Wave 2 regains some momentum

In the last chart,  there was a real possibility that a top was at hand for wave '2', however, we have seen a new short term high on the index that invalidates the short term count.

What one hopes to see after the top is at hand is:  1) fives waves down, and 2) a break of the 'ii-iv' trend line in less time that wave 'v' took to form. It appeared a very small five wave decline had commenced at the green dot in the chart below, but it failed to break the light green trend line (the previous 'ii-iv' line) quickly enough -  taking twice as long as wave 'v' before a break eventuated. This condition provides a warning that  wave 'iv' may not have completed.

With the long drawn out sideways action on the XAO, consistently moving in waves of 3, it is very likely that a larger triangle has been forming as shown below. It's unclear how much further wave 'v' has to go depending on how you count the internal subdivisions, but I suspect further upside is needed perhaps to the 76% retrace.

The new "ii-iv" trend line is now drawn - same rules apply.

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.

Long Term XAO - multiple areas of resistance

The XAO has encountered several areas of resistance shown and/or discussed in the chart below - this should indicate caution as a potential change in trend is at hand. Also on the shorter term, it appears 5 waves up can be considered complete for wave (c) within the large wave '2' structure discussed in previous posts.

Breaking confidently higher (esp on higher volume) would indicate an alternative count is possibly unfolding at least in the short term.

Wave 2 near 61.8% Retracement

Wave '2' has almost reached  the 61.8% retrace level and wave (c) appears to be at an end or very close depending on how the subdivisions are counted.

Also, on XAO volume  (not shown below), since the 16th of Sept the volume on the XAO has fallen to very low levels. Changes in volume do occur near the start/end of waves and can help identify changes in trend and is most accurately viewed on the daily charts.

All Ordinaries near critical juncture

The XAO has continued to stay within the up-sloping channel for wave (c) and there is potential for the XAO to continue higher under the wave count shown below.

Wave '2" details
The first chart shows the bigger picture with the 2nd flat reaching a critical point - it is at the top of the overall wave '2' channel and I suspect it will have enough momentum to break through and cotinue higher to near the 61.8% retrace at 4723. At this level, wave (c) will also reach the top of the green channel that represents the typical boundaries of a flat correction - in this case the 2nd flat.

Wave (c) details.
The detail count of wave (c) is shown below and indicates there is still a need to push higher before the final 5th wave (which is sub-dividing) completes.

XAO Wave 2 of 'C' Circle - Updated

In the last post, I discussed a break above 4620 would invalidate the current count - slightly. The break to 4628, a mere 8 points and the upwards thrust that appears to be 5 waves (wave (c) ) provides additional insight for wave '2'. Basically, wave '2' is still unfolding - but as a double flat correction as shown below.

There is still room to move on the upside as it appears that wave (c) isn't quite complete. For completion, a small drop today then a push higher would finish this wave over the next several days.  A target area of around 4640-50 would be ideal and form a double top from June. Breaking confidently down thru the up-trending channel lines (shown) for wave (c) before heading higher(<--correction) could be a strong indication that wave (c) is already complete.

The overall XAO view can be found here for wave 'C' circle

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 - Short Term view

The XAO short term view (60min chart) shows that wave (ii) has likely completed yesterday.

The rationale is that:

1. An expanding 'b' wave triangle is evident within wave (ii), suggesting completion of wave (ii) was imminent.
2. The decline today retraced wave 'c' in less time than it took to develop - a key indicator that strongly suggests the next leg down is underway.

There is a chance that wave (ii) could subdivide and form a more complex correction, hence the decline today could be part of the 'X' wave - but it's not a favorable option at this time.

Some of the rationale behind this is that the Resource sector (XMJ) has retraced only just over 23.2% of the decline. Whilst this is perfectly acceptable, there's a chance that additional corrective action could unfold (eg a double zig-zag).