XAO - 4500 is broken

In the last post I indicated that under an expanding triangle scenario, the XAO would need to come close to the 4500 level. Today that occurred, apparently due to 'concerns' about Greece, the new mining sector tax or potentially the weather :-)

Keeping above the 4500 level now is imperative for the expanding triangle to remain as a primary count - hence a series of clues will be provided by the XAO over the next few trading days.

A closer look at the final wave (e) leg is below. Under an expanding triangle, wave (e) should nearly always be the longest wave.

XAO - More Potential Upside

The XAO has been trending sideways since October 2009 which can be  representative of a large correction. This correction could be a (B) wave Expanding Triangle (as shown) or a flat [the first blue (a), (b), (c)].

As corrections can be difficult to gauge until near complete, following the trend using parallel channel lines can be very useful in determining individual segments of waves. In addition, the MACD Price Oscillator provides insight when waves are near completion (eg Extreme signal on completion of wave 3 at various degrees of time).

 The potential action over the coming weeks calls for a correction upwards in the short term and one final push down to compete the last wave of the expanding triangle (to perhaps the 4500 level). Should this not unfold, then the final wave upwards to wave 'B' circle can be assumed to be already underway.

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.

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).

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.

XAO - Expanding Triangle for Wave (4)

XAO - Expanding Triangle for Wave (4)

The Wave 'C' up leg in the Expanding Triangle Scenario for the XAO could well be complete (or very near completion with an additional sub-divison that takes the XAO above 3950).

The 3950 target was almost reached today and is a site of solid resistance and does provide a suitable area for a turn down into the wave 'D' leg of the Expanding Triangle.

Timewise there is relationships between the two upward sub-divisons of wave 'C'. The 'a' circle leg and the 'c' circle leg (not labelled) - the 'c' leg is 63% of 'a' - a very close 61.8% fibonacci relationship of time.

I've also include the MACD signal line, a short term high representing the end of wave 'iii' shown with the dashed line, and the subsequent divergence of the MACD as price hits a new short term high (representing wave 'v').

XAO Next Steps

Prices need to turn down from here (or perhaps after one more small push upwards) for the Expanding Triangle to continue to be a top contender. Five small waves down and a break of the short term trendline will be an indicator that suggests a turn has started.

Looking at the wave structure since the 21st Nov, I'm finding it hard to see other wave scenarios under the current long term count. A triangle is highly probable for wave 4's, in this case it would need to be an expanding one.