Technicals | Jul 18 2012
Bottom Line:
17/7
EW Trend: Corrective
Price Trend: Down
Trend Strength: Weak
Layman's:
During our last review of Westpac we noted that a push above $21.90 would move us back to a neutral stance which was a feat that was achieved a few days ago. Not only was that line in the sand penetrated but the rise has been powerful over the past six weeks or so. The only slight concern here is that volume has been pretty lacklustre since the turnaround kicked into gear which is far from ideal. That said, volume has been lacklustre both here and in overseas markets for some time now and is perhaps just a characteristic we may have to get used to – at least over the medium term. In regard to the patterns quite a critical juncture has been met here with today’s high tagging a diagonal line of resistance which actually originated back in April 2010. We tend to focus on the horizontal variety though there will be a few traders and investors taking a long hard look at it. Should it be overcome in the coming days the next port of call is going to be the significant zone of resistance just above the $24.00 region. It’s probably going to be a much bigger hurdle to overcome though for the moment we’ll just see if recent strength can continue. Most banks have had a decent run of late though it’s far too early to tell whether it’s going to be the start of a longer lasting rally. What we can say is that for the moment buyers remain committed and we’ll run with it until signs of sellers appear.
Technical:
I’m going to put forward a slightly more bullish interpretation this evening which if correct offers the potential for a push up through the upper portion of the zone of resistance which is where the wave equality projection sits. Remember, the more confluence the better as it increases the chances the target is going to prove to be significant. However, the smaller degree patterns will dictate whether the upside target area is going to be tagged further down the track. At least at this stage the movement higher is looking impulsive in nature. Before we get into the wave count I just need to add that the large spike we noted last month on the 29th of May wasn’t actually bad data. The stock was traded up to those higher levels albeit probably by mistake. Still, for our purposes it’s pretty much irrelevant as the patterns remain the same either way. The bullish scenario put forward suggests a much larger 3-leg correction is taking hold from the low of wave-(B) made back in August 2011. Yes, ideally wave-(C) should be impulsive in nature though that clearly isn’t the case here. And with the lack of an obvious alternative count we’ll run with it for the moment. So at this stage the first two legs are in position with wave-C ideally continuing up toward the zone of resistance with a good chance of tagging the upper boundary just beneath the $26.00 level. Over the short term there is room for a pause for breath or even a small retracement though ideally any weakness will be corrective in nature and accompanied by low volume. This would keep the bullish case alive and well whilst providing a possible buying opportunity later down the track. It would take a rotation beneath the low of wave-B to invalidate the pattern. Although anything’s possible it isn’t our highest expectation.
Trading Strategy 17/7/12:
The mere fact that the typical retracement zone put forward last time has been penetrated moves the pendulum firmly toward the bulls despite it still being early days in the bigger scheme of things. That said, at this stage a low risk opportunity isn’t presenting itself. If the diagonal line of resistance can be overcome look for a retest as that would provide a low risk entry. Just bear in mind that the zone of resistance is going to be a tough hurdle to overcome. In fact it’s likely to repel any advances over the short term though ultimately it should be exceeded by a significant margin. That said, there’s no point looking too far down the track in the current environment as the picture changes very quickly as we’re all well aware. Longer term investors should be focusing on the recent high at $25.60 as a push above that level would strongly imply that a much longer term trend to the upside was unfolding.
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The above views expressed are not FNArena's (see our disclaimer).
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