Wednesday’s low. That of course is assuming that a bottom has been made. If an extension takes place (which should be anticipated) then a more sustainable trend is going to kick into gear. Although we don’t concentrate on fundamentals the on-going problems within the Euro Zone simply can’t be ignored. They’re certainly moving the markets, pretty much on a daily basis. Further bad news in regard to Greece and the possible referendum are likely to have a dragging effect on the markets – at least over the short term. For now though we’ll concentrate on the patterns at hand which will hopefully continue to evolve as expected.
Trading Strategy
4/11:
With the divergence more or less unwound coupled with our wave count portending to a low being in position there is nothing wrong with accumulating positions in this general zone. Buying following a penetration above today’s high with the initial stop just beneath the low of wave-ii offers a low risk entry. However, it’s imperative that momentum continues next week with any failure to get on with the job reason to defend positions. If you want a little more confirmation that wave-iii is underway then wait until the high of wave-b is penetrated. As mentioned above despite our local market going nowhere over the past 2 ½ months the shorter term patterns continue to show clarity. If “bad news” events can be avoided over the next week or two then there is no reason why higher levels can’t be tagged. Still cautiously optimistic though an impulsive probe straight up through the high of wave-b at 4417 wouldn’t go amiss.
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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.
