Sunday, February 05, 2017

NI Forms Horizontal Wave-B Channel

Frequently, the first major warning sign of an impending breakdown in a specific stock comes from the volume signature, to see the full picture we typically need to step back to either the weekly or the monthly chart.  Often the daily noise masks what's really occurring and only on the longer time frame charts will it clearly manifest.  That is certainly the case for Nisource, Inc. (NYSE: NI).

NI Monthly Chart
Looking first at the monthly, we see a very strong 5-wave impulse leading to a Wave-I top in July 2016.  Traders watching the volume patterns, though, were warned of the impending top as early as September, 2015.  Any interest at all in the stock fell off the cliff right at the end of Wave-4, and it's been flat ever since.  This will become even more evident when we examine the weekly chart, but for now, just be aware that the first warning signs started there.

The RSI(9) suggests that the decline is not yet over.  When we compare the price lows of Wave-A and Wave-4 with the corresponding RSI level, we see a distinct bearish divergence.  This strongly suggests that the correction currently in flight will have a relatively lengthy run.  The MACD(5,34.5) would agree, having rolled over into a bearish crossover just after the Wave-5 top.  The shape of that crossover is one that suggests it has a lengthy run ahead of it.

NI Weekly Chart
We'll turn now to the weekly chart.  You can see change in volume signature here, as well, and you can also get a much better feel for just how long that disinterest has persisted.  The entire 5th wave was accompanied by lackluster volume.  Encouragingly, though, the subsequent correction is also generating very little interest. 

The bearish divergence in the RSI is evident on the weekly chart as well, again confirming the conclusion that the correction has a ways to go.  Of interest, however, is the bullish crossover in the MACD.  That's a good indication that Wave-A did end where we suspected, and that we're now into the Wave-B pullback.  The MACD has been a good indication of major wave initiation, so watch for a bearish crossover to signal the start of Wave-C.

The bottom of Wave-A retraced 50% of Wave-5, so it's likely that Wave-C will take us at least to the 61.8% level or lower.  That 61.8% line sits just above a good support line that marks the Wave-i top, so we'll be watching for signs of a MACD bullish crossover around that level.  Of course, we won't know at the time if that's a Wave-III start or a Wave-X start, but either way it will be a tradeable up-wave.

NI Daily Chart
We come at last to the daily chart.  When this first popped up on our scans, this weekend, it looked like it had potential for an imminent trade setup.  Our analysis, however, shows that not to be the case.  The Elliott Wave count is both consistent and defensible.  I did wonder if the lengthy channel we're not exploring could be a wave iv in the current Wave-A, but I really can't find a legitimate count that would produce that result.  So the conclusion I do reach is that Wave-A ended in November and we're well into a flat Wave-B corrective pattern.

The next major direction we can anticipate is a Wave-C move that should be to the down side.  I hesitate playing anything to the upside in this stock unless we see a sudden change in the volume signature that would indicate demand is once again coming into dominance.  What I'm watching is the intersection of the current channel with that diagonal resistance line.  There will be some downward pressure as we approach that convergence, but until then, there's nothing setting up that draws our interest.  We need Wave-C to initiate to find a good reward to risk play, so we'll exercise patience and await that development.

Happy Trading.

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