Wednesday, June 24, 2009

XAO - Still declining from a short term top

The XAO is still declining and the next several days will help determine what wave structure unfolds. Ideally, the wave count shown should unfold and provide a short term bounce.

However, I'm also half expecting this leg to sub-divide further and potentially drive thru the 3700 support (also 38.2% retracement of wave 'C'). If so, then I would be tempted to label this leg down as wave 'a' circle once this leg completes. Under this scenario, 3500 would be a potential target area for a bounce.

Overall, the key is to see a 5 wave decline from the end of wave 'C' in order to expect a short term bounce upwards.

Thursday, June 18, 2009

Australian Resource Sector (XMJ)

The XMJ has been correcting since November last year and has unfolded as a Double zig-zag correction (so far) for either the (A) wave of a much larger correction or 'B' circle wave to complete the correction.

The first chart here, was posted on ASF back in April and provided two likely wave structures for the XMJ: Either wave (A) had completed and the index was heading lower or another push up to complete a more complex correction (double zig-zag) was needed.

The double zig-zag played out and took the index higher, which has now topped mid-June at around 11200. So the question now is: Will the index complete wave (B) lower and fulfill a long term flat correction that effectively sees the index playing out sideways for many months? Or will the index head lower and commence the next 5 waves down? In any event, it is extremely likely that a significant down leg is now unfolding.

Considering that the current count on the XAO is calling for an expanded triangle, I'm giving the odds in favour of a flat on the XMJ. Hence, wave (B) and (C) need to play out. The second chart here from 17th June, outlines the preferred wave count. This may mean that the XMJ won't see a new low (perhaps Double bottom, or close to) until wave 'B' circle completes.

Tuesday, June 16, 2009

XAO Medium Term Outlook

I thought I would provide some context to the shorter term charts, so you'll find the XAO medium term outlook for the current wave count shown on the left.

I took a look back at some medium term charts from last year that contained estimations based on Fibonacci relationship and an assumed 5 wave decline from the 2007 top.

So far, the XAO has approximately followed the estimations with the exception of the current expanding wave (4) triangle that will take some time to unfold. I had assumed that a contracting triangle would unfold in the wave (4) position and didn't expect an expanding triangle as they seem quite rare on the XAO.

I haven't taken a close look at the time relationships between the waves as yet, something I'll do shortly.

Wave (5), (not shown) may result in a 5th wave failure because of the expanding triangle - hence there is a high probability that there will be sideways action for quite some time (eg trading in a 800+ point range)

XAO Wave 'D' down underway

Recession fears cripple stocks
That was the headline on CNN Money this morning, I thought we were already in a recession/depression/major correction/or something - when you can't pin the market action on an event - make up a headline, a usual Media tactic.

Another way to interpret the recent down leg is that wave D of an expanding triangle is now underway on the XAO.

The 4070 mark was hit and exceeded last week topping at 4079 or almost spot on 61.8% of the previous 'a' circle leg. The 4079 level should not be broken in the expanding triangle scenario - if it is, then something much more complex is unfolding. The wave structure from the recent top is moving in 5 waves down, so there is supporting evidence that more downside is to follow. This supports the probability that wave 'D' down is underway.

A rough short term wave structure is provided that suggests a retracement is needed soon before wave (iii) takes hold for more aggressive downside (should this short term wave structure unfold, then technically a head and shoulders pattern would unfold).

Wave 'D' should head to new lows (possibly to 2700-2800 on the XAO) before wave 'E' upwards kicks in.

Thursday, June 11, 2009

XAO Wave 'C' at a top?

Wave C in the longer term Expanding Triangle scenario may have topped today, with the final wave 'v' looking complete and being approx 61.8% of wave 'i'.

There is potential for a little more upside, but looking purely at the probabilities and the XAO's love of 61.8% fib ratios between waves moving in the same direction - extreme caution on long positions is now warranted.

There is also a close fib ratio between this final leg and the previous 'a' circle leg as well - wave 'c' circle being almost 61.8% of 'a' circle. Breaking below the bottom of wave 'iv' and then wave 'b' circle should signal the next down leg (pending the analysis of the unfolding wave structure of course).

Wednesday, June 10, 2009

XAO - Expanding Triangle for Wave (4)

Wave 'C' Not yet completed. Under the Expanded Triangle scenario, Wave C has continued to new short term highs but has provided more clues to it’s structure – namely 4 small waves up ‘i-iv’ have completed (wave iv may still have one more leg to complete). The wave ‘b’ circle has unfolded as a triangle, but an additional triangle unfolded within this correction to add complexity in calculating it's ending point.

Short Term. Five waves up on the last leg of wave C should complete very shortly and provide a turning point just above the 4000 mark (to around 4070). Wave ‘iv’ may not yet be complete, therefore some minor downside could unfold before heading higher to complete 5 waves up.

Overall Wave (4) target. It should be noted that wave 4’s tend to retrace 38.2% of wave 3’s – this would put a completed wave 4 retracement at around the 4300 mark on the XAO. Therefore a drop into wave D down (to a new low) and then back up into wave E at around 4300 would be a reasonable estimation for a completed expanded triangle scenario. Wave (5) down would then commence.