Technicals | Aug 10 2012
Bottom Line 08/08/12
EW Trend: Corrective
Price Trend: Up
Trading Strength: Strong
Technical Discussion
LAYMANS:
It hasn’t taken Telstra long to attain and even slightly exceed our short term target which of course is a pivotal point in regard to the patterns we’ll discuss below. What’s caught my attention here is the large increase in volume seen late last week. This is often a precursor to a change of trend, even if it’s only over the short term. Today’s weakness adds weight to the possibility that a pause for breath is going to be taken over the coming weeks. The ideal situation is to rotate back down toward the zone of support as it would provide a good buying opportunity later down the track. However, we can’t ignore the strong, powerful price action over the past few months which has clearly made a statement. So I’m just a little dubious here in regard to getting down toward our target area. One thing’s for sure, if yesterday’s high is overcome with a degree of attitude then the trend remains firmly intact. There would then be no reason why significantly higher levels can’t be tagged over the medium term. It’s definitely one to keep a close eye on throughout the rest of the week as follow through to the downside could mean an interim top is in position.
TECHNICAL:
It’s quite unusual to see two extended legs though it certainly appears to be the situation here. However, if our wave count is to be correct the next significant move needs to be to the downside – especially having seen our extended target tagged. If we have seen the completion of a larger corrective move to the upside the ideal situation from an Elliott perspective is to see a retracement lasting several months. As mentioned last month it could well prove to be a flat correction which is really due to the fact that the line of support doesn’t sit too far beneath current levels. It’s also worth noting that some weak Type-A bearish divergence is in position which was triggered today. Our oscillator is also well into the overbought position on the weekly chart (not shown). Now let’s take a look at the alternate count put forward which is a very bullish proposition indeed. If we start the count from the March 2011 low it could be argued that we’re currently in the midst of a larger 5-wave move to the upside. The August 2011 low being wave-2 with the current thrust higher part of a strong and powerful extended leg within wave-3. Interestingly, the 2.618 projection of wave-1 has been tagged almost to the cent which in itself is reason to sit up and take notice of the secondary count. The bottom line is that continued impulsive price action north from here means we have to be cognizant to the fact that something much more bullish is unfolding here. Indeed, a push above yesterday’s high would clearly make a statement of intent. Watching with interest.
Trading Strategy
Should you still be holding the stock it may be wise to place the trailing stop just beneath the minor pivot low at $3.84 as a push beneath that level would imply a more substantial retracement is likely going to unfold. As mentioned last month I’m not a great advocate of taking profits at set targets for one very good reason. Extensions can occur which could well be what we’re seeing here, especially if yesterday’s high can be overcome immediately. Indeed, pure momentum traders could buy following a break above yesterday’s high and just follow the trend despite the Elliott connotations offering the potential for a pause. Much is going to depend on whether today’s decline was the start of something a little more substantial or a mere blip offering a buying opportunity. Price action over the next few days should provide a definitive answer.
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