XAO Technical Analysis

[Sean K]

Hello all, I will post my view using EW as I trading/investing purely by using this method.

First of all I would like to mention that 2007-2009 crash was in Three Waves witch is important because 3 Waves usually means a correction. But looking at the long term charts (spaning decades), these 3 Waves are very short in terms of time.

So what market can do is to make a double Three correction W, X and Y, where each Wave consists of Three Waves. I marked these W and X Waves as a circled Waves, so what is missing is another 3 Waves Down at Primary Degree to new lows (below 2009).

I think we are at the very important juncture now, as you can count 5 Waves from 2011 low complete or almost complete, which will end Intermediate Wave (C). Also, it looks like from the mid 2013 market is forming an Ending Diagonal (ED), a pattern where all internal subdivisions consists of three Waves and ED usually means a swift reversal to the bottom of where the pattern started, in this case to 4600.

This is a probability only, to pick the exact top is very difficult. We still don't have 5 Waves down at least in a Daily Chart, this would be a confirmation of a trend change. Also, if you look at the weekly RSI, it is still in the Trend Mode-bouncing every time when correction ends. If it brakes lower in the coming weeks, it will make a further rally very unlikely, It worth looking at this.

On a bullish side you can see that 61.8% level was broken which is actually bullish, I remember the same action when I traded in US markets and DOW JONES did the same thing late 2010 and kept rallying afterwards to new ATH.

So things to watch is weekly RSI and the wave structure on a Daily. I sold all my positions last week and now need a confirmation from the market-what it will do next. Later I will post an alternate bullish count, but at this stage I am sceptical about it. US markets have fallen in Five Waves down from the top, it could drag down the whole world indexes later .

Your EW based 4550 target indicated here didn't quite work out. What's next? We must be in a new wave now?

 

[rimtas]

This is a target that can't be reached in one day. Basically this kind of move, if it occurs at all, will take a year or so in time terms. What is important at this stage is that either we are forming a Primary degree Top, or market is in the early stages of 3 of 3 massive advance which could take us to 2007 top in a matter of 9 months.

I personally am almost out of the market, bought just a few stocks-ABP, SGP, AHE, MIN, WES, NAB but 80% of portfolio is cash. To be all in, I need a confirmation from the market that it wants to go one way or another and this will be a certain wave structure in the nearest future, maybe a month/two from now. I like Daily or Weekly charts, as they produce the clearest wave structures.

I do keep in mind that this could be the new Cycle bull wave that could carry XAO to ATH till year 2022 but the real struggle is when you have three waves from 2009 bottom which could actually be a correction also.

The bottom line is that we need to make money and traders and investors must not overanalyse. There are times when one must be in the market and there are times when not. Market is not going to run anywhere, I am trading many years already and from my experience I know that the real good setups when you can go all in appears only once or twice a year. And these are not times when the market is rallying everyday. If it is rallying and you are on cash-you are late. If you late-wait for another setup, there will be plenty.

 

[mohAct]

Hi All

I am looking for a demo server to use it in Meta trader software for ASX stocks (Not Forex)

Can anybody help?

Cheers

 

[rimtas]

On previous page I posted a weekly chart pointing that ASX could be in an Ending Diagonal Pattern, since then market made a new high and even few guys throwed in a towel sugesting me to reevaluate the structure, but in reality nothing changed, picture still looks the same, on a weekly chart the pattern is still between the converging lines.

I decided to look into a smaller time frame how exactly this pattern is unfolding. Under the Wave Principle, all subdivisions should be "threes" and this is exactly what is happening.


I present two charts below-one is ASX futures and the Other All Ords cash index. They differ a little bit in a wave structure and futures suggests that one more subvave could make a "throwover" to new highs, while Cash could be poised for a decline already. It would be interesting to see how this situation will play out. I personaly more trust futures than cash as it records data 24h, this means more precise waves on a chart.
On a time scale it could take few more months -up to 3-5 weeks now in correction and then rise into Christmas(aka santa rally).






This pattern will invalidate itself if the market rises to and above 6000 on Cash making the 5 wave longer than the 3rd , turning the overal wave structure from 2009y bottom into more bulish perspective, but at the moment it is a slimm chace for this to happen, as US dollar started to rally(a defliationary trend in force), commodities and metals are plunging and optimism toward stocks in USA is at all time record high among market participants wich happens only at major tops, not bottoms.
And ASX more or less follow US markets and if declice begins overseas, all Ords react the same way I suppose.

