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ELLIOTT WAVE


GS Energy Index Breaks Triangle Support

02/23/06 08:57:47 AM
by Arthur Hill

The GS Energy Index broke triangle support, but a potentially bullish wedge is forming and a wave C may be ending.

Security:   $GJX
Position:   Hold

A chart tells us what is happening and what might happen. What is happening defines the latest signal and current trend. What might happen defines potential setups and what it would take to reverse the current trend. On this price chart, GJX broke triangle support with a gap down and moved below 220 (Figure 1). This signal is bearish and the current trend is down. This is what is happening.

FIGURE 1: GS ENERGY INDEX. GJX broke triangle support and moved below 220, signaling a downtrend. What will it take to reverse it?
Graphic provided by: MetaStock.
Graphic provided by: MS Quotecenter.
 
Even though the latest signal was bearish and the current trend is down, a bullish setup may be in the works. This is what might happen. The current decline looks like an ABC correction that formed a falling wedge and retraced 62% of the prior advance. The ABC correction and 62% retracement represent a classic Elliott wave. The falling wedge is a classic pattern that can be found in Robert Edwards and John Magee's classic work, Technical Analysis Of Stock Trends.

What will it take to reverse the current downtrend? The index bounced back above 220, and this is a short-term positive. However, this could be just an oversold bounce. The stochastic oscillator moved below 20 and this indicated an oversold situation. For this oversold bounce to be considered something more, I would like to see the index fill the early February gap with a move above 230. This would negate the triangle support break. For a complete trend change and to signal a continuation of the May–September advance, I would like to see a move above 250. This would break the upper wedge trendline and exceed the January high.



Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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