AU Editorial: One Last Fling?
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November 20, 2009
The past few months have been interesting to say the least. Some got it right from day one - they piled into the share market on March 6 whilst others have dabbled along the way. And we all have views about 'what might have been.'
Regardless of your view and whether you have been on board or not, perhaps there may be some room for some tiny consensus. Is there room for one last flutter?
Chart 1
click here to enlarge
What we have seen is a textbook wave four dip. It was only a few percent retreat and not the 10% we ideally like to see in a 'pullback.' Nevertheless it had the characteristics of a pause before the next move higher. Or so it seems.
The only niggling aspect however was that the oscillator went below zero. In the ideal world we do not like to see that. And in my experience the best stocks or markets to chase are those where the pullback is to about zero and sort of stops there - the reason being that this indicates that there has not been excessive profit taking. Little profit taking indicates there is still strong support for the stock.
But we can see that in the last several months the market took off despite the deep oscillator.
If we use a 10, 70 oscillator we can see they held at zero this month and back in late July:
Chart 2
click here to enlarge
But the choice of oscillator is always a point of conjecture and not one I can cover here and now.
Either way, ProfitSource is showing a wave five ahead. The timing and extent of the wave five will depend on the 'Elliott' time period we use. I am showing a 120-day period, which is a 'time of best fit.' But I also have the view that being precise about this is not so important. What is important is the broad direction.
We can see there has been some resistance around 4860 and we may see the market struggle around these levels. In fact, we have seen some nervousness in the past couple of days - as at November 18.
I expect that once past 4860 we will see the market head higher - even over a period of many weeks. Not all stocks however will move higher and as per usual stock selection will be paramount.
In my view this will be the last hurrah before we see the market soften and head south.
Trading market tops is not for everyone and that is exactly what it is - a traders market - and definitely not one for long-term buyers!
Enjoy the ride
Tom Scollon
Chief Analyst
Trading Tutors Team
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