This from Nick Radge known as The ChartistBOTTOM LINE 4/2 :EW...

This from Nick Radge known as The Chartist

BOTTOM LINE
4/2 :
EW Trend: Corrective
Price Trend: Up
Trend Strength: Weak
Broker Consensus: n/a


TECHNICAL DISCUSSION
4/2:
VIDEO ANALYSIS (2 mins 27 secs)
LAYMANS: The bears have offered conciliatory gestures to the bulls over the last week or so but its more than likely that they'll wrestle back control and drive prices lower, most likely taking out the major lows recorded on Jan 22nd and 23rd.

I have said constantly that bear market rallies are confusing and nasty for traders, new and old. What we've just witnessed is a classic example. Short. Sharp. Powerful. Enough to make you stop and think that, yes, just maybe, the bull is back. The important level we've been watching was 6105.

Above that suggests the bear trend moves back to a more neutral state. We tried hard today, so very hard, to take it on but today instead was a day of rejection and bear control. The close was at the lows of the session and there can only be one answer for that activity - sellers. The good news, if I can suggest such, is that this sharp advance has taken the 'sting' out of the market, at least for the near term. Its probable that the expected declines now should just nudge the January lows by a small margin only.

Summary - expect weakness over the coming weeks back to 5200 or a tad lower. We should then bounce before embarking on another round of selling which will take us through to the 4800 level.

TECHNICAL: The pattern off the January lows extends up in a perfect a-b-c correction and todays weak close basically suggests the advance has completed at todays highs. We're either at a wave-iv or larger degree wave-A level and that weakness should set in almost immediately. The depth of this wave-iv has been extreme and this usually means wave-v will be stifled.

As such I'm looking for the 5200 lows to be tested and perhaps breached, but only just. This next thrust down will complete the wave-v and also the larger degree wave-3. The wave-4 bounce could be a long winded affair taking several months before another nasty wave-5 takes hold and drives prices down to 4800.

The Reserve Bank meets tomorrow ans its widely expected that rates will rise. This is fully priced into the market. What we need to listen out for is the rhetoric coming from the Bank. If they offer the slightest hint that rates have gone high enough then we'll see some strength and confidence return. However, its starting to be expected that another rate rise will be on its way. If the RBA mentions this then we'll be back at 5200 very quickly indeed.

TRADING STRATEGY
4/2:
An aggressive trader could short this market right here but quite frankly the volatility is just too extreme for many accounts to handle. Possibly the better alternative is to sell call spreads above the market for the February and/or March expiry.

High volatility and time decay will see these spreads drop quickly if the markets start to quieten down. Any move above 6105 would be reason to reverse the short spreads and stand aside until the pattern returns. The holding of any long stock positions should be managed aggressively and stops tightened up accordingly.


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