Monday, January 23, 2017

APA Nearing Channel Support in Daily Wave (iv) of 3

The long term trend for Apache Corporation (NYSE: APA) continues to be corrective.  The stock climbed to a Wave-I high that completed in May, 2008, but the financial crisis and Great Recession plunged the stock into a correction from which it has yet to recover.  Over the past 8-years, it drew an A-B-C zig-zag correction that completed in January, 2016.  There is insufficient data, however, to determine if the current long-term pattern is the start of Wave-III or if Wave-II will develop into a double or triple complex correction.  For now, the safe assumption is that the correction continues.

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
The two areas highlighted on the chart show the price pattern around the extremely high volume patterns.  From a Wyckoffian perspective, this may have signaled the start of an accumulation phase.  What is interesting is the volume decline we've experienced since the last spike in September, 2016.  Notice how volume on the downward weeks is extremely light as compared o the rest of the pattern.  That suggests that supply is diminishing rapidly.  The Elliott Wave count on the weekly, however, suggests that a sideways or possible retrace pattern may follow.

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
The daily chart is dominated by the bullish channel, although at this level we come up with a slighly different wave count.  At this level, it appears that price is in Wave (iv) of Wave-3 with more room to the upside before Wave-3 completes.  Based on this, the only trades we're considering at the moment are to the long side.

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.

Happy Trading.

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