Technicals | Oct 03 2012
Bottom Line 02/10/12
EW Trend: Corrective (?)
Price Trend: Up
Trend Strength: Strong
Technical Discussion
LAYMANS:
The Banking Sector index ((XXJ)) continues to look strong here with price breaking higher once again over the past couple of weeks or so. Remember, the ideal situation was to come back and test old resistance/new support which has pretty much been the way forward. It now seems likely that our target just above 5400 is going to be approached over the coming weeks. Of course the ideal situation is to break up through that level with a degree of attitude as it would suggest something much more bullish is going to unfold over the medium term.
However, there’s no point looking too far ahead at this stage of proceedings, especially with the smaller degree patterns (which we’ll discuss below) continuing to unfold very nicely. It’s been no secret that the XXJ has been helping to lead the broader market higher of late though if the ASX 200 ((XJO)) is to break out with a degree of attitude we’re going to need the help of the Materials Sector which isn’t looking anywhere near as strong. This trait could change though further confirmation is required. The one thing we don’t want to see is for price to head below 5000 as it would suggest the bounce that kicked into gear in August 2011 has run its course which could only mean more frustrating times ahead. Definitely something we don’t want to see.
TECHNICAL:
The subdivisions from the low of wave-B are a little difficult to decipher though the best interpretation is that the recent pivot high completes intermediate degree wave-(iii). The subsequent correction could well have run its course though the door is open for price to come back down and retest the line of support once more before heading higher. Possible, though either way the wave equality projection should be the next port of call. Rejection at the target would suggest a 5-leg movement completes wave-C and quite possibly a larger degree wave-(A). Should this be the way forward then further weakness would be anticipated though not necessarily a deep retracement. It could well be that more of a flat or even a triangle unfolds from those higher levels meaning the line of support will manage to hold.
Indeed, 5000 needs to hold to keep the medium term bullish case alive and well. As we’ve been mentioning over recent reviews the larger degree patterns lack clarity though they are clearly corrective in nature from the low of wave-[C] which is a fact that cannot be challenged. Not absolutely ideal as it means a much larger corrective pattern is unfolding though it doesn’t detract from the upside potential that remains over the longer term. In fact assuming a larger 3-leg corrective phase is unfolding from the March 2009 low (which appears to be the case) there is no reason why price can’t continue up toward the wave equality projection circa 6800. However, the way the patterns have been unfolding it’s highly unlikely to be a straight line rise with the series of overlapping wave structures continuing to dominate. Yes, price action has been impulsive from the early June low though it’s only a fractal of a larger corrective pattern.
Trading Strategy
Many of the Banks have either tagged or are approaching target areas which is reflected in the chart shown here. It doesn’t automatically mean that a retracement is around the corner although we have to be open to the possibility that it is. Much is going to depend on the reaction seen as price hits the wave equality projection. A straight probe up through that region without pause would put a much more positive spin on the larger degree patterns and likely means wave-C is going to subdivide and extend. Definitely not out of the question though there is no strong evidence implying the more bullish case is going to prove to be the path of least resistance at this juncture. As always price needs to prove itself meaning we have to remain slightly cautious in regard to the current trend morphing into something much more substantial.
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