| Technical Analaysis ANDE APA ARNA AUY BMC BRY |
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| Monday, December 25, 2006 |
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Weekend Update - ANDE, APA, ARNA, AUY, BMC, & BRY
Andersons, Inc. -(ANDE) - Weekly Chart
ANDE is a lower risk Ethanol play. This is our #1 ethanol play. The weekly chart of ANDE illustrates that ANDE is in a bullish falling wedge reversal pattern. As you can see it is just now going into a 123 bullish trend reversal on the Aroon indicator. If you look at the Aroon indicator, you can see the bullish cross occurs at 50, which is right in the middle. When the cross occurs at 50 this will create some whipsaw in the stock. The cross at 50 or so will cause a counter trend pullback to the uptrend line. You can see this occur on the chart. In addition, when the Aroon cross occurs at +70 to+90 or at -10 to-30 that is a very bullish cross. The pullback occurred on light volume which is also a bullish signal. The pattern remains bullish. Furthermore, the moving averages are converging and the indicators and oscillators are in a bullish trend reversal. ANDE closed up +0.18%% to close the week at $40.00. Not much of a change from last week. Entry for ANDE was issued at $37.40 price target is $70.00 within the next 6 to 12 months. Manage your position.
Apache Corp. - (APA) - Monthly Chart
APA is a medium risk Oil play. The Monthly chart illustrates that APA has spent the last 2 years in a wave 3 to 4 correction. Remember corrections always occur against the primary trend. The correction is not over until it resumes the primary up trend by breaking the down trend channel at $70.00. What you see on the chart is not a bull flag because flags only occur on daily charts. What you see is a corrective channel. This year, APA corrected all the way to it's 34 EMA on the monthly chart. You may recall from previous updates that the 34 EMA act as magnets for price during corrections/pullbacks. APA held that moving average and has been moving up steadily ever since then. It is now beginning to trade at above the 13 EMA, which is bullish. APA closed the month with a loss of -4.65% and closed at $66.68. APA is an investor trade, meaning that it is meant to be held for 6 to 12 months or until price target is reached at $72.00.
Arena Pharmaceuticals - (ARNA) - Daily Chart
As you can see by looking at the chart, the falling wedge turned into a continuation pullback channel, and it is still in a wave 3 to 4 pullback. Wave 3 to 4 does not over lap wave 1 (placed at $10.99), this is confirmation that ARNA is still in a bullish trend. The pattern is not broken. The recent wave was just meant to fill the gap. Pattern and wave structure is still intact. ARNA just got a deeper correction than anticipated. The big picture has not changed. Indicators and oscillators are oversold and turning bullish. Therefore, the risk reward for this stock is favorable for new entries.
Yamana Gold Inc. - (AUY) -Weekly Chart
The weekly AUY chart illustrates that it is in a bullish symmetrical triangle pattern. AUY is a front runner gold stock. Recently AUY reached new all time highs at $13.81. However, this new high caused the stock to become overbought (on the daily chart) and it needed to take a breather, by pulling back to test the 13 EMA. This pullback is creating a bull flag. The Aroon cross is in a very bullish cross at 20 on the weekly chart. The rest of the indicators and oscillators are in a bullish trend reversal. This week, AUY closed down only -0. 87% to end at $12.54.
BMC Software Inc. - (BMC) - Weekly Chart
The weekly chart of BMC illustrates that it is in a consolidating sideways trend. It has been for weeks now. It appears to be bull flagging. Indicators and oscillators are bullish.
Berry Petroleum Co. - (BRY) - Monthly Chart
BRY is a medium risk Oil play. The Monthly chart illustrates that APA has spent the last year in a wave 3 to 4 correction. Remember, corrections always occur against the primary trend. The correction is not over until it resumes the primary up trend by breaking the counter trend down trend channel at $32.50. What you see on the chart is not a bull flag because flags only occur on daily charts. What you see is a corrective channel. This year, BRY corrected all the way to it's 34 EMA on the monthly chart. You may recall from previous updates that the 34 EMA act as magnets for price during corrections/pullbacks. BRY held that moving average and has been moving up steadily ever since then. It is now beginning to trade at above the 13 EMA, which is bullish. BRY closed the month with a loss of -4.33% and closed at $31.26. BRY is an investor trade, meaning that it is meant to be held for 6 to 12 months or until price target is reached at $45.00. Indicators and oscillators are still bearish but the stochastics are beginning to reverse upwards, the others will soon follow. Furthermore, I would like to point out that if you look at each of the prior two years, you will see that each January BRY had solid gains. I am looking for the same action this coming January, and you can see that it is likely the downtrend line will be taken out to the upside shortly.
Stock Charts are nothing more than a collection of sticks on a grid that allow our brains to see what group think perceives an equity, index, currency, or commodity is currently worth on a minute to minute basis.
That “group think” shows up in the form of geometrical shapes and trends. Those geometrical shapes we call patterns. Those trends we call bullish and bearish. Because people are human and humans experience the same types of feelings, they are expressed throughout the day in the form of buying and selling stocks, currencies, or commodities over and over for a variety of reasons.
Those patterns measure the distance as to how far the collective masses feel something is worth. The reasons are typically emotionally related and often you will hear the words fear and greed as the two main culprits. The words “bullish and bearish” are not feelings but definitions of the collective “group think” for example……..
Bullish is “a positive interpretation of the behavior of an equity or the market as a whole based on an extended rise in price.” Bearish would be the opposite but both are “adjectives” describing the opinion that a stock, or a market in general, will decline and/or rise in price. They are not “feelings” but “adjectives”.
