Elliott Wave Update for Sakari Resources Limited (AJ1) – 05 June 2012
The last article on Sakari Resources was on 13 May 2012 when Sakari was at 1.75. In that article, the forecast was for a further drop in the price of Sakari over the longer term. It has now fallen to as low as 1.16. That is a drop of almost 34%. The question now is where is Sakari headed to next?
In this article, the recent price movement is captured and a likely Elliott Wave count is given. We start the count at week of 15 July 2011 from a high of 3.022. The price then headed south in a five wave Elliott Wave structure to complete Intermediate wave (1) at 1.743. The price then retraced Inter (1) to 2.617 to complete Inter wave (2). This was followed by Inter (3) which is still in progress. Inter (3) is now slightly longer than Inter (1) and this meets the criteria of Elliott Waves where the third wave cannot be the shortest wave. Normally, wave three is 1.6 times of wave one and based on that, the target for Inter (3) is 0.55. It is a very deep price projection and looking at the volume of selling that is coming on for Sakari these past few days, it is quite likely that 0.55 is a realistic level for Inter wave (3).
I have been asked time and again how does Elliott Wave Principle helps me in my trades. Well there is a good example here. As you can see, the volume for the past few days has been very strong and the price is crashing down hard with each trading day. According to Elliott Waves, wave threes are supposed to be the strongest and most vigorous. Based on the volume information, I am of the view that Sakari is at sub wave three of Inter wave (3). It is hard to count the waves for Inter (3) as it is quite a steep move without much retracement. But, based on the volume information, it is possible to understand the character of the move and thus predict exactly at which wave the stock is right now.
If this is wave three of Inter wave (3), then the next likely move would be Minor wave 4. I am expecting a shallow or horizontal move for Minor wave 4 before further price slide takes place to complete Inter wave (3) at 0.55.
The alternate view is that this correction is over in a zig-zag formation and a bullish upside move can be expected next. This bullish count is supported by the fact that the upwards move since 2009 was with much higher volume than the selling volume that we are seeing now. Also, this heavy selling can be interpreted as selling climax and as we know, the price recovers after such an event.
We need to watch the price movement on Sakari for any signs of a strong recovery from current levels. If the anticipated recovery is strong and with volume confirmation, then this alternate count will gain traction. Until then, the primary count is still bearish and further price slide is expected in the coming weeks with occasional relief rallies.