PSEi (Chart: Daily Resistance: 4170 Support: 4003/3798/3715)
The index rallied last week, stopping just short of crossing above the 200 day moving average. I didn’t expect the index to rally beyond the 4050 projected peak of the 4th wave (green bar on the chart). I was more of expecting a sideways movement when it reaches that level. Instead the index pushed beyond 4050 and even beyond the previous low of 4129 (labeled F1).
The 4129 level is supposedly the 1st wave count, and based on rules for counting, wave 4 should not overlap wave 1. The recent market activity had invalidated our standing 5-wave count (labels F1-F4). So what does this translate to?
Scenario 1: Some Elliot wave practitioners point out that if the 4th and 1st wave overlap happens, then we would have to re-label our wave count, changing our previous wave 3 as wave A of the A-B-C pattern. This now makes our previous 4th wave, as wave B. This gives us a projection of near 3650 (61.8% of the length of wave A) as the nearest end point of our wave C. The next possible end point of wave C would be near 3350 (100% of the length of wave A).
Scenario 2: Some Elliott wave practitioner acknowledges the occurrence of a wave 4 and wave 1 overlap. They believe on a more lenient interpretation such that wave 4 is allowed to overlap no more than 10-15% of wave 1. With this consideration, wave 5 projections can go near 3600 (127% of wave 4) or 3450 (162% of wave 4).
Either way, both scenarios point to a possible downward trend and both point to nearly the same level.
Scenario 3: Now considering we start labeling F3 as wave 0, then we have wave 1 (labeled (1)) at 4003, then wave 2 (labeled (2)) at 3798. The projected wave 3 would be near 4260 and the projected wave 4 would be just above wave 1 near 4028. This wave counting also points to a downward movement as we near the peak of wave 3. Albeit, this would be a more positive outlook (on the short term) than scenario 1 and 2 for the reason that the projected downward movement is shorter and it also has the possibility of forming wave 5.
The stochastics alone also points to a possible downward movement for next week as well as the RSI reaching 50 level. Add to that the current 200 day moving average acting as resistance. So with all those consideration, we could expect the market to move lower by next week.
As one might be tempted to get in the market because of the rally last week, I would suggest to hold on to your cash for now until we have more indicators supporting last week’s rally. One of the things to observe for next week is the support near 4003. If the downward movement does not go below 4003, then this gives scenario 4 more credence for short term bullishness as wave 5 starts to form.
MPI (Chart: Daily Resistance: 3.14 Support: 2.78/2.56)
MPI caught my attention because of the large increase in volume for the past 2 weeks. There has been a lot of interest on this stock as shown by the unusually large volume on the upward movement.
However, as of current, this stock is now on its way down. Do observe this stock on its way down. As long as the volume on the downward movement does not increase, this stock may be a viable item to buy later.
There are several scenarios that could play into this stock. One scenario would be if the stock is able to hold its price above 2.78 (which is the 62% retracement), then there is a possibility that the 3rd wave could materialize which could bring this stock back up to near 3.72.
Otherwise, if the 62% retracement at 2.78 does not hold and the stock continues to move downward, the next support will be at 2.56, which is the previous low. If the support at that level holds, then we might be seeing a reversal pattern here, which is a double bottom.
As of current, I am a bit skeptical on the possibility of the 3rd wave to materialize as there is no reversal pattern that I could see that would support the 3rd wave to reach 3.72, way past above all the moving averages. What I think would more likely to happen is for this stock to move sideways, because it has been on a downward trend for almost a year now and possibly the sideways movement would start forming a reversal pattern.
Would this be a stock to buy? Possibly if the support at 2.78 holds and price starts to move upward again with large volume, otherwise I would wait for a reversal pattern to materialize.
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