Tuesday, March 1, 2011

Qs Offer Up Short Term Trade Opportunity

With distribution days piling up, 3 negative divergence MACD sell signals, an impulsive move down to the 50dema, a rally off of the 50dema on declining volume with a near doji yesterday coupled with rising oil this morning and weakening futures before the open, it didn't take a genius to figure out that shorting the opening gap would be a good trade today.

The most likely target is somewhere between the 200dema and the November 2010 high, or 52 to 54, probably around mid-month.  The current decline is most likely a 2nd wave or a 4th wave pullback.  4th waves typically retrace 38.2% to 50% of the previous 3rd wave, hence the circled target area.  If and only if the decline occurs as a 5 wave decline might we then reconsider the intermediate bullish potential.  Otherwise, any clear buy signal off of the support zone would be a low risk intermediate long opportunity into the April/May time zone.

We can calculate a preliminary target for the Qs using fibonacci ratios.  The 38.2% retracement from the August low is 52.90.  61.8% of the advance from the July 1 low to the February high is 10.67.  Add 10.67 to 52.90 to project the 5th wave target of 63.57.  63.57/52.90 => 20.2% gain.

Gold and oil appear to be headed higher into the summer at this point.  IAG bounced back today from its earnings day shakeout and looks poised to move substantially higher.  SLW appears to have completed a 5 wave advance from its January low and a pullback to support may provide an entry point as the rally continues.

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