Technicals | Jan 25 2012
LAYMANS:
The XJO is still heading in the right direction but again there isn’t a lot of conviction behind the recent show of strength. Yes, volume has started to increase slightly which is a step in the right direction though this trait needs to continue if a more substantial trend is to develop. If the Euro Zone can stay out of the headlines for a change and the U.S. indices continue to gather pace then in theory our local market should follow. However, as mentioned last week the Australian market is diverging slightly which continues to be of concern. Still, our stance remains firm in that the target area as annotated just above 4600 should be tagged over the next couple of months or so. If this is to be the path taken we’ll need to be vigilant to how price reacts at those higher levels. A probe straight above would keep the more bullish case on the agenda meaning the April 2011 high has a good chance of being tagged though much later down the track. On the flip side, rejection at the target would mean at least a sideways meander or at worst a reasonable pull-back before further strength is seen. Right here and now there is scope for a small dip though it’s by no means a prerequisite in regard to further advances. It should only last a week or so should it transpire.
TECHNICAL:
Whilst our wave count remains firmly in place we can’t get away from the fact that impulsive price action continues to evade us which is still of slight concern. As such I just want to put forward a variation of our count here though both portend to further strength ahead with the target area remaining in position. Since the highs of wave-A price has been coiling in a triangular shape which by all accounts could be in its latter stages. Remember, Elliott Wave triangles should contain five internal swings labelled-a through-e. It could be that the final probe lower is going to kick into gear next week with the ideal scenario being that the lower trend line of the pattern is tagged. Strength in that region would complete the set-up and lay the foundations for another impulsive movement higher. Technically, a push above the high of wave-b immediately invalidates the symmetrical triangle theory and adds weight to the count we’ve been following over recent times. We’ll discuss more during this evening’s video. We also have to remember that a minor ledge of resistance isn’t sitting too far above current levels which is likely to be a stumbling block over the shorter time frame. If it can be overcome the wave equality projection becomes a high probability target area. Although we don’t take too much interest in momentum indicators our oscillator is sitting in the overbought position on the daily time frame. If a downturn does kick in then weakness could continue until the oscillator rotates back down into the oversold position. If this coincides with the lower portion of the triangle being tagged it would add weight to the bullish case from that point forward.
Trading Strategy
20/1:
It’s quite interesting that the Growth Portfolio has been presenting buy signals recently with 6 put forward yesterday alone. Remember this is a mechanical system and doesn’t take the Wave Theory into account in any way shape or form. It only considers the “here and now” and doesn’t try to predict the future. So despite what the patterns portend to it’s imperative that all signals within those mechanical systems are adhered to without a second thought. Back to the chart a hand. A low volume meander down to the lower boundary of the triangle followed by clear rejection would be reason to take an interest and look for a swing trade back up to the line of resistance just beneath 4400 as a minimum. Ideally that level will be overcome which should result in the wave equality projection being approached in reasonably quick fashion.
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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.
