Is it time to be cautious?Don't get me wrong, I'm 100% bullish about SQI, but I think we might see some more downside-risk before this one really takes off (see below). ...Any other opinions?
BullMarketRun - CDNX Chart Update: 3-Wave Correction?
March 21, 2011
Markets are strong across the board today with the CDNX up 36 points at 2280 as of 10:45 am Pacific. The CDNXhas now climbed a whopping 226 points or 11% over just the last fivetrading sessions since last Tuesday’s intra-day low of 2054. We remainvery cautious with regard to this move, however, and many of the Gold stocks are not going along for the ride. John updates the CDNX chart below, warning of a potential 3-wave or even a 5-wave correction.
John: This morning we’re looking at a 1-year daily chart of the CDNXin order to compare the current situation with a similar one in Apriland May of last year. Also, we will identify critical resistance andsupport levels and compare indicator readings of the two situations.
The early warning in each case was a divergence between the RSI andthe Index. In April, 2010, there was a double top pattern and the RSIdipped from 85% to 60%. Similarly, in February and early March of thisyear there was a double top with the RSI dipping from 73% to 67%. Infact there has been a divergence between the RSI and the CDNXfrom January 1 to now, so there has been plenty of warning that acorrection was going to occur sometime early this year. Divergences arequite reliable in identifying corrections but give no indication oftiming.
The SMA(20) crossed down below the SMA(50) in the 2010 correction andis about to cross down again in the near future, another bearishfactor. In each case from the start of the correction the volumedeclined. When volume declines during the B wave (upward) in acorrection, this is very bearish.
When estimating the length of moves in a 3-wave correction it isusual to assume the length of the C wave will be equal to the length ofthe A wave but often the C wave is longer due to downward momentum aswe saw in the 2010 correction. By assuming the C wave will be equal tothe A wave and decline from the A wave’s 50% retracement level, theestimated bottom is 1849. This is graphically displayed in Saturday’s“Week in Review Part 1?. The all-important pivotal support levels(horizontal green lines) are shown as 2200, 2060, 1900 and 1680. A breakdown of the 2060 support level would verify that this is indeed at least a 3-wave correction.
Two resistance levels are shown (horizontal blue lines) at 2300 and2448. The red Fibonacci set between 1358 and 2448 shows that the 61.8%and 50% are very close to the 2060 and 1900 pivotal support levels,respectively. This indicates support strength at these levels.
Looking at the indicators:
In both cases the RSI formed a bullish “W” formation. Do not befooled by this. As you can see the 2010 correction continued to bebearish for another 2 months before the recovery began.
The Chaikin Money Flow (CMF) shows a sharp drop in buying pressure inboth scenarios but after the 2010 correction the selling pressure wasnot heavy. The level of the selling pressure should be watchedcarefully because if it becomes strong the 3-wave correction could turninto a nasty 5-wave downtrend.
The ADX trend indicator has the -DI (red line) above the +DI (blackline) and the ADX trend strength indicator is flat, showing that theshort-term trend is bearish.
Outlook: The chart patterns and indicators all point to the probability of a 3-wave correction that could take the CDNX down to the 1848 level. The length of this 3-wave correction could be 3-4 weeks.
Source:
https://www.bullmarketrun.com/?p=5618
Guy