XAO Long Term Update - May 2012

This post is an update to the long term chart here and updates the current view (no change to the wave count). What's different is the ending of the wave 'B' circle - ending a triangle. Some suggested downside targets are included based on Fibonacci relationships of wave (1) down of wave 'C' circle and updated downside targets based on Fibonacci relationships of wave 'A' circle.

A downside target of 2350 is an interesting target area as it represents several relationships: 61.8% of wave 'A' circle and a relationship of wave (1) down: using wave (1) = wave (5) and wave (3) is 161% of (1) will give an approximate target of 2350.

The extreme downside targets are also valid since they correspond to previous wave 4's of different degrees:

• 1500 for the 1987 wave 4, and
• 300 for the 1975 wave 4 of one larger degree

The 900 target area represents wave 'C' circle = wave 'A' circle and would be another target of high interest.

Think any of these target areas are unrealistic? Just take a look at the MSM financial assertions and the postings from numerous people in the 'know' on the internet as wave 'A' circle started to unfold back in 2007 - hardly anyone believed the XAO could more than halve in value in under 2 years. Are we on the precipice of a new bull market to regain all those losses or is there more uncertainty than ever before?

Short Term Update - Start of a new trend

The substantial sideways move on the XAO looks to be complete. The rapid declines have taken out the 2nd flat that starts at the end of the 'X' wave – a good indicator the wave (2) correction is complete and  change in trend and wave count has occurred.

The MACD price oscillator has been divergent for many months indicating weakening momentum which combined with wave structures advancing slowly upwards in waves of 3's is a bearish indicator.

For the decline, the orange lines represent a declining channel that appears to still have room to fall to deliver a 5 wave decline. If the index continues to fall with a divergent MACD, then expect a bounce soon probably at around 4000. This level also represents 38.2% of wave 3 in the decline (not labelled). Right now, the index looks to be consolidating as a triangle

It should also be noted that the first A-B-C flat isn't strictly correct since wave 'C' doesn't clearly show 5 waves up. This was discussed some time ago but we had to go with what we saw until the wave counts proved there was something wrong (such as a small 5th wave failure within the B wave). Apart from this anomaly, both flats retrace at least 61.8% and are a 3-3-5 structure with a triangle for the X wave.

XAO Short term update

The long drawn out stucture on the XAO does not appear to be a double 3 correction from what has transpired, however the recent declines may provide some further clarity on the short term wave count. It's possible that a double flat correction may have ended and the declines (in a 5 waves) may be a significant indicator.

The next week or 2 should provide clarity...if major near term support regions are broken then a significant leg down may b underway.