Technicals | Jun 20 2016
By Nick Linton-Ffrost
Don't get caught up in the Brexit hype. Plan your trades and trade your plan.
The ASX200 (XJO) has returned to the midpoint of the nine month range as it awaits the Brexit vote. In wave count terms the question for us remains the same. Is the rally from 4750 to 5425 the first wave within a move to 6000 or a (B) wave within a descent towards 4200?
We suspect the XJO’s reaction to 5050/5150 over the next 5-10 days will provide more clues. The level is technically significant given –
- 5150 is the bullish break level above the one year downtrend line and at times the market pulls back to break levels before heading north (chart 1)
- 5100 is roughly were support provided by the near term uptrend line kicks in (chart 2 & 3)
- 5090 is the midpoint of nine month range as well as the break target from the topping pattern shown in chart 3
- it is possible to argue that the dip from 5425 is tracing out a five wave structure with an implied termination point around 5050 where (v) = (i)
Outlined below are our alternative wave count assumptions and how the reaction to 5050/5150 impacts on each scenario.
Bullish count (chart 1) – assumes the drop from 6000 to 4750 completed a major (4) which implies the market is trading within a major (5) towards 6000 (i.e. height of trend channel added to break point). Under this scenario the recent 6% dip from 5425 is marked as a minor 2nd wave and treated as a pull back to the one year trend line break level before heading north via wave ‘3’. In order for this scenario to gain traction the market needs to form a higher low above 5050/5150 and rally back above 5300 over the next two weeks.
Bearish count (chart 2) – assumes the three month rally from 4750 to 5425 has completed a major (B) wave which implies the market is now trading with the major (C) headed towards the previous major low at 4750 and potentially 4200 where (C) = (A). In order for this scenario to gain traction the market needs to form a lower high below 5425 and spend 5-10 days trading beneath 5100.
Our tip for traders this week. Don’t get caught up the Brexit hype. Pick your levels and follow your trading rules. If the market is trading around 5050/5150 leading into the vote we suggest investors open/add to long positions.
Another trading idea from
Fifth Wave | fwtc.com.au
FW generates over 150 Trading Alerts on the ASX100 each year. We are a subscription service specialising in short term technical strategies based on 27 years experience.
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