Technicals | Sep 17 2012
Bottom Line 12/09/12
EW Trend: Corrective
Price Trend: Up
Trend Strength: Strong
Technical Discussion
LAYMANS:
Although the trend was still looking reasonably strong during our last review the patterns were undoubtedly starting to look a little stretched with the noted increase in volume also suggesting that sellers were starting to appear. Some weakness has been seen over the past few weeks although it certainly hasn’t been significant. We also have to take into account that the stock went ex-dividend on the 20th of August which accounts for some of the decline. In a perfect world I would like to see lower prices tagged with the line of support being the first port of call. Indeed, we are technically in a position to head down toward those slightly lower levels pretty much immediately though there is room for one final show of resilience. Unless the prior pivot high at $4.09 is overcome there is still every chance that an interim high is firmly in position. One thing’s for sure, if the line of support is breached over the coming weeks the chances increase that a more substantial pull-back is going to unfold. The lower target sits around the $3.20 area though of course we’re looking much further down the track now. For the time being we’ll focus on the smaller degree patterns as they should continue to show us the way forward.
TECHNICAL:
The push down from the high of wave-C is undoubtedly a corrective movement which completes the minor degree wave-a. As can be seen the typical retracement zone has already been tagged meaning we are in a position to see the anticipated next leg south. Interestingly, the wave equality projection shows good confluence with the line of support making it a high probability target area should the next move be to the downside. If the patterns play out as anticipated the subsequent low point should only complete intermediate degree wave-(a) and therefore not be the full extent of the counter trend move. If we are correct and a larger degree wave-(A) is firmly in position then price should rotate down to the larger degree typical retracement zone with the upper boundary sitting at $3.32. That’s assuming the more typical zigzag pattern is going to evolve. That lower target will be invalidated should more of a flat pattern take hold which would actually be a very bullish proposition. If the 61.8% retracement level is penetrated over the coming week or so then the more bullish scenario is likely going to be the path of least resistance. We’d then expect to see the high made on the 7th of August tagged again before sellers once again enter the fray. So unfortunately there are a couple of scenarios to keep a close eye on which is really down to the lack of distinct subdivisions from the November 2010 low. Overlapping wave structures have definitely dominated over the past eight months or so despite the significant percentage gains realized.
Trading Strategy
Aggressive traders could initiate short positions following a break beneath Monday’s low with the initial stop one tick above the 61.8% retracement level as annotated at $3.95. If that line in the sand is overcome then the smaller degree count is incorrect meaning defensive action needs to be taken. The initial target would be the line of support with a chance that price could probe down to the wave equality projection. Anything lower at this stage of proceedings is a low probability scenario, at least without first seeing a decent bounce. A continuation up through the high of wave-(A) means the prior trend hasn’t run its course though it would undoubtedly invalidate our wave count. Not our highest expectation but something to bear in mind if strength does reappear with a vengeance.
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