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I am often asked what set up do I typically look at for a ‘buy’. I am a sworn Elliott devotee and so that is always core to my stock selection.
In last week’s SharesBulletin - www.sharesbulletin.com.au - I wrote about Virgin - VBA - as being a textbook example of what I am looking for. Each week we review stocks that are in the main requests by subscribers.
VBA has been something of a ‘dog’. Please excuse the expression but it became acceptable parlance when the concept of ‘Dogs of the Dow’ was first exposed in 1991.
We can see that in the line chart below:
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And you can see from the weekly Elliott projections it is possible we could see it head deep south or even disappear off the planet. That is after maybe a couple of weeks of glory. This we can see in the daily chart:
click to enlarge
And the above is what I would describe as a classic Elliott setup with a good probability of a wave five high. If that is achieved then we could see the weekly pattern have a change of heart but at this stage we would have to say the daily is merely a bear trap rally.
But let’s look at the daily strictly on merit.
Elements I am looking for are:
The retreat from the wave three has been very mild. That is, since the July run up there has not been a mass exodus by ‘doubters’. That suggests to me that strongish buying will resume and take it to the new wave five.
The oscillator has come back to zero but held there and started to climb again. It could still go back down but at this point I am suggesting the bias is up.
And lastly there is money to be made. From the wave four low of say 45 cents to the first wave five level of say 65 cents is a move of about 45%. Even if you don’t get the exact bottom and exact top it would not be too tough to take 25% or more out of this. And heaps more if you leverage.
But it will be a case of taking the money and running when the time comes.
Enjoy the ride
Tom Scollon
Chief Analyst
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