Bullish and Bearish as mentioned above are also trends. And the reason why they are trends is because price action is not static, it is constantly moving, the movement has a definite direction and the direction is what tells us which way “patterns” (geometrical shapes) will break. In simple terms “up or down”.
The rate of speed in which price action moves depends on what we call the “wave structure”. Wave structure can come in two forms “impulsive or corrective”. Those two forms can be found in rising and declining markets. You might have heard the word “parabolic’ that is what traders often call something that rises so fast that it’s actually “curved in a way that is not symmetrical”. (that is the very definition of parabolic by the way). I often have said “parabolic’ is not a pattern but something we can label as impulsive. Stalling or consolidating are words we use to describe corrections on a “micro scale”. A waterfall (a steep descent) or downdrafts (unstable, or distribution) are other (adjectives or verbs) we use to describe something in a correction but maybe on a more “macro level”.
When analyzing Direction (the trend) Speed (impulsive or corrective) and Distance (geometrical shapes) what we really are saying is
- Which way
- How fast
- How far
- Corrections are always against the trend
- Impulse or Motive waves are always what define the trend
- According to wave structure we are always moving in 3's and 5's with variations (keeping in mind that every wave has siblings) same directional waves of the same degree within a larger wave
A summary of Rules and Guidelines for Waves
Impulse Rules (Examples)
1. An impulse always subdivides into 5 waves
2. Wave 1 always subdivides into an impulse or rarely a diagonal
3. Wave 3 always subdivides into an impulse
4. Wave 5 always subdivides into an impulse or a diagonal
5. Wave 2 always subdivides into a zigzag, flat, or combination
6. Wave 4 always subdivides into a zigzag, flat, triangle or combination
7. Wave 2 never overlaps wave 1
8. Wave 3 always moves beyond the end of wave 1
9. Wave 3 is never the shortest wave
10. Wave 4 never moves beyond the end of wave 1
11. Never are waves 1,3 and 5 all extended
Guidelines
1. Wave 4 will almost always be a different corrective pattern than wave 2
2. Wave 2 is usually a zigzag or a zigzag combination
3. Wave 4 is usually a flat, triangle or a flat combination
4. Sometimes wave 5 does not move beyond the end of wave 3 (in which case it is called a truncation)
There are many more guidelines but this is a small step on the road to knowledge
There are rules and guidelines for everything
Examples
1. Diagonals have rules and guidelines which also fall in the motive wave category
2. Corrective Waves fall into 3 types of triangle formations
A. Contracting Triangles
B. Expanding Triangles
C. Barrier Triangles
3. Within corrective waves we have
A. Zigzags
B. Flats
C. Combinations (Combinations comprise two or three corrective patterns separated by one (or two) corrective pattern(s) in the opposite direction labeled X (The first corrective pattern is labeled W, the second Y, the third if there is one, Z.)
Learning the basics of Corrective and Impulse Wave Structure is essential into understanding "speed" and plays a small role in distance when it comes to corrective patterns.
No market approach other than the Wave Principle gives as satisfactory an answer to the question, "How far down can a bear market be expected to go?" The primary guideline is that corrections, especially when they themselves are fourth waves, tend to register their maximum retracement within the span of travel of the previous fourth wave of one lesser degree, most commonly near the level of its terminus. Note in Figure 23, for instance, how wave 2 is drawn ending at the level of wave four of 1.
Elliott noted that parallel trend channels typically mark the upper and lower boundaries of impulse waves, often with dramatic precision. Analysts should draw them in advance to assist in determining wave targets and to provide clues to the future development of trends.
To draw a proper channel, first connect the ends of waves two and four. If waves one and three are normal, the upper parallel most accurately forecasts the end of wave 5 when drawn touching the peak of wave three, as in Figure 23. If wave three is abnormally strong, almost vertical, then a parallel drawn from its top may be too high. Experience has shown that a parallel to the baseline that touches the top of wave one is then more useful.
The question of whether to expect a parallel channel on arithmetic or semilog (percentage) scale is still unresolved as far as developing a definite tenet on the subject. If the price development at any point does not fall neatly within two parallel lines on the scale (either arithmetic or semilog) you are using, switch to the other scale in order to observe the channel in correct perspective. To stay on top of all developments, the analyst should always use both.
Within parallel channels and the converging lines of diagonal triangles, if a fifth wave approaches its upper trendline on declining volume, it is an indication that the end of the wave will meet or fall short of it. If volume is heavy as the fifth wave approaches its upper trendline, it indicates a possible penetration of the upper line, which Elliott called “throw-over." Throw-overs also occur, with the same characteristics, in declining markets.
VOLUME
In normal fifth waves below Primary degree, volume tends to be less than in third waves. If volume in an advancing fifth wave of less than Primary degree is equal to or greater than that in the third wave, an extension of the fifth is in force. While this outcome is often to be expected anyway if the first and third waves are about equal in length, it is an excellent warning of those rare times when both a third and a fifth wave are extended.
At Primary degree and greater, volume tends to be higher in an advancing fifth wave merely because of the natural long term growth in the number of participants in bull markets.
The reasons “why” and the question "what time” are something we can’t tell you in advance but we can shed some light on both as to the reasons behind what we don’t know.
As to why people buy and sell it’s because they do it to make and lose money (this is the “why” portion of the question that we don’t have the answer to). From the average Joe to the most brilliant of people they make good and bad choices every day in the stock market. It’s identifying through trends, patterns, and waves what choices they will make before they make them and then profiting from it.
ANDE WEEKLY
APA MONTHLY
ARNA DAILY
AUY WEEKLY
BMC WEEKLY
BRY MONTHLY
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