Monday, February 06, 2017

OMC In Descending Triangle on Daily

Omnicron Group, Inc. (NYSE: OMC) attracted my attention with a Zero Line Reversal (ZLR) trigger yesterday followed by a MACD(5,34,5) bullish cross-over today.  That combination suggested movement may be imminent, and therefore the chart was worth a closer look, and indeed, that closer look was certainly warranted. 

OMC Daily Chart
It was the extremely strong move today on very high volume that triggered the cross-over.  The chart pattern, though, is what's intriguing.  Since November, 2016, the stock has formed a descending triangle and today's price action places the close directly on the resistance line. We will watch tomorrow's action closely since we'll either see a breakout of the triangle - a long we would want to trade - or a bearish reversal back into the center of the pattern.

With horizontal support and resistance straddling today's long candle, a potential trade in either direction is likely early this week.  Normally, a descending triangle tends to break to the downside, and the fact that we entered this triangle from the bottom increases those odds, but when we look at the weekly and monthly charts, we'll see that the intermediate and longer term patterns favor just the opposite.

OMC Monthly Chart
The Elliott Wave count on the monthly chart shows an impulse pattern that started back in the early 1990s.  After trading sideways for just over a decade, Wave-III began after the Financial Crisis and is currently in it's 5th sub-wave.  Remember, third waves extend frequently, so we can't assume this is the last sub-wave before another correction.

The monthly pattern is riding the rails along the resistance line in a channel that dates back to 2009. Not surprisingly, if Wave-III is truly approaching its terminus, the RSI(9) oscillator is showing a bearish divergence.  Still, from a monthly perspective, we're not yet seeing signs of the reversal that will mark the start of Wave-IV, although all of the Elliott Wave targets have been satisfied.

OMC Weekly Chart
The bearish divergence is also present on the weekly chart, so the ensuing downtrend may come sooner, rather than later but again, we're not yet seeing signs of the reversal that would mark Wave-III's demise.  What does stand out on the weekly that is not evident on the other charts, though, is an ascending wedge pattern that is rapidly nearing its apex.  An ascending wedge is a bearish pattern that typically breaks to the downside.  The Elliott Wave count on the weekly suggests we still have three waves remaining, however that wedge looks like it will force a decision within the next few weeks. 

The current direction on the weekly, however, is up, not down, and that's what we truly needed to learn from the two longer term charts.

We already alluded to how we plan to trade this stock.  We'll take a long position on a breakout to the upside - something which is poised to occur in the next day or two.  Our protective stop will be just below the triangle support line and our price target will be just above $92.  If, however, we get a bearish reversal, tomorrow, we'll hold off entering any positions until we get a subsequent break either above or below the triangle.  It's the triangle pattern we're looking to play in this stock, so let it show us which way it wants to run.

Happy Trading.

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