Companies Week – Resmed keeping divergence traders awake

We try as much as possible to discuss potential chart setups on the blog rather than ones that are completed or already under way. The idea is to show things as they really happen, win lose or draw. One consequence of this of course, is that only some of the setups we post get triggered by price moving through entry levels. Others turn out not to set up at all.

I’ve been watching Resmed recently as a potential divergence situation. If price moves much higher from here there won’t be a set up but if we falter and start to move lower, we may get an interesting failure swing on the RSI.

The thing that first drew my attention to this chart is that price is currently showing signs of rejecting a Fibonacci projection cluster after a very steep rally.

This cluster projects that the current upswing which I have labelled B/C will be:

  • 61.8% of the length of the whole swing up to “A” and
  • 127% of the size of the A/B correction

Resmed CFD – Daly. Source: CMC Tracker

Having initially made a peak at this cluster we have now moved back to it but without much momentum. If we were to make a 2nd trend peak at say 3.63 or below, this would look like a potentially weak retest of this Fib cluster zone.

That would set up for a potentially significant correction or move lower, particularly if price overlaps through the peak at “A”.

One approach here is to use a failure swing on the RSI as an entry strategy. Here you are looking for the RSI to confirm weak “retesting” style behaviour.

A failure swing would occur if the RSI, having made a peak in the overbought zone above 70, makes a 2nd, lower, peak and then breaks below the most recent trough (dashed line). You can see it did a similar thing when price peaked at “A”.  A typical approach here would be to wait for the first RSI close below the dashed support line to confirm the failure swing

Regards

Ric

About Ric Spooner

Over 30 years market experience - professional trader, broker, director
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2 Responses to Companies Week – Resmed keeping divergence traders awake

  1. Vlad says:

    To add something a bit simpler:
    3/08/12 – Resmed announces record financial results and $0.17 dividend (5.7% at that time!) – this is B
    3/09/12 – Ex-div day – this may be C

    • Ric Spooner says:

      Hi Vlad,

      I think the Australian dividend will only be US 1.7c per share. 17c is the dividend on the US shares but the CDI’s traded on the Australian shares are at the ratio of 10:1. i.e. 10 CDI’s for every one US share.
      The timing of point “B” and the profit announcement is interesting in this case. The low at “B” was actually on 27 July, a week before the profit announcement. This 27 July low was at a Fibonacci cluster level just like the one discussed in the post. As it turned out it was a nice set up for technical traders to buy using the ABC set up at a Fib cluster level. Yes it was the Friday 3 August news that caused the market to move, but technical analysis either combined with fundamental analysis or on its own can be used to position in advance to profit from news events if they go the right way but provide a logical place for a close stop if it does not
      Regards
      Ric

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