Technicals | May 10 2012
Nick Radge [reporting as of last night]
LAYMANS:
The weakness seen over the past few days gives us reason to take a closer look at the ASX 200 (( XJO)) tonight, especially with our “wrong below” level at 4246 coming within a whisker of being tagged. My main concern is not so much the weakness that’s ensued but more the manner in which it’s unfolded.
Monday was a warning sign for sure as yet more concerns over Europe triggered steep falls overseas. It was almost inevitable that we followed suit, especially with our local market more than happy to take on board any bad news recently. This is the exact reason why we wanted to see the line of resistance penetrated by a reasonable margin. It would have provided some leeway in regard to a pull-back and kept the tentative bullish case alive. Not to be. It’s also quite interesting that although European markets bounced strongly yesterday we failed to follow suit with another lacklustre effort in regard to a bounce. Even a close well off the session’s lows on the U.S. markets overnight failed to inspire today with sellers remaining firmly in control.
That’s the bad news. Slightly more positive is the fact that although price has probed right back into the trading range that’s been unfolding since August 2011, major falls from here aren’t anticipated. We simply can’t ignore the strong buying demand that occurred late last year at those lower levels. All things being equal those same buyers will likely step up to the plate once more should the downturn gather pace. To move back to a bullish stance we’d need to see the high made early last week overcome which isn’t looking likely at this stage of proceedings. This suggests more of a sideways move is going to be required before another breakout is attempted.
TECHNICAL:
As mentioned on Friday I’d have been more than happy with a sideways consolidation or even slight weakness before the next leg higher kicked in though it certainly hasn’t turned out that way. However, the bullish case hasn’t been totally invalidated although there are obviously serious headwinds to overcome before seeing a more sustainable trend to the upside. The diagonal line of support was briefly penetrated today, just as it was back at the low of wave-B. We prefer the horizontal variety though the fact it’s been tagged on six occasions over the past few months means that many traders and investors will be keeping close tabs on it.
In reality, should today’s low be penetrated with a degree of attitude then the support caves in and our current labelling is incorrect. It’s also worth remembering that a break out of a triangle should be strong and impulsive in nature which isn’t really what’s occurring. A strong reversal higher immediately would get our labelling back on track though it’s difficult to see what the trigger for such a move would be. Still, the market tends to prove most people wrong most of the time so we can’t discount a change in sentiment entirely despite it looking highly unlikely at this point in time. So for the moment we’ll continue to run with our wave count though it’s undoubtedly starting to roll over.
At this stage there is no obvious alternate count showing which is really due to the myriad of overlapping wave structures that continue to dominate the chart. Remember, from an Elliott stance the ideal situation is to see impulsive moves followed by symmetrical retracements which is a trait that has clearly been lacking over recent times. The price action throughout the rest of the week will be very telling indeed with our main focus of attention being on the diagonal line of support and whether it can hold. If it can’t then lower prices are likely going to be the way forward although as already mentioned a major sell-off isn’t expected.
Trading Strategy 9/5:
The severity of the decline over recent days just reiterates the importance of risk management with our only concern here being to protect our accounts. That doesn’t necessarily mean reverting to cash immediately though there is a good case for tightening trailing stops to reduce risk. We will continue to revert to cash should the current weakness continue unabated. That said, I see no valid reason to be looking for too many shorting opportunities until some clarity returns. There’s simply no way of telling what lays ahead over the short term at this stage though obviously initial signs aren’t looking positive. Perhaps the U.S. markets can continue to show some resilience although as we’ve mentioned in previous reviews, strength over there hasn’t been flowing through to our local market which is still reason for concern.
Re-published with permission of the publisher. www.thechartist.com.au All copyright remains with the publisher. The above views expressed are not FNArena's (see our disclaimer).
Risk Disclosure Statement THE RISK OF LOSS IN TRADING SECURITIES AND LEVERAGED INSTRUMENTS I.E. DERIVATIVES, SUCH AS FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER YOUR OBJECTIVES, FINANCIAL SITUATION, NEEDS AND ANY OTHER RELEVANT PERSONAL CIRCUMSTANCES TO DETERMINE WHETHER SUCH TRADING IS SUITABLE FOR YOU. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES, OPTIONS AND CONTRACTS FOR DIFFERENCE TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. THIS BRIEF STATEMENT CANNOT DISCLOSE ALL OF THE RISKS AND OTHER SIGNIFICANT ASPECTS OF SECURITIES AND DERIVATIVES MARKETS. THEREFORE, YOU SHOULD CONSULT YOUR FINANCIAL ADVISOR OR ACCOUNTANT TO DETERMINE WHETHER TRADING IN SECURITES AND DERIVATIVES PRODUCTS IS APPROPRIATE FOR YOU IN LIGHT OF YOUR FINANCIAL CIRCUMSTANCES.
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.
