Monday, August 31, 2009

XAO - Medium Term Outlook

On the daily chart it appears that one more upwards thrust is required to complete the second zig-zag in a double zig-zag correction for wave 'B' circle.

Under this scenario, I would envisage that the XAO will get close to or break the upper trend channel line shown in the diagram. This means a target area of around 4700-5000 points.

It should also be noted that this wave 'B' circle may be only 1 wave in a multi-wave correction that will last for many months. However, it is too soon to speculate if such a scenario will actually play out. My assumption at this stage is that once wave 'B' circle completes (as shown), the next major leg down will be underway (until proven incorrect).

Monday, August 17, 2009

XAO - Medium Term Outlook

The XAO Medium term structure has been updated as the Wave (3) expanding triangle scenario has been proven to be invalid by exceeding the June 12th high and continuing higher (also invalidating a elongated flat for the next triangle leg down) . The last medium term outlook here describes the wave (4) expanding triangle scenario.

After looking at a number of possible scenarios, the evidence at hand indicates wave (4) completed at 19th Feb 09, and the completion of 5 waves down on 10th Mar 09 as shown on the chart.

Fives Waves Down
Fives waves down is a bearish indicator for the XAO (and has always been anticpated regardless of the route to a completed 5 waves down). Another 5 waves down needs to complete this ongoing bear market - corrections cannot be constructed from 5 waves, minimum of 3 waves is needed. This first wave has now completed - wave 'A' circle, wave 'B' circle is the second wave and the final wave down is yet to start (or about to).

Counter Trend Wave
The wave 'B' circle counter trend upwards thrust from the low is moving in waves of 3 - a key indicator that the upwards thrust is corrective. The 38.2% retracement has almost been touched and can signal the completion of this counter trend wave (light blue) or signal a several week correction before moving to new highs (orange).

The case for wave 'B' circle completion will fall into 2 categories:
  1. More Complex Correction: The leg upwards may be only the first leg of a 3 wave correction where wave 'B' circle may in fact take longer to complete and may retrace further. Hence, wave 'B' circle on the chart above would only be the first wave of a 3 wave complex correction upwards or sideways.
  2. Completion? So far: Time wise, wave 'B' circle has taken 31% of the time to complete versus wave 'A' circle. Price wise, wave 'B' circle has retraced almost 38.2% of wave 'A' circle. This suggests that upwards wave 'B' circle has completed a minimum amount of time and price to correct the whole decline from Oct 2007.