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GKP daily 22/05/13

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I'll go into a bit of detail on this update even though it's a close up chart.

First, the Fibs relate to the drop from 228p to 126.3p ie a move back to 228p would represent a 100% retrace of the move. The reason I've plotted these is to see how far up that move the bounce went. When plotted this way, the Fibs can point to resistance areas. Here we can see that the blue horizontal line from the 161p support was close to the 38.2% Fib so there was 2 levels of resistance - 161p and the Fib at 165p.

What's interesting here is that a wave 4 (remember, my wave analysis suggests that this is wave 4 up of C down) most often retraces to around the 38.2% Fib which is exactly what's happened here so far so that adds weight to the wave 4 of C idea.

The wave labels I've put on show both of the possibilities; the abc of a wave 4 and the 1, 2, 3 of a possible new, larger wave 1 up in a new trend.

The triangle shows the uncertainty between which of these patterns is in control. In fact we've had 4 consecutive days where we've traded inside the bar from the 16th May. This is classic behaviour as the bulls and bears fight for control - bulls want a 5th wave, bears don't. (I'm not suggesting they're actually thinking about waves - it's just the market psychology at this point)

We won't know which side will win until we get a break out of this triangle. A break to the upside (above about 153p tomorrow) will signal a likely 5th wave up in the pattern up from 126.3p. Where could that go to? Well, 5th waves can be unpredictable (see SLE thread for a recent example) but there's another obvious resistance just ahead - that of the channel downtrend from 228p - which is at about 168.5p tomorrow as shown by the red diagonal line. This would also fit with the "ideal" EWT theory of a wave 5 equal to wave 1 in length (wave 1 was from 126.3p to 137.5p) since this 5th wave would be from 159.5p to 168.5p - almost the same.

Even if the bullish case were to play out, a move to 168p would conclude an initial set of 5 waves up (these would form a wave 1 of larger degree) and should therefore be followed by a correction, usually to the 61.8% Fib but possibly the 50% Fib if it's really bullish. Those levels would be 142p and 147p respectively so even if that were to play out it should still be possible to buy back lower than today's close.

I've already covered the bearish possibility should the triangle break to the downside. The level to watch for that tomorrow is about 143.25p and would suggest at least a re-visit to 126p and possibly 119p. Below the original breakout point of 137.5p and it will go further down for sure as that will be a confirmed break of the bullish pattern.

In fact, it's my view that a final drop to c. 119-126p would set up a much stronger and less unpredictable new uptrend since there would be added confidence due to the completed downside pattern.

This is all theory, of course so trade it at your own risk. was not set up to absolve readers of their own responsibility for decision making. It's to share views and discuss technical possibilities and methods. Technicals don't always play out (as you all well know!) so please bear that in mind, just as if these posts were made
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