Editor’s note: Murray Dawes is the editor of Alpha Wave Trader, a short-term trading service that trades stocks and indices from the long and short side. He is filling in for Harje while he is away overseas.
Before I continue outlining the basis of my decision making in the markets, I thought I should give you some actual news worth writing about.
According to the Australian financial Review, Labor has pledged to repurpose the coalition government’s $5 Billion Northern Australia Infrastructure Facility (NAIF) for projects ‘including gas projects that would have national economic significance’.
I did a video on a number of these stocks just a few weeks ago and pointed out that the Jemena Northern Gas Pipeline (NGP) from Tennant Creek to Mt Isa might be expanded to the Wallumbilla gas hub in Southern Queensland, and if that were to occur, the Galilee Basin and Bowen Basins could be opened up and connected to the southern states.
There are a number of stocks with proven sizeable reserves who would benefit immensely if that were to occur and I noticed a few of them starting to move yesterday.
The east coast gas shortage is going to fester unless…
Blue Energy Ltd [ASX:BLU], Galilee Energy Ltd [ASX:GLL], Comet Ridge Ltd [ASX:COI] and Armour Energy Ltd [ASX:AJQ] jump out at me as the first cabs off the rank that could rally substantially if Labor were to get in and help to fund the expansion of the Jemena NGP.
The east coast gas shortage is going to fester unless some large decisions are made one way or the other to ameliorate the situation. Opening up the potentially world-class Beetaloo Basin in the Northern Territory makes sense. And there are some huge names currently preparing to continue drilling work in Beetaloo after the Northern Territory lifted the fracking ban at the end of last year.
Origin Energy Ltd [ASX:ORG], Santos Ltd [ASX:STO] and Hancock Prospecting have all got large holdings in the Beetaloo and McArthur basins. I’m sure they have the ear of the politicians and if the upcoming drilling proves up the size of the prospect, there will be a lot of pressure applied to both sides of politics to help them unlock the potential.
A few smaller companies have some huge holdings in the Beetaloo and McArthur Basin also, but not many. The two to keep an eye on in that respect are Empire Energy Group Ltd [ASX:EEG] and previously mentioned Armour Energy. Macquarie Bank owns nearly 5% of Empire Energy and a few of the board members are ex-Macquarie. Those boys know how to make money so I will be keeping a keen eye on EEG as we move forward.
Now moving on to some technical analysis chit chat.
I hope you can understand what a huge task it is for me to condense decades of market observation and technical analysis theory into a few articles. Keeping the most important bits secret while also giving you enough information so that you can discover for yourself the power of viewing price action in this way is not easy.
But I’m giving it a crack nonetheless.
Today I wanted to briefly introduce you to the concept of how waves develop in a trend. I’m sure many of you have heard of or use Fibonacci levels in your own trading. The classic Fibonacci levels that most people seem to focus on are the 38.2%, 50% and 61.8% levels. I don’t focus on the 38.2% or 61.8% at all anymore. If you have been reading my articles you may remember that I said in my very first article that the market constantly revisits old ground shaking traders out of their positions. Even if the market is trending it is uncanny how prices can constantly retrace their steps before carrying on.
That’s why my main level when looking at where markets may change direction within a trend is between 75% and 87.5%. On the other side of the coin, I also look at the 12.5–25% level as incredibly important.
So my retracement levels whether the market is trending or range bound are 12.5% to 25%, 50% and 75% to 87.5%. If the market is trending up for instance, I will call the 75–87.5% retracement of a major wave the ‘Buy Zone’ and the 12.5–25% region the ‘Sell Zone’.
Let’s have a look at this idea in action.
The ASX 200 has been in a strong uptrend for the past few years. I will depict the buy and sell zones of each major wave within the trend and you can make your own mind up about whether or not you think it might be useful information.
ASX 200 rally since 2016
Source: CQG Integrated Client
[Click to open new window]
Every time a new wave was created to the upside, I have placed a green box at the 75–87.5% retracement zone. Of the six waves to the upside since the rally began in early 2016, we have seen a retracement into the buy zone four times and on two of those occasions prices revisited and found support in the buy zone on multiple occasions.
There were also two instances during the rally where prices saw stiff resistance in the sell zone of the wave. Obviously if prices are trending to the upside you would expect to see more instances of support in the buy zone than resistance in the sell zone.
Staring at a chart and analysing what went on is a world away from being a trader with a position on at the time. Imagine you had bought the ASX 200 expecting higher prices only to see it plummet hundreds of points and nearly bust below previous support. You would have been under immense pressure with a losing position as the market went down day after day. Many traders would have either dumped their long positions or perhaps they would have been shorting the ASX 200 expecting further weakness. Then prices hit the buy zone of the previous up wave and rocketed higher, ouch.
The process of retracing over old ground to shake traders out of positions is going on all the time. Wherever you can find some regularity in the market’s gyrations there is opportunity.
Editor, Alpha Wave Trader
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