Friday, January 28, 2011

Broken Trendline & Pivot Sell

In my previous three posts, I have tried to point out the developing potential for a top, and we finally got the confirmation of the MACD sell signal today with a broken trendline and a break of the fractal sell pivot on almost double the average volume.  There is still some work to do to for a solid downtrend to develop.  First, the Qs must break the 2007 high of 55.07 and the January low of 54.92.  Next, support at the November high of 54.04 will have to fail.  This process may take a few days, or we could very well see the Qs slice right through support because of the long duration of the ending diagonal wedge that developed off of the November low.  After that it should be a quick retracement to the April 2010 high.  We will have to wait and see in a few weeks time how the pattern has developed in order to evaluate whether there is additional downside potential after that.

One problem still exists, but I don't think it will materialize.  Today's decline could be part of a flat correction that will lead to higher highs.  However, the late day move off of the lows has all of the earmarks of a countertrend rally, so I'm not giving it much weight.

I have labelled the downside projected targets based on the January range of 2.43 points.  The 4.236 downside extension is most likely the worst case scenario for the year.  This extension is rarely exceeded.  Note how the 1.618 extension lines up with the April 2010 high providing additional support.  This may prove to be an area that stops the correction or leads to a strong countertrend rally.

It was interesting to see that oil rose sharply today.  I think oil could still have some potential upside since it lags gold by several weeks.  This could facilitate the selloff if oil moves toward $100.  While gold and silver rallied today, I think it is a short lived reaction.  We should see further downside in the precious metals.

I am short the Qs from 55.55 today.

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