Technicals | Mar 07 2012
LAYMANS:
Since the end of December just over a 20.0% rise has been seen up to the highs made a couple of weeks ago which is a decent effort whichever way you look at it. Not only that but the price action has been strong and clean which always suggests there is further upside still to come. The only slight concern is the severity of the decline over the past few days which isn’t looking quite as choppy as we’d like. In fact the typical target area has already being met which is far from ideal. Remember we need to see symmetry both in terms of price and time which means the current pull-back should have taken longer to complete.
This keeps the way open for some choppy price action over the coming weeks where it’s more than feasible that the recent highs at 7209 are retested but rejected at the first attempt. We’d then expect to see a further decline taking price back toward current levels completing the corrective phase. The one thing we don’t want to see is the lower portion of the target area exceeded. It wouldn’t invalidate the bullish scenario entirely but it would put it under some serious stress. So it’s quite important in regard to the longer term prospects that buyers appear pretty quickly or the door remains open for those late December lows to be revisited. Not what we want to see.
TECHNICAL:
Despite the less than ideal retracement from the high of wave-i our longer term pattern remains firmly intact meaning we’ll continue to run with it until it starts to roll over. The retracement up to this juncture hasn’t taken anywhere near 38.2% of the time taken by the prior trend which means in theory the retracement shouldn’t have terminated. This is despite the typical retracement zone already having being tagged. What I’d like to see now is a low volume choppy bounce back up to the highs of wave-i though I’m not convinced that it’s going to be the way forward.
If those higher levels fail to be attained before weakness again start to show then a deep zigzag could well prove to be the pattern of choice. Not something we like to see as whenever the typical retracement zone is exceeded the chances lesson that our wanted trajectory is going to be taken. It doesn’t mean to say our count is invalidated but it’s a heads up in regard to us looking at possible alternatives. To invalidate our labelling the low of wave-(4) would need to be penetrated giving us a little wiggle room over the coming weeks. If it is breached then the April 2011 high is more significant than first anticipated resulting in a deeper and longer corrective phase.
Not our highest expectation though we have to remain aligned to what the technicals are telling us and the various lines in the sand that validate/invalidate our analysis. Should the bearish scenario be the path of least resistance then the retracement could rotate all the way down to around the 5000 level though it would likely take many months to get down into that region.
Trading Strategy
6/3:
Despite the target area being met the patterns at this stage lack symmetry meaning we have to remain slightly cautious in regard to any upside potential. As mentioned above a low volume corrective structure higher would be a strong signal that further weakness could be around the corner. Not that we’re expecting a deep retracement but some choppy, messy price action could well be the way forward over the coming weeks. As long as the 61.8% retracement level isn’t exceeded by a reasonable margin the bullish case over the longer term remains intact. Indeed 6458 should be our main focus of attention over the coming days. A break beneath would ring the alarm bells and suggest the low of wave-(4) is going to come under some pressure and quite feasibly penetrated by a reasonable margin.
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