Gartley and Zig Zag:
- We noticed a Gartley forming yesterday. A zig zag, where C=A is basically an Elliott Wave description of a Gartley. The maximum 100% swing projection targets 1.4143 area (maximum meaning counting the tails and not just the close when comparing).
- Note the RSI falling below 40, reflecting that a correction with a bearish tilt is developing.
- Support for the zig zag below 1.4143 is the 1.41 (61.8% retracement level. Below that we are look at the 1.40-1.4014 area, which is between 138.2% and 150% expansion of wave A onto C.
- Also note support at 1.3990, where we have the 150% fnbonacci expansion and 78.6% retracement cluster.
Extended Bullish Divergence:
- Another way to look at the decline is in the 1H chart, where you see a downside channel, and price action breaking back and forth the 200SMA. This reflects bearish trend in the short-term within the context of medium term consolidation.
- Within this consolidation mode, we are picking up a bullish signal as the market develops an extended bullish divergence with the RSI (an indicator of momentum).
- A rally from a bullish divergence can sometimes be short-lived. This is how an extended divergence is formed, continuing bearish attack after minor rallies off of the divergence.
- Therefore, a break above 1.4280 is needed to start considering the bottoming attempt. The RSI in the 1H chart should also break above 70 to establish some short-term bullish momentum.
- Above 1.4280-1.43 zone, the 1.4350-1.4360 area is also a zone of resistance near the 200SMA. A break above that confirms we are indeed ranging in the medium term. If the market rejects a break above the 200SMA however, we can remain bearish in the short-term.
- Finally, a break above 1.4450 suggests bullish continuation in the medium term, especially if the 4H RSI pushes back above 60.
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Fan Yang CMT
Chief Technical Strategist