 

[Porper]

On previous page I posted a weekly chart pointing that ASX could be in an Ending Diagonal Pattern, since then market made a new high and even few guys throwed in a towel sugesting me to reevaluate the structure, but in reality nothing changed, picture still looks the same, on a weekly chart the pattern is still between the converging lines.

I decided to look into a smaller time frame how exactly this pattern is unfolding. Under the Wave Principle, all subdivisions should be "threes" and this is exactly what is happening.


I present two charts below-one is ASX futures and the Other All Ords cash index. They differ a little bit in a wave structure and futures suggests that one more subvave could make a "throwover" to new highs, while Cash could be poised for a decline already. It would be interesting to see how this situation will play out. I personaly more trust futures than cash as it records data 24h, this means more precise waves on a chart.
On a time scale it could take few more months -up to 3-5 weeks now in correction and then rise into Christmas(aka santa rally).


View attachment 59370



This pattern will invalidate itself if the market rises to and above 6000 on Cash making the 5 wave longer than the 3rd , turning the overal wave structure from 2009y bottom into more bulish perspective, but at the moment it is a slimm chace for this to happen, as US dollar started to rally(a defliationary trend in force), commodities and metals are plunging and optimism toward stocks in USA is at all time record high among market participants wich happens only at major tops, not bottoms.
And ASX more or less follow US markets and if declice begins overseas, all Ords react the same way I suppose.

Good work. A throwover has already occurred so if you are correct price will head lower in an impulsive manner. With Ending Diagonals price will head down to the origin of the pattern in around a third to half of the time taken by the prior leg down. This obviously means the market will tank if you are correct.

 

[PennD]

On previous page I posted a weekly chart pointing that ASX could be in an Ending Diagonal Pattern, since then market made a new high and even few guys throwed in a towel sugesting me to reevaluate the structure, but in reality nothing changed, picture still looks the same, on a weekly chart the pattern is still between the converging lines.

I decided to look into a smaller time frame how exactly this pattern is unfolding. Under the Wave Principle, all subdivisions should be "threes" and this is exactly what is happening.


I present two charts below-one is ASX futures and the Other All Ords cash index. They differ a little bit in a wave structure and futures suggests that one more subvave could make a "throwover" to new highs, while Cash could be poised for a decline already. It would be interesting to see how this situation will play out. I personaly more trust futures than cash as it records data 24h, this means more precise waves on a chart.
On a time scale it could take few more months -up to 3-5 weeks now in correction and then rise into Christmas(aka santa rally).


View attachment 59370



This pattern will invalidate itself if the market rises to and above 6000 on Cash making the 5 wave longer than the 3rd , turning the overal wave structure from 2009y bottom into more bulish perspective, but at the moment it is a slimm chace for this to happen, as US dollar started to rally(a defliationary trend in force), commodities and metals are plunging and optimism toward stocks in USA is at all time record high among market participants wich happens only at major tops, not bottoms.
And ASX more or less follow US markets and if declice begins overseas, all Ords react the same way I suppose.

Hi Rimtas,

Could you clear something up for me please? On your last 2 charts you have X: 22sep Y: 4567.7 and X:15Oct Y: 4608.1 respectively.... Can you explain the time factor of these please? The target is clear.

I have been watching this ending diagonal for a few weeks now... good to find someone with your level of knowledge posting about it. Good work!!

Cheers

Penn

 

[rimtas]

Hi Penn,
those X and Y actually are the coordinates of the cursor which I used to determine a bottom from which ED started. So important is only the price level, time coordinate is just where the cursor sits at the graph and it does not mean anything at all, don't pay atention to it.


I just checked today how US E-mini closed on Friday and was a bit frightened to see that it formed and Expanding Leading Diagonal and a three wave correction that followed... Expanding Leading Diagonals usually warns that a massive drop is underway. It could be also as an A wave, but from my personal experience I saw above 80% of those patterns that ended in a crash.

Lets see what Monday brings, I am still holding a few stocks with a pretty good long term structure, and intend to buy TLS next week, but if the crash will produce a 5 waves down I will clear the whole portfolio on rebound and think twice about any new buys.

And sorry for my grammar, I am European guy, English is not my mother tongue.






By the way, in regards to that Ending Diagonal on ASX-it is a Triangular Structure, and Triangles take a lot of time to form. One of the alternatives is that it could be just 2/3 of the pattern that we see and one more year still to go to the end of it. I have this alternative view because there are still many stocks on ASX that are missing waves to new highs before reversing...

When following any index, it is always worth to check it's components-are they aligned in such a way that wave structures are pointing to a turn along with broader index.

