Technicals | Apr 11 2013
Bottom Line 10/04/13
Daily Trend: Down
Weekly Trend: Down
Monthly Trend: Up
Technical Discussion
There was no reason to expect anything other than lower prices following our last look at BHP Billiton ((BHP)) with the downtrend remaining firmly intact with buyers unwilling to enter the fray. However, some resilience is now being shown though we’re not getting overly excited in regard to a substantial trend higher unfolding. There is scope for a continuation up into the target area as shown which does offer reasonable upside potential from current levels though at this juncture it would take a push above the upper boundary of that target zone to move back to more of a bullish stance longer term.
Plenty of work to be done before reaching those heights so for the moment we’ll sit back and see if the current reversal can gain a head of steam. From an Elliott Wave stance it’s pretty straightforward. The decline from the high of wave-X is impulsive in nature to say the least which always suggests the correction has further to run before drawing to a conclusion. It doesn’t necessarily mean that the low made a few days ago is going to be penetrated as the on-going corrective phase could unfold as a flat pattern. But whichever way you look at it we can’t view the current strength as anything but a bounce in the bigger scheme of things. And much will depend on how any rally unfolds. A push straight up into the typical retracement zone without pause for breath should result in the high of wave-X coming under pressure. That’s the most bullish scenario though I stress it’s by no means a high probability one.
One aspect of pattern recognition we like to use in conjunction with the Wave Theory is time. As BHP tends to chop and step its way both higher and lower we’ll concentrate on the more recent price action. Specifically from the July 2012 low which shows a corrective structure up into the February high. In essence this is the prior trend which is currently being retraced. Normally a correction will take between 50.0% – 61.8% of the time taken by the prior trend although the minimum expectation is the 38.2%. In this case we don’t need to make any projections as it’s plain to see that the minimum requirement hasn’t come anywhere near to being achieved. In fact the recent low didn’t even tag the 23.6% level. So what does this mean? It strongly implies that a more convoluted corrective phase is taking hold, likely unfolding as a combination pattern. And this is why the door is still open for the flat pattern mentioned above to continue to evolve. Our focus of attention now needs to be on how any rise unfolds and whether it’s corrective or impulsive up into the target area – assuming that zone is going to be tagged.
Trading Strategy
Despite the turnaround over the past few days it’s no reason to jump on; especially as a low risk entry isn’t presenting itself. If we are to see s 3-leg movement up into the typical retracement zone as anticipated there will be a chance for nimble traders to jump on for the final leg higher a little bit later down the track. First of all we’ll need to see smaller degree waves-a and-b complete before getting interested so some patience is going to be required. It’s also worth noting that distribution in the target area would be viewed as a selling opportunity for the more aggressive trader though again that’s something to take a look at closer to the time. For now, we’ll continue to stand aside.
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