Macquarie Group Limited (ASX: MQG), which is comprised of the Banking Group and Non-Banking Group, has closed at $17.4 yesterday, up 10.5%.
However, since January 7 (point F on the chart) where the price action posted an intermediary high above $34, the stock has lost roughly 50% of its value. The slight rebound generated at mid-November failed to drive the price higher than the previous high of early November (point E). This resistance level held. The long-term downtrend remains in place, built by the higher lows posted in last December, May and August (points A, B and C). The recent downtrend started almost 2 months ago is the continuation of the medium-term downtrend started in last August (point C, then lower highs at points D and E).
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Several indicators argue today for a rebound on the near-term. First, the stock was obviously oversold until Monday. The Relative Strength Index (RSI) fell to an extreme low point. The jump yesterday has lift back the RSI above its trigger line: it’s a bullish signal. It means that the current level is an opportunity for technical traders to buy back MQG.
So far, the current longer-term trends actually remain bearish. The MACD has been falling below its signal line since mid-January.
But the Vertical Horizontal Filter (VHF) is at a peak point. Remember that there are three ways to use the VHF indicator:
- The VHF values above or below certain levels indicate the degree of trending. The higher the VHF, the higher the degree of trending.
- The direction of the VHF can be used to determine whether a trending or congestion phase is developing. Rising VHF indicates a developing trend whereas falling VHF indicates that prices may be entering a congestion phase.
- The VHF as a contrarian type indicator. Expect congestion to follow high VHF values. Low VHF values may indicate a trending phase will soon follow.
Here the VHF has reached an extreme high level (52). A VHF rise above 40 usually indicates that the trend is near its end. A correction of the recent decline is therefore likely.
In this scenario we can expect a move back towards $24.50, which corresponds to both a previous high (point G) and the 50% Fibonacci retracement ratio of this 2-months decline (between points F and H). It would be a 40% rise.
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