The downward target level of the head and shoulder formation and the projected length of the 3rd wave near 3700 were reached on the first trading day of last week, with the index going as low as 3715. And right after reaching the target level, the index did bounce back on the latter half of the week.
The 4th wave was projected to top on either of the following levels: 4050/3970/3870. But as of current index level, we have gone past the 2 projections; 28% and 34% of the length of wave 3, which leaves us with the remaining 4050 level (50% of wave 3 = 4059; thick green line on the chart) as the potential resistance to the current 4th wave.
However looking at the RSI, there is a possibility that the 4th wave would go beyond the projected resistance at 4050. Usually, when coming from an RSI of below 30, RSI 50 acts as resistance and from the current RSI the index still has some room to move before reaching RSI 50. The index can possibly move near the previous low, at around 4120 (4129 was the previous low on Aug 9).
For next week, expect the index to move upward on the first half of the week and on the second half, probably move sideways for some time before starting with the 5th wave.
For those who are still contemplating on selling their positions, one must act fast as the window of opportunity is becoming smaller as the index nears 4050 and 4120, before the 5th wave starts its downward movement.
If assuming the projected top of the 4th wave near 4050 holds, the projected 5th wave can go as low as any of the following projected target levels; 3620, 3350, 2920 (100, 162 and 262 percent of the length of wave 1 respectively; considering wave 3 a normal extended wave).
There are a couple of stocks that were unusually strong in a generally bearish condition, like SMPH, FGEN, AGI and DIZ. These stocks had the common characteristic of having larger volume on the upward movement, relatively larger than the volume on the downward movement during the creation of the 3rd wave on the index. Aside from the volume, I could not see any bullish area pattern that could be attributed to the strength of the upward movement.
The only thing I could deduce from those stocks is that traders seem to give high value to those stocks (this is very evident on SMPH and FGEN, but a little on DIZ and AGI) and are probably considered as bargain stocks at their current price level. I would not recommend buying them currently, but rather continue to observe those stocks as they may be the first few stocks to pull out from the current bearish cycle.
No comments:
Post a Comment