LOCKIT Stock Trading -
Step2: Opening a position

After looking at the long term in LOCKIT step 1, let’s investigate the medium term using a weekly chart with the idea that you are looking for the bigger medium term trades. Are you on the contrary a short term trader you would only look at the weekly chart to find out if price is not coming to a medium term reversal point. We will use all technical analysis techniques as explained in the basic theoretical part.

 

CA Inc weekly chart

08/13/2004 Let’s look at figure 1.4, the weekly chart of CA Inc. 

Figure 1.4: investigating the medium term trend on the weekly chart of CA Inc

Because of the big price shift in this longer period, we use a semi-logarithmic scale for this weekly chart. First we look for a probable Elliott wave count. If our count is correct we may be near the end of a longer term correction wave (4). Correction wave (2) was a sharp correction and most of the time wave four will then follow with a flat correction, this seems the case here. Drawing a trend line through the tops (1) and (3) and a parallel line through bottom (2) show that we have reached a target price for wave (4) at the bottom of this channel. At the same time we reach support at the 200 days simple moving average (dashed line) and we are finding support at a previous low point (wave 4 bottom) at a price level of $22.0.

We are using three indicators:

SVAPO with the standard settings, the standard 14 (weeks) SVE_RSI_StDev and the standard 18 (weeks) SVE_BB%b_HA. Important to look at, is if these indicators are making convergent or divergent moves.

These indicators are now moving in the lower part of their normal space. So we can see that there is room for an up move, needed to create the next impulse wave (5), which must bring price above the top of wave (3) or above $29.6.

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Figure 1.5: Projecting the long term price target on the weekly chart of CA Inc

Looking at figure 1.5 and assuming that we reached a not yet confirmed bottom of wave (4), we could try to make a future price projection for wave (5). A Fibonacci projection with a first target at $22.5 has already given support three times for different wave 4 corrections. A rising pitchfork, in line with the rising prices and the average, is crossing the second Fibonacci target at $32.0. This is the closest target for the medium term to be reached in about 20 weeks.

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Careful! This projection is only valid if we really have reached the turning point starting impulse wave (5) now. Considering the solid support here, there is a good chance we are at the turning point.

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