Wednesday, November 13, 2013

Current Technical Analysis of Markets

Even though the local and global markets are basically bearish, I'm looking for reasons it will move up. You have heard me harp on about the Dow Jones and the 11500 being the central pivot point that this market will break from either way, and this is still the case.

One of the important questions is where the lows are for BHP/RIO, US spot Gold, US Crude, Base Metals, our dollar and Finance (local and global) and what will push our local market up.

With our cash market, what I normally find with a market that pushes up through a major level like 5000 and fails at the next Medium Level 6500 (high 6800) is that when it comes back down it goes to the next Medium Level below the major level that would be 4000.

So this pattern is on my mind. This leg down would only be the first of at least three legs in the correction and, being Wave A in Elliott terms, this is still a possibility. It also has to be noted that in Elliott the A wave can be in 3 or 5 waves, so some of the other Elliott analysts have this market counted as 3 waves down. But this may be just part of a larger A wave unfolding, and this is a problem. Normally when I trade I just observe the first leg down to see what it is, simply because there are12 types of corrections and if I can identify it as3 or 5 waves that will basically halve the possibilities of what it is.

The second possibility is that this market will find support at 5000 and then head back up as a Wave B. The B wave normally retraces 61.8% of Wave A, and this is textbook theory. B Waves are always in 3 waves known as a 5 - 3 - 5 structure, meaning a smaller a b c bear market rally (example is in the forum under Gold from early May to mid July).

We haven't actually had a bounce off the 5000. The market has just been going sideways and this is a type of correction which is basically in time rather than price off a strong bearish bias. What backs this up as a correction rather than a base forming is the fact that each wave has 3 waves. This is why I came up with the Triangle -- Triangles also only occur in 4th waves not in wave 2, and this structure cannot be discounted yet. This would mean another wave down in 5 waves and that's what the last move down could have been -- that is, wave 1 (5200 down to 4800) and then back for wave 2 where we are now. All very exciting.

The Cash Market (XJO) has many influences locally and globally. BHP and RIO can account for up to 50% of the movement in the Cash Market. These stocks are connected to base metals and energy etc and this needs to be taken into consideration. I do take the daily lead from US BHP for the Morning Landscape report, as this delivers an edge for the day, but we need to go outside this for the medium term. RIO in the US has just arrived at TL3/US $300 so this offers a glimpse of support. It has also moved down in 5 waves from above TL5/500 but it has not settled there yet as support, and this is a subtle point. As our local BHP is in its 5th wave down -- that is, 5 waves down from TL5/50 -- they just quite haven't found their lows as yet.

Which brings me to the next point. There are other stocks and commodities in the same boat, such as US spot Gold. I would like to think I have picked the low around my magic number 72, or rather 772. To support this low is the notion that when a market corrects into the 4th wave the target low is the 4th wave of one lesser degree -- which is where we are at with 772. However 720 is another squaring point as a low.

This is also the same as the Cash Market at 4750. I have counted the waves down in Wave C for US spot Gold and I think I have it right with an extension in the 5th Wave, but I must say I could be wrong and the consolidation at TL8/800 could be the 4th wave and we have one more wave down, the 5th. This would take this market down to 750. Once this is finished at either of these price levels then I'm looking for a move up in 5 waves to above TL1/1000 When a market moves above such a price level it normally goes to the next minor level above mTL1/1100 like it did in our Australian Gold market, which is based off the Australian dollar. I also use the American Gold stock Barrick Gold ABX to assist with the wave count, which has the same wave count as the move down from TL5/US$50 and now at TL3/US$300 (these levels are Fibonacci 618/phi based so they are fractal geometry) This move down is the C Wave in 5 waves ( C Waves always have 5 waves).

Currently ABX is in the 5th of the 5th so it's close to the low mTL8/28 which will come into play. The other aspect that needs to be taken into account is that, in commodities, it is normally the 5th wave that has the extension whereas stocks normally have the 3rd wave as the extension, but because this is an un-hedged stock is can follow the commodity. The mTL8/28 is also the 4th wave low of one lesser degree which is also a strong support level based of supply / volume levels.

While we are on the subject of 4th waves of one lesser degree, the Australian dollar has also just arrive at TL8/.80 cents which is quite a strong support and can expect a bounce, however the 4th wave of one lesser degree is around .72 cents. But we can expect this bounce to coincide with support for the Cash Market. I'm not a currency trader as the short term is quite politically based. As a technical analyst and trader I watch the volume, as that creates the price. It also allows me to see any activity even though I may not understand the reason behind it. This is a "trust what you see" attitude, however you can't see the volume in the FX market, and the volume confirms the price action.

The other side of the coin, the US dollar, can be viewed in the US Dollar Index, USDX. This is the US Dollar based against six other currencies. I view this through the Trading Levels.

The low was 72 and it is now very close to TL8/80 so we can also expect it to react at this level, meaning it will offer support not only to the Australian dollar but to the others.

This is important in many regards, but I'm essentially concerned with Base Metals. Nickel and Copper are important to us. I track the LME warehouse supply levels as most of the volume is trade, however in our Morning Landscape report I look at the US price in l/b as this is the last closing price and will affect our market for the day -- and that's why I track BHP in the US as opposed to the UK BHP or any other country it's traded in. The cash Nickel peaked in June 07 at TL5/50000, had a correction at the next Trading Level down at TL3/30000, and is now at TL2/20000. Basically it is moving into its support zone.

Zinc is in the same boat. Zinc demand has been very low and four companies have stopped production, but don't let the bad news turn your head away, medium term contrarian traders have a few good points. Aluminium, Tin and Lead have their stories, but Copper is important and has much more work to do at current levels -- expect it in the short term in US l/b to move down to US$ 3.00

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