My earlier post today was about Australian retailer David Jones and continuing along those lines I have another retailer to consider – this time Harvey Norman.
The formation here is one that we talk about quite regularly which is the Gartley cluster.
The key things that you are looking for here is the 3 wave count (labelled A, B and C) and then an appropriate cluster of Fibonacci levels which represent a potential support level at which you would then have confirmation of Wave C ending. One of the things that you should always remember about Fibonacci levels is that they aren’t support and resistance levels in themselves – traders need to wait to see price reversals occur at these levels before any such conclusion can reasonably be drawn.
This means that the first thing that the trader needs to see is a trough formed with its low point very near to the Fibonacci cluster level. Once this has occured then the trader can look to a long position with the stop placed below the low of the trough or below the cluster level if the trough has formed above it. One common way of profit targeting with this type of trade is to place your initial target at the mid-way point between point B and point X. Typically though this wont be a hard target and the trader would look to allow the price to move higher though likely with a closer stop loss in case of a reversal.
You can see in this particular case that there is quite a good example of RSI divergence occuring as marked. You can see divergence occuring for a series of peaks and troughs so its not conclusive evidence in and of itself but is quite a good addition to have in this particular case.
We will update this post once a confirmed reversal has occured.
You can follow both Ric and me at RicCharts and DaveCharts respectively.
All the best,