 

[PennD]

Thanks for clearing that up rimtas...

 

[rimtas]

I checked out Dow Industrials, it also has an Ending Diagonal but not complete yet, one more wave to new highs is missing. A nice 5 wave move from the end of 2013 started to rise in "threes" so there is no other options for another count. RSI at the bottom of the chart confirms the count and each Wave in ED is weaker as the pattern develops higher to the Top.

Probably markets will rise into November/December due to seasonal bias so it will be a good time to liquidate all positions before a crash. I am pretty sure that ASX will follow DOW as the rest of the world also. Herding is a powerful thing when it comes to selling, no one cares why at that point.

 

[Julia]

Herding is a powerful thing when it comes to selling

+1.

 

[Sean K]

An ABC radio commentator was even suggesting a major correction this morning.

Wasn't based on threes and fives but on an upcoming Fed decision on interest rates and commentary on outlook. If they suggest interest rates are going up, then is that good, or bad, in the market's mind?

At the moment, you would have to assume that, what? What is the market factoring in with this ending diagonal?

The threes and fives are saying quite a large correction.

Yes?

 

[Julia]

I don't know, but if US interest rates are raised it's surely an indication of a more healthy economy, but on the other hand, they have become so addicted to QE that the idea it will be withdrawn is enough, apparently, to send panic into some.

Not too dissimilar is the situation right here where ultra low interest rates are feeding property speculation and driving rising SPs in high yield stocks (well, until the last few days).
If interest rates here were to rise then people who have over-reached in leverage into property will be in trouble, and if rates were continue to rise, selling would occur in eg bank stocks in favour of cash.

I might be completely wrong. Just trying to respond and to accede to Joe's request to increase posting.

 

[rimtas]

they have become so addicted to QE that the idea it will be withdrawn is enough, apparently, to send panic into some.

If you look more closely, QE actually doesn't work as it supposed to be. People thinking that QE is driving everything up are a bit misleaded.

A common refrain is that the Fed's QE has made stocks go up. But causality shouldn't be formulated that way. A wave of increasing optimism lasting five years has prompted investors to buy stocks and a record amount of junk bonds. The Fed has accommodated this impulse, but it did not cause it. The conventional claim to causality is virtually invalidated buy the slide in precious metals and commodities, both of which began when the biggest QEs(3 and 4) started. It is also invalidated by the real estate collapse of 2006-10, during which time the Fed lowered rates to zero and started a record expansion of its balance sheet, neither of which kept the plunge from occurring. More proof will come when stocks also turn down.


US Federal Reserve is scheduled to end QE in October. Since 2012, the Fed has taken on massive new debts in an attempt to reflate the monetary system. It is losing battle.

All it did, all it could do, was encourage more debt. And the debt is the problem, so the problem got bigger while the Fed got bloated. The Fed made a huge strategic mistake: It exhausted the ability to use one of its biggest "tools" , in a bull market. It should have waited until late in the next bear market to step in, which would have made it appear that the Fed stopped the decline. Now what will it do? Congress is breathing down the Fed's neck and it seems likely that when financial prices melt down this time, the authorities' resolve will melt away, along with the Fed's credibility and autonomy, if not existence.

 

[rimtas]

What is the market factoring in with this ending diagonal?

Ending Diagonals usually appears at the end of the trend, when markets run "too far, too fast". DOW hasn't taken a breath for over two years. When it finally exhales, I think it will collapse at the same time.

Sorry for not answering your question because I do not know what market is thinking(nobody does). Anyone who tries to "explain" what markets are factoring in are just speculating. You are buying and selling stocks, so basically you are the market(part of it). And if you are the market, you must know what you are factoring in. If you don't know, why assume anyone does?

Let's say you are factoring in that Fed will rise interest rates, or end the QE. Based on this knowledge, what kind of actions would you do now?

Would you sell all your stocks, or rather wait and see what happens and only then sell? The first part of the question tells you that why sell if nothing if crashing at the moment, and the second part is just following the trend, both are herding anyway, so knowledge and information have nothing to do with decision making or factoring things in.

 

[qldfrog]

And herd/trend following is not a bad thing; it is a fact that needs to be taken into account in your decision;
based on pure economy, I would be completely out of the Australian market and have everything in O/S cash/gold
but I would have had this situation for the last nearly 2 years, and so lost a lot of the profit I made/increased the losses i incurred;
market is a mass psyche game, something the "value investor" of this world will deny but...

