On the weekly chart, the volume signature changed dramatically at the end of 2015, and showed strong evidence that climactic selling may have signaled the end of the long term correction, or at least ended the bearish leg of the correction.
|APA Weekly Chart|
Price is resting on support in the short-term uptrend, and it's possible that the wave count may need adjusting if the stock bounces off support to the upside. We'll have to watch that over the next couple of seeks. For now, however, that channel is the dominant pattern and it's the one we bring with us into the daily chart analysis.
|APA Daily Chart|
There's evidence building, however, that the uptrend is weakening quickly. When we look at the slope of the resistance lines, we see a gradual but noticeable flattening of the slope. While the stock is still drawing higher highs and higher lows, the height of the highs is weakening fast. Then when we look at the RSI(9) oscillator, we see a bearish divergence off both the highs and the lows. In total, we can conclude that the overall short-term uptrend is nearing an end.
Because of the Elliott Wave count, and because of the strength of the support range that we're rapidly approaching, we can't justify a short position at this time. So the way we plan to play this is to watch for a bullish reversal pattern within the green area indicated on the chart. We'll go long on such a signal if - and only if - the volume associated with the reversal is higher than average. We need to see commitment to the next upward wave in order to enter.
On a long position, our protective stop will be just below the lower support line. Our target will be just below the lowest resistance line, accounting for the declining slope of those lines as a whole. Even with the declining slope, the trade will have a 4:1 reward to risk profile, so as long as the overall market cooperates, this will be a trade worth entering. It's important, however, to ensure that volume confirms the reversal. As we near the top of the channel, we can then watch for signs of weakening that will justify a short entry. For now, however, our only setup is long.