The Chart Buff 19/07/10

by Gary Glover 19 July 2010

Dow Jones


 The Dow Jones Industrials is in an unusual position, in a downward sloping trading range.  There was a marginal new low recently (false break) so this is a short term bullish signal but we still have a series of three lower high’s which is quite bearish overall.  Looking at the previous rally in the range we can see a rally of 10 days followed by a pullback 10 days to a slight new low.  So the most recent rally of 7 days will be measured on how the next seven days goes, whether it can hold the low within the same time.   
View:  Overall we maintain a neutral position.  There a few things to like about what is going on but the series of lower high’s is the greatest concern.  We expect the market to be range bound short term.

S&P ASX 200


Not much has changed to our previous forecast.  We maintain a neutral view and believe a trading range between 4080 and 4800 is likely for an extended period of time.  
 
View:   A 12-18 month trading range is possible.  We should get used to an increase in volatility and learn to write covered calls.

BHP Billiton Ltd


The current pattern of trend is a concern.  This could be described as a pennant/flag pattern.  Some of these patterns succeed while others obviously fail.  The key generally speaking is to wait for a bearish break as these patterns can be time consuming in nature.  If it manages to hold on for a long period and not break the pattern then this can turn into a basing type of pattern and a slow advance can occur similar to 2008/09.  If we get a bearish break on the other hand then a fast move lower is possible.  In this case we get a target as low as $31.00.  It does appear a little implausible but in the current environment (global uncertainty, resource tax and election) the possibility can't be dismissed.
 
View:  The current pattern of trend tells us to keep on our toes here as a break below $36.00 would be extremely bearish.

David Jones Ltd
 


There’s a lot, not to like about this stock currently.  The recent pattern is a flag/pennant formation which is a bearish consolidation pattern.  You can see the rally for the last 8 weeks has been mild in nature and also it has risen on declining volume.  The rally has just tagged the previous swing low in January and this is typically where a weak trend would normally rally to and fail from as this is key resistance point.
 
View:  There are three good reasons to short this stock in their own right.  A combination of all these combined could be a lethal combination and this would be described as a strong sell.  $3.50 - $4.00 is the target range. 

Nufarm Ltd


This stock has had a massive fall from grace and people are wondering where the low might be or what price region we might see some support.  I would not advocate trying to find a buying point but rather wait for a bullish reversal before entering in.  A couple of price points to monitor for include the 3.13 and 2.84 regions.
Using the simple but widely universal A = C correction measure gives us A = 17.71-6.99 = 10.73.  Projecting the same price from the B wave gives us a target of $3.11 (13.84-10.73).  Also the first leg down can mark the midpoint so using the first drive down to 8.34 for the C wave gives us a projected target of $2.84.  
View:   Extreme caution required here.  I would not be trying to pick a low here and I would be against taking a longer term view.  Not meeting financial covenants of its financiers is a massive warning bell.
 

Disclaimer

Gary Glover is an Authorised Representative (Rep No. 259215) of Novus Capital Limited ("Novus"). Novus is a holder of Australian Financial Services Licence No 238 168. Novus, its directors, officers, associates and employees each declare that they, from time to time, may hold interests in financial products and/or earn brokerage, commission, fees or other benefits from financial products mentioned in this e-mail or attached documents. Unless specifically stated within this page or an attached document, any information communicated by this e-mail constitutes unsolicited general financial product advice which has been compiled without regard to any investor's individual objectives, financial situation or needs. It is not specific advice for any particular investor. Before making any decision about the information provided, you need to consider the appropriateness of this information having regard to your individual objectives, financial situation and needs and consult your adviser. Any indicative information and assumptions used here are summarised and also may change without notice to you, particularly if based on past performance or relate to a future matter.
 

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