Technicals | Jan 24 2013
Bottom Line 23/01/13
EW Trend: Impulsive
Price Trend: Up
Trend Strength: Strong
Technical Discussion
LAYMANS:
Mermaid Marine ((MRM)) had been meandering sideways on the run up to our last review although with the prior trend being up our expectation was to see price break to the upside. We haven’t been disappointed with a very strong powerful movement higher kicking into gear almost immediately. We did have the added hurdle of the line of resistance to contend with but as can be seen although rejection was seen initially at that level it was overcome with relative ease. One thing we often talk about in regard to breaking up through significant resistance is volume. It’s essential that it increases during strength which is exactly what transpired here. So all in all the patterns are going to script with plenty of upside potential ahead. Quite interestingly the breakout is very typical of a company that has been stuck in a trading range with price exploding through the upper boundary. In fact quite similar to companies like SUN and Crown which have pretty much done exactly the same thing. That is consolidating for a substantial period of time before making a move. One thing we know from experience is that the longer the consolidation period takes the more forceful the breakout will be which is a fact that cannot be argued in this instance.
TECHNICAL:
We had our eyes firmly fixed on an Elliott triangle last month which appeared to have drawn to a conclusion. Remember, these types of patterns should contain 5-internal swings labelled (a) through-(e) which is exactly the situation here. There’s no doubting the fact that the break up through the upper boundary of the pattern was impulsive in nature which is exactly what should be occurring at this stage of the trend. The only slight caveat is that in theory wave-2 can never be a triangle which means the pattern is either coincidental or is corrective in nature. Obviously we’d prefer it to by the prior as it portends to the trend continuing unabated. Adding weight to the bullish case is that the wave equality projection has been exceeded, albeit marginally which increases the chances that a third leg is unfolding. Should price start to head lower from here then a more substantial corrective phase will likely take price back down toward old resistance/new support just around the $3.45 area. I reiterate that this is the bearish scenario and is by no means a high probability proposition. In fact longer term it’s still bullish but means a little more patience is going to be required before the next buying opportunity presents itself. On the flip side, should price continue onwards and upwards from this juncture then the next target sits at $4.32 which is the 1.618 projection of wave-1. Definitely a level to keep a close eye on should buyers remain committed here on in.
Trading Strategy
“…The trigger point is the line of resistance so if you’re looking for a trade buy following a break above $3.45 whilst keeping the risk low with the initial stop sitting just beneath what would then be a new line of support circa $3.30…” If you’re riding this one higher the trailing stop should be set at breakeven as an absolute minimum resulting in a technical risk free trade. Continue to trail the stop beneath prior pivot lows as they develop to lock in some profit should a retracement start to unfold. A small gap was left a few days ago that may need to be filled so if you’re looking for an entry be on the lookout for that. Should the high on the 14th of January be tagged and rejected nimble traders could jump on with a view to trading the stock up toward the $4.30 region. Whichever way you look at it Mermaid is looking pretty strong here though a pause for breath over the short wouldn’t be a surprise.
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