Technicals | Feb 23 2012
LAYMANS:
'…a reasonable top may have now been locked in on the U.S Index at 82.05.' We continue to stick by this with the potential for a swing pattern to the downside now being closely monitored. Even though price has made its way higher over the past 10 months or so, we've been labelling this move as a bear market rally only with our upside target at 82.10 now having been all but met. The recent push lower off those highs, in our view, is now having a minor upside correction on itself. Yet our expectation remains that it will only be very short lived. With a push below 78.43 potentially reaffirming that the multi year longer term downtrend may be ready to take centre stage yet again. As such, we continue to side with the Bears here. With only a strong push above the recent 82.05 highs sending us back to the drawing board for a reassessment of the analysis.
TECHNICAL:
We now have four touches in place on our larger falling wedge pattern, and as we know the minimum criteria is generally five touches. As such, for the pattern to remain valid we continue to look for a fifth tagging of the pattern's boundaries via another downside move that will dominate proceedings over the coming months. The price projection for the move is below the May 2011 historical lows at 74.17. With the 70.00 psychological price area a very strong contender in relation to where this pattern may finally complete. I say psychological as there is nothing else technically present around levels this low that offers up any form of support. We've labelled our chart now as tentatively being a Wave-4 high in place at 82.05 with the potential for a 5-wave downside move now in play as part of a 5th wave. The move does not have to be a clear 5-wave pattern though. And there is certainly no criteria that specifies this move as needing to be in this form. It could just as easily be choppy and overlapping. Yet the dominant direction we are looking for price to head in, potentially for the rest of the calendar year as a minimum, is down.
We will certainly gain further confidence in the analysis if a lower swing high pattern could trigger now shorter tern. And by that I mean a strong downside move, backed by volume, that breaks below 78.43. We have witnessed seller presence on the recent run down to 78.43 off the 82.05 highs. And the small counter trend move higher we are presently witnessing has thus far tagged 80.24 which is to the tick the 50.0% retracement area. From a timing perspective this move up still looks a little underdone. So a more clear cut a-b-c move to the upside, perhaps as high as the 61.8% retracement area circa 80.66, is certainly still possible. Yet if our analysis is to remain on track, I would ideally not like to see levels head too much higher than this. Time for price to back the analysis.
Trading Strategy
21/2:
My view is that a trade on the short side is nurturing away here. Aggressive traders could look to the 80.24 – 80.66 price zone to take on partial positions if a clear rejection is witnessed at these levels. Especially if accompanied by higher than average volume. Don't just jump in though. We need the evidence of a clear rejection first. Positions could then be added to on a decisive break below 78.43. Wrong above 82.05.
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