| Technical Analysis Corrective Triple Three Zigzags Part Two |
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| Tuesday, January 30, 2007 |
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PART II
Morning Update - Fast Moving Parabolic Up Patterns that end Macro Corrections & Corrective Waves - APA , ECA ,EOG, UPL, VLO, SU Chart Patterns
Good Morning. On this update, I would like to continue discussing Macro corrections. In the previous update, I chose to use the APA chart as an example of a macro correction. Actually, a better example of a macro correction can be seen in the chart of EOG. I have updated the EOG chart many times. Please review those updates. They can be found on the archives page. Ultimately, what I would like to teach you is that TIME and TIME FACTORS play an important role in a trade. This is what I will discuss today.
How are Time and Time factors relevant to a trade? When you enter a trade there is always a time factor involved. How long is it going to take for the trade to become profitable and reach price target? The trend, pattern,& waves will tell you how long to be invested. It is an important component of technical analysis. It sounds easy to pay attention to the time factor. You may set it and forget it, but many traders are unable to do this because they forget about how long it can actually take for a stock to reach price target. They forget because they are in a hurry or become distracted by a stocks volatilty or short term price swings in a stock, or they are looking at the wrong time frame for their investment. APA for example is a volatile stock, and if you consistently watch the daily chart, you may very well get kicked out of the trade.
The further you go out in time on a chart, such as on a monthly chart, the clearer the BIG PICTURE of the stock's trend is. It is easier for your mind to understand what the primary trend is when it looks at a monthly chart. It also smoothes out the stocks short term volatility. Furthermore, when a pattern occurs on a monthly chart it takes precedence over any time other time frame. Therefore, if you are investing or swing trading a stock, you should only take into account what is occurring on the monthly chart or the weekly charts. These time frames then, are the only ones that are significant to you and your swing trade or investment. The smaller time frame charts, such as a daily or 60 minute charts, are simply irrelevant. All they do is represent noise, and distract you form your longer term investment goals. Furthermore, if you watch the daily chart of your swing trade stock, then you are more likely to lose money on what is most likely going to be a profitable trade because you are paying attention to the wrong time frame. Therefore, it is imperative that you recognize and take into account what the time frame is for your investment because it is an integral part of your trading plan.
PLEASE STUDY THE MONTHLY CHARTS BELOW.
Apache Corp. - (APA) - Energy Sector - Daily Chart Triple Triangle Pattern- Optionable
APA is a medium risk Oil play. The daily chart illustrates that APA has spent the last 20 months in a Triple Triangle Pattern. It has been in a WXY lateral consolidation move. You can see that the Y wave has been completed with a bullish symmetrical triangle. The optimal time to have entered this stock would have been at wave E when APA hit the bottom of the symmetrical triangle and the price was $62.87 at the beginning of the year. When I issued the original buy alert at the end of November at $66.50 I did not realize that APA was in this pattern. Now that the breakout has occurred the pattern is clear. Nevertheless, we have a APA at a good price. If you look at the moving averages, you can see that they too have coiled and consolidated in a sideways fashion within the WXY waves. Now if you look at the moving averages in the Symmetrical, you can see that they are coiling along with the price moves. Then, at wave E, at $62.87 you can see increasing volume come in, and this pushes the price up and causes a bullish triple moving average crossover. At the same time, the Aroon has a 123 bullish cross and the indicators and oscillators bottom and immediately reverse upwards in bullish V shaped manner. Furthermore, you can also see that the RSI and PPO begin to show bullish divergence and coil during the final symmetrical triangle formation of wave Y. Since this pattern is so bullish and now that the breakout has occurred I am going to revise the price target on APA. As you can see it is already trading close to my original price target of $72.00. I believe further gains of $10.00 to $15.00 are possible for APA if it is held as an investment. Please wait for my revised number to show up in the Portfolio.
Apache Corp. - (APA) - Energy Sector - Monthly Chart- Optionable
APA is a medium risk Oil play. The Monthly chart illustrates that APA has spent the last 2 years in a wave 3 to wave 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 downtrend channel at $70.00. As you can see APA is very close to taking that downtrend line out. What you see on the chart is not a bull flag. They only occur on daily charts. What you see is a corrective channel. Last 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 acts as a magnet 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 of December with a loss of -4.65% on light volume and closed at $66.68. In contrast, this month, APA is up 4.79% on good volume, and the month is not even over yet.. Furthermore, you can see positive divergence developing in the RSI, WM%, and the Stochastics. This signifies a likely breakout above the downtrend line. The buy alert for APA was triggered at $66.50. It is an investor trade, meaning that it is meant to be held for 6 to 12 months or until the revised price target is reached at $90.00. That would be a gain of 24 points.
EnCana Corp. - (ECA) - OIL - Monthly Chart - Energy Sector -Optionable
ECA is a lower risk Oil play. ECA trades with a P/E of 5.81 and presents itself as a good value and fundamental play. If this is what you are looking for, you may want to start building an investment position in this low P/E stock. The monthly chart of ECA illustrates that it has been in a lateral sideways consolidation move for the last 16 months or so. This month ECA retested the 2006 lows and place a low at $42.30. You can see that the lows were right above the 34 EMA, which acts as a magnet for price drops.
