XAO short term update.

A short term update today on the recent reversal...

In the last post a point was made that under the ending diagonal pattern, a further push upwards could occur and thus ending this wave. This occurred, and last friday we saw a reversal down to the supporting trend line of the ending diagonal.

I strongly suggest that the ending diagonal is complete and the wave (c) top shown cannot be broken for this pattern to remain valid.

A careful watch on the XAO

An ending diagonal wave appears to have completed on the short term All Ordinaries index. This provides some insight on the future action of the XAO, usually a drop back towards the vicinity of the previous wave 4 - in this case wave 'iv' in the 4600 region. At the same time, it also supports an end to wave '2' that will see the index start (a long awaited) wave '3' down - the evidence isn't in as yet, but some clarity has been provided (and nothing to do with the Queensland Floods).

Breaking through the lower ending diagonal trend line and hitting 4600 for a brief pause before continuing lower would be expected under this wave count. Breaking above the wave '2' high as labeled would invalidate the current count (although a small push higher is still allowed under this ending diagonal, but cannot be longer than wave (iii) )

The Downtrend ready for a run?

On the bearish count, I'm a little cautious around Christmas as the holiday mood is usually positive for stocks and the short term wave count hasn't been clear and a break above the 76.8% retracement of wave (i) down has occurred (although perfectly legal).

The anticipated  A-B-C (circle) correction currently underway (or finished), doesn't have clarity as the C wave needs 5 waves up. However, on the very short term, one can count an ending diagonal pattern which is evident in wave 5's and wave C's of flat corrections.

Under this count wave (ii) should have finished today (or one more small push upwards is needed) and the down trend should resume. Breaking above the Wave '2' high at 4885 will invalidate the count on the short and possibly medium term outlook.

Ending Diagonal Complete - What Next?

The All Ordinaries is bouncing off channel support, but it appears a small 5 wave decline has been completed in order to get there. There is potential for one upwards push in the next couple of trading days to complete a flat correction for wave '2' circle (as shown) before further declines are expected to develop.

It should be noted from this post that a possible wave '2' top (from 2 high potentials) was expected at 4874 based on Fibonacci relationships of prior waves, the XAO pushed above this level by only 10 points before commencing the decline - showing Fibonacci provides some very useful "suggestions" for turns.

I also need to update my chart that shows the moon cycles compared with EW counts on the XAO - a post for later.

 

The case for Wave 2 completion

The XAO has declined after slightly exceeding the 76.8% retracement level and after completing an ending diagonal wave.

Discussed in the last post there was a distinct possibility that there would be a throw over of the 1-3 trend line in the ending diagonal on higher volume before declining.This has occurred, and signals an end of the current trend (at least in the short term).

The decline now needs to commence in 5 waves down thru the channel support lines (not shown) in order for a convincing start to wave '3'.

Ending Diagonal Forming on the All Ordinaries?

Since mid September the XAO index has moved in waves of 3, which has provided difficulty in establishing a firm count over the short term. However, there is strong evidence that wave 'iv' is an expanding triangle and the move upwards since the 5th Oct is an ending diagonal. Ending Diagonals must have overlapping wave 2 and 4's, move in waves of 3 AND wave 3's must not be the shortest wave. Therefore wave '5' circle cannot be longer than wave '3' circle in the current scenario.

Wave '4' circle could still be developing (possibly as a triangle), however the upside target should still be  around 4800 or slightly higher, perhaps with a throw over on higher volume.

The MACD price oscillator still continues to be divergent against the XAO on the 60 minute and daily charts. (MACD will usually hit an extreme near the completion of wave 3's, or wave 3 or 3 etc, and be relatively consistent at different time scales).

The bigger picture is here

XAO must stay under 4620

The All Ordinaries index must stay below 4620 for the current wave count to be valid. A break above this level will either:

• indicate further wave '2' action, or
• indicate that wave 'B' circle is yet to finish and will break higher again. If the index continues higher from here, then the correction that started in mid-april may be considered a triangle - indicating an upcoming change in trend in the medium term.

On the very short term,  it appears an ending diagonal could be under development since last Wednesday and one more small 3 wave push upwards is needed to finish this leg.  For the ending diagonal to remain valid, the index cannot climb above 4605 (wave 3's cannot be the shortest waves). On the technical front, the RSI and MACD price oscillator are in oversold territories indicating a short term correction or change in trend may be at hand. Will the Luna half moon from last Thursday still have a say in the short term? It still has another day or two to prove itself.

WOR - Ending Diagonal Complete

Discussed last Wednesday, WOR looked like it was forming an ending diagonal for wave '5' of 'C', completing a Flat (3-3-5). The wave structure suggests that this has now occurred and there should be a pullback, possibly to a new low.

Whether a more complex correction is to unfold remains to be seen, but the short term wave counts on a 15min or 60min chart will clearly highlight the finer details of the declining wave structure. Should five clear waves down on the daily chart become visible, then this will provide some reasonable clarity on the directions of WOR in the coming weeks.

WOR - Flat Correction for wave (4)

It appears that WOR is in the final stages of a flat correction (3-3-5) and the last leg - the C wave is finishing 5 waves up.

The final thrust appears to be developing as an ending Diagonal - a 5 wave overlapping move. One last push to a new short term high is needed to complete this move.

Looking at the overall wave structure, wave A is a 3 wave move, wave B is a 3 wave move and wave C is 5 waves - thus making a larger 3-3-5 flat wave structure. A larger correction could still unfold and this whole structure would become 1 wave in a larger multi-wave move (eg a Triangle)

XAO - 5 up
A small five wave move up on the XAO looks complete. It has also hit some key resistance levels @ 3350 as well x2 Fibonacci retracement levels of 38.2% ( from wave (4) ) and 61.8% (from wave 'b' circle).



The completed 5 waves up indicates a retracement should be forthcoming then (at least) another 5 waves up to form (at a minimum) a zig-zag correction (5-3-5). The ultimate target of the XAO may be around the 3500 level where again there is strong resistance and 61.8% fib retracement level.

The impending short term retracement (a 3 wave move, or a triangle) could take the XAO back down to 3250 (a 38.2% retrace of the recent leg up) or to just under 3200 (a 61.8% of the recent leg up) and also hitting fib levels from wave (4) and b circle as shown. As some have already suggested in the forum, this retracement may be an opportunity.


Wave (5) Down - Ending Diagonal?
The leg down from the end of wave (4) is a three wave move. So this evidence suggests either an ending diagonal is forming or wave (4) is still unfolding.

The way I've labeled this chart is to imply a large ending diagonal is unfolding. In an ending diagonal scenario, 5 waves will form but all waves will contain 3 wave moves and waves 2 and 4 will overlap. So far, wave 1 contains a 3 wave move - wave 2 up is now underway with the 1st wave of three looking complete.

Should a larger 5 wave move upwards unfold, then I would consider wave (4) still unfolding and will be a triangle.

I should also point out that the recent 5 wave move upwards could be part of an expanded flat correction as the completing waves at the bottom end of the chart are a little messy and hence can be hard to interpret - So I've also got this scenario catered for in the back of my mind (eg driving under a 3200/61.8% retrace would start to get my attention). If true, the downtrend would be underway once again.

Note: Ignore the lowest bar at the bottom of the chart - that's a 62 point data anomaly from last week