 

[Julia]

If you look more closely, QE actually doesn't work as it supposed to be. People thinking that QE is driving everything up are a bit misleaded.

Isn't this rather a matter of semantics? I completely agree with your point later about debt. However, if the sentiment/perception is that QE is 'working' then there is money to be made before it all falls apart, if it does.

From another thread today:

The market sees the letters ’Q’ and ’E’ combined with China and it’s Happy New Year to the money printers and that’s what the jump is,” Joe Saluzzi, co-head of equity trading at Chatham, New Jersey-based Themis Trading LLC, said via phone. “They want the game to continue. They may not know how or why it’s happening but get some new QE money in there and that’s how the market reacts.”
http://www.bloomberg.com/news/2014-0...oil-drops.html

And herd/trend following is not a bad thing; it is a fact that needs to be taken into account in your decision;
based on pure economy, I would be completely out of the Australian market and have everything in O/S cash/gold
but I would have had this situation for the last nearly 2 years, and so lost a lot of the profit I made/increased the losses i incurred;
market is a mass psyche game, something the "value investor" of this world will deny but...

+1.

 

[rimtas]

And herd/trend following is not a bad thing;.

No, of course not. Actually you only make money when you are with the herd, not against it.

But there is something important to know-trend reversals occur when the herd sentiment gets extreeme, e.a when majority of the herd feels the same way.
That is unfortunatelly in the human nature, we can not change this, and financials markets are driven purely on the herding impulses arising from the limbic system.

There are number of good technical and socionomic indicators telling about the state of the crowd and when combined with Wave Principle , you can have a good basis on a forecast.

I am not sure in what kind of state are aussie investors as I am new to these markets and still looking for a good data sources, but US markets are definitely in a state of euphoria that has beaten all records of all times backing charts 300 years ago.

The only thing I noticed about sentiment here is in a property market-it is extreme, at least here in FNQ Cairns, houses and land jumped +30% in prices just in last year alone, agencies claiming that they are selling properties "like hotcakes' and that now is the best time to buy. And despite first home buyers activity at the record lows, investors are buying houses like they are the last on earth. There are even a massive 10+ billion casino/hotel development from Chinese investors awaiting council approval.

I once was in an agency to make enquiry about land package and the first I've heard when I stepped through the door was "hurry up, there are not much blocks left". And there were a few young people standing in a queue like they are after the milk and bread in the shopping centre, instead paying 200K+ for the 600sq/m block in a suburb.

That's just a herding frenzy, better not to be caught in it, as when it reverses consequences for todays buyers who are buying "for super", "for dividend" or "for long run like a Buffet did" will be very dear.

Keep your stops tight.

 

[rimtas]

I wanted to share a chart which I noticed today. I like to measure bigger trends with weekly RSI which shows upcoming trend changes pretty good.

In the chart bellow you can see that the Ending Diagonal pattern was developing above the red line, as it should be in a motive wave. This line was just broken down, but market is still above the major ressistance levels at 5360, 5300 and 5000 which when breached will signal about trend change from the price action alone.

So this RSI breach is already signalling that Ending Diagonal is over and markets will work out the way to the green line. If the green line on RSI will be broken, the overall big picture is doomed and new lows below 2009 are ahead.

And just one quick notice-the week is not over yet, only Friday close will tell about RSI lines, maybe it will jump back tomorrow like crazy making the trend intact.

It is just an early notice, we are looking for a leading indicators that can foresee things. This one is simple but when combined with Wave Principle is pretty good.

 

[rimtas]

As expected, XAO produced a thrust down with a good momentum and in short term subdivisions it is posible to count 5 waves down wich is a trend reversal comfirmation.
I suppose(expect) we could have a countertrend correction (up) next couple weeks or so, it would be a good time to drop everything for anyone who is long as the next wave should be more intense and carry prices straight to 4500 level at least.
There are still no any trend reversal confirmations from US indexes, but most likely they toped too.

US dollar records just 3% bears (trade futures.com), so a relief decline should shake out the speculators before another leg of advance allowing a market to breathe.

Interesting times ahead, it is worth waiting a few months to see wether XAO will sport a 5waves down at Intermediate degree... This will be a clear sign that another wave of some sort of GFC is coming and anyone buying realestate or stocks is doing so at the top-as they say-the last person pays for all.

I'll be back with good charts soon...

 

[PennD]

Hey Rimtas,

It certainly looks to be taking shape... What did you make of todays drop? Still wave 5 of 1 or its going further?

mmm, look forward to see your charts

Cheers Penn..