XAO Short Term Update

The XAO is unfolding as anticipated in this post and a further push high is likely perhaps to the 4400 levels or slightly below/above. Once at this level (and having completed a 5 wave advance for this final leg of wave 2) the index will need to begin falling aggressively - Failure to meet this requirement will indicate caution.

Short Term XAO update

The last XAO short term post indicated the end of wave 2 was imminent, however, an aggressive push downwards has failed to materialise to indicate the next leg down is clearly underway. The wave structure does also not appear to be moving in 5 waves down (yet) and this evidence implies wave 2 is unfolding as a flat correction.

At this stage in the wave development, the structure of wave 'a' and the unfolding 'b' wave appear to be 3 wave moves, indicating corrective action in both directions for the short term. This most likely indicates a flat for wave 2 is in the process of unfolding. 

Crisis Averted

Under the Alternative Count 1
The All Ordinaries has declined and passed the first retracement level described in the previous post at 4565 before climbing back above the 61.8% retracement.

Since many will correlate the recent XAO decline on the 11th March Japanese earthquake, the occurrence of the earthquake has had little impact on the sharemarket: In total, a 92 point decline since the earthquake,  but prior to the 11th there had been a 297 point decline. Hence, the relevance of the earthquake is negligible on the All Ords,  but the mainstream will talk up the slightest of correlations:
  
Sharemarket hits new three-month low

Our market stumbles as Japan falls

only to find today:

Asian, local share markets rebound despite Japan earthquake

Where to?
Fives waves down appears complete and has reached the 61.8% retracement level. The XAO should commence a corrective climb (with an intervening 'X' wave) to new intermediate highs. The short term risk in this assessment is that a drop to 4350 level may still be a possibility until a upwards breakout of the trendline (not shown) is evident in waves of 5.


Alternative count 2 is also still valid and would see the XAO aggressively drive downwards through the 4350 level.

XAO Short Term Update

Alternate count 1 with a Flat for Wave (B) is still in a good position since wave 'B' has almost met the start of wave 'A' before retracing downwards. Wave 'C' needs to fall to 4620 which is 61.8% of 'A' or retrace 'B' completely to 4350. Once complete, the next leg up need to occur and move to a new intermediate term high.

This count is still based on Alternate count 1 here, but with  much longer drawn out flat.

Wave 'C' needs to unfold downwards in a 5 wave move (or possibly as an ending diagonal). Time to complete wave 'C' could be very quick or drawn out if it's an ending diagonal pattern.

Alternative count 2. This count is still valid (as shown here) but I'm not convinced that this is a wave '2' since the proportions of time are exaggerated for wave '2' development v's wave '1'. If the XAO drives down thru the 4350 level with ease, then it may be time to re-evaluate this particular count.

Fibonacci time relationships are apparent between wave 'A' and wave 'B', with wave 'A' taking just a little over 76.8% of wave 'B'. Wave 'C' will probably complete more quickly than 'A'

XAO - Wave 2 pushing higher

The previous count for wave '2' has been invalidated as the XAO hit a new high today and casts significant doubt over a double flat correction. An alternative count below shows wave '2' still unfolding but as a single flat correction.

One deciding factor is interpreting wave 'i' of (c) - it could be counted as 3 or 5 waves. Counted as 5, it provides the first leg of wave (c) up. The minor issue in this count is wave 'ii' and 'iv' of wave (c) overlap ever so slightly - sometimes due to opening and closing extremes on the all ordinaries index.

Some upside targets for wave (c):

• At 4775 = 38.2% of wave i of (c) 
• At 4874 = 61.8% of wave i of (c)

Wave (c) could possibly be complete as of today due to the new high, but a break below the wave ii and iv trend line (not shown) will need to occur before we can consider 5 waves up complete.

It's also interesting to note the RBA left interest rates on hold this month - politics at play for the new Government? Further upside on the 90 day rate will force the RBA to reconsider the cash rate target at the next monthly meeting.

Wave 2 Complete

In the last update, the XAO needed a little sideways action to complete a small wave '4' and then a push up to finish wave (c). This has occurred precisely as described and the expectation is for further declines. 

Since Wave '2' is now complete, the XAO must continue to lower levels with aggression for wave '3'. If this 'aggression' does not materialize, then this should be a warning for a period of uncertainty. A confident break below the end of wave (b) in less time than wave (c) took to develop will provide strong supportive evidence that wave '3' is underway.

 

XAO still Trending Sideways

In the last medium term post discussing  Wave 2, there was potential for further sideways action. I believe that this is currently the case and a set of very strict conditions has been imposed on the unfolding wave '2'. Under a flat correction, the final wave (c) must be a 5 wave thrust to complete the large wave '2' correction .

As the chart below is already two days old, there has been sideways action for the unfolding small wave '4' of wave (c). Once complete, another small push upwards is needed for wave '2' completion. If this count is flawed, then we'll know very quickly.

 

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.

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)