However, volume came into the stock and pushed the price up off of it's lows and it is now attempting to cross the 13 EMA. This is bullish action. All the indicators and oscillators are in a bullish trend reversal. Furthermore, you will notice that the stochastics have had a bullish cross along with the price action. The RSI and WM% remain above the 50 mark which is also bullish. Resistance still exists at the corrective down trend line which is around $52.00 and this number still needs to be taken out. When this resistance is breached buyers will come and take the stock higher in a bullish 5th wave move. The buy alert for ECA was triggered at $47.40. ECA 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. That would be a gain of 25 points.
EOG Resources, Inc. - (EOG) - Monthly Chart - Energy Sector- Optionable
EOG is also a lower risk Oil play. This is a macro play . EOG also presents itself as a value play with a P/E of 11.47. The Monthly chart of EOG illustrates that it has spent the last year in a lateral sideways consolidation pattern. It has been in an ABC / wave 3 to wave 4 correction. Although EOG has been in a counter trend pullback, you can see that strong volume has always come in to support the stock at its 13 and 34 EMA's. This is bullish action. EOG is now on the verge of breaking it's corrective downtrend line at $69.00. When it does, EOG will resume it's primary uptrend, and continue on to complete a bullish 5th wave. Indicators and oscillators are still pointing downwards and are lagging the price action. However, the RSI and stochastics have bottomed and are curving upwards. Please note that despite the carnage in Crude Oil this month, EOG is +9% for the month of January and it is on the verge of breaking the down trend line. The buy alert for EOG was triggered at $70.20. It is an investor trade, meaning that it is meant to be held for 6 to 12 months or until price target is reached at $95.00. That would be a gain of 25 points.
Ultra Petroleum Corp. - (UPL) - Monthly Chart - Independent Oil & Gas - Optionable
UPL is a momentum Oil play, it has a P/E of 34.52. It is a high beta / fast moving oil stock. It a favorite momentum play with traders who trade in this sector. The Monthly chart of UPL illustrates that it has spent the last year in a lateral sideways consolidation pattern. The monthly chart of UPL illustrates that it has been trading in wave 3 to wave 4 correction for the last year. You can see that it has traded all the way to it's 34 EMA. The 34 EMA typically acts as a magnet for prices to move towards. UPL has held this moving average, and buying volume is beginning to creep back into the stock. UPL has been trading in a rectangle / tight trading range for the last 4 months. Please note that despite the carnage in Crude Oil this month UPL is up well for the month of January. It is up +8%, not bad at all. The buy alert for UPL was triggered at $51.90. UPL is a medium risk investor trade, meaning that it is meant to be held for 6 to 12 months, or until price target is reached at $80.00. That would be again of 28 points.
Valero Energy Corp. - (VLO)- Monthly Chart - Energy Sector - Optionable
VLO is medium risk Oil play. This is a macro play . The monthly chart of VLO illustrates that it has spent the last 6 months in an ABC zig zag move down to form an irregular flat at it's recent low at $47.66. It has been in an ABC / wave 3 to wave 4 correction. Although VLO has been in a counter trend pullback, you can see that strong volume has always come in to support the stock above 34 EMA. This is bullish action. VLO is now on the verge of breaking it's corrective downtrend line at $55.00. When it does, VLO will resume it's primary uptrend, and continue on to complete a bullish 5th wave. Indicators and oscillators are still pointing downwards and are lagging the price action. The RSI and stochastics are in the bottoming process and they still need to bottom and are curve upwards. Please note that despite the carnage in Crude Oil this month, VLO is +5% for the month of January and it is also on the verge of breaking the down trend line. The buy alert for VLO was triggered at $51.01. It is a swing trade, meaning that it is meant to be held for 3 to 6 months or until price target is reached at 20 points higher at $70.00.
Carpenter Tech Corp.- (CRS) - Monthly Chart - Basic Metals -Optionable
As you can see by looking at the monthly chart, CRS has been in a bullish pennant/ symmetrical triangle pattern. It has spent the last 9 months in coiling/ consolidating pattern. It has just completed it's wave 3 to 4 pullback, and has broken out above the down trend line. Volume has been light /contracting on the pullback and has surged on the breakout. This is confirmation that the counter trend move has been completed and it is now in a 5th wave move up. Indicators and oscillators are in a bullish trend reversal. The buy alert for CRS was triggered at $109.63. It is a swing trade, meaning that it is meant to be held for 3 to 6 months or until price target is reached at 71 points higher at $180.00.
Edited by Daisy
Andrea Victoria Friend aka Daisy
Editorial Assistant for Trending123.com
daisy@trending123.com
COMBINATIONS (DOUBLE AND TRIPLE THREES)
Elliott called sideways combinations of corrective patterns “double threes" and “triple threes." While a single three is any zigzag or flat, a triangle is an allowable final component of such combinations and in this context is called a "three." A double or triple three, then, is a combination of simpler types of corrections, including the various types of zigzags, flats and triangles. Their occurrence appears to be the flat correction's way of extending sideways action. As with double and triple zigzags, each simple corrective pattern is labeled W, Y and Z. The reactionary waves, labeled X, can take the shape of any corrective pattern but are most commonly zigzags. Figures 20 and 21 show two examples of double threes.
Figure 20
Figure 21
For the most part, double threes and triple threes are horizontal in character. One reason for this trait is that there is never more than one zigzag in a combination. Neither is there more than one triangle. Recall that triangles occurring alone precede the final movement of a larger trend. Combinations appear to recognize this character and sport triangles only as the final wave in a double or triple three. All the patterns illustrated here take the same form whether within a larger rising or falling trend. In a falling trend, they are simply inverted.
APA
APA
ECA
EOG
UPL
VLO
CRS
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