Advanced Technical Analysis - PD
Note: the following analysis is formulated as an assimilation of Fibonacci, DeMark, Elliott Wave and other technical indicators. It is offered as education and not intended as advice in any way.
Phelps Dodge (PD:NYSE) is showing a number of technical characteristics that suggest its uptrend from its 2002 lows could be in its final stages. Weekly and daily momentum is diverging at these new all-time peaks, short interest ratio is at its lowest level since 1996, daily and weekly DeMark trend exhaustion indicators have or are ready to trigger, on-balance volume is diverging while actual volume is heavier on declines, and an operative trend channel has contained prices since the 2002 lows. Most important of all, however, the wave form suggests a complete or nearly complete "5" waves up from the 2002 lows and the May 2004 lows, with the final 5 wave move up from May 2004 overlapping suggesting this particular "5" wave move from May 2004 is a terminal and thus the ending impulse in a larger degree "5" wave form from 2002's lows.
Technical weakness could present itself following a clear "5" wave move down on the hourly chart. Why? While all the necessary pieces are in place to consider the entire impulse wave up from 2002 and from 2004 complete, there are a number of Fibonacci targets scattered above current prices: at the $110, at $114 and again at $119. These targets may act as magnets to the current price so there is no need to get in front of this stock, despite its underlying weakness, until we see evidence of a confirmed trend change. (not advice)
What will that evidence be? A "5" wave move down that is clear on an hourly chart. The aggressive interpretation suggests weakness on any bounce after a 5 wave hourly decline. The conservative approach awaits a "5" wave decline on the daily chart. The minimum downside to be expected, based on the analysis, sometime in mid to late 2005 once this larger correction gets underway would be the previous 4th wave low (and 2004 low) at $60 with more bearish potential to $46 if that support gives way (not advice). Once we get such a confirmed trend change, we will post another note with specific stop loss parameters for a good risk/reward scenario.
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