Chart of the Week: Is Vodafone on the way back?

by from interactive investor |

The fortunes of Vodafone continue to capture the attention of technical analyst John Burford, who senses better times are around the corner for the phone giant.

I have been following this much-derided share since 30 July, when I suggested they were approaching a major low and about to turn.

However in my Vodafone update from last week, I conceded that I had been somewhat premature in my bullish stance as the mobile phone giant dropped further to a low in the £1.64 region.

I also explained last week how I handle a losing situation so that a small loss doesn't develop into a large one.

I believe that being expert at handling your losing (and winning!) open trades is a significantly more useful skill than picking 'winners'.  After all, how many 'winners' turn out to be so?

So today, I will follow up the drama as I am hoping this example will act as an object lesson in how to develop a winning attitude, despite taking small losses along the way.

This was the chart I posted on 4 September:
 

Source: interactive investor      Past performance is not a guide to future performance

I noted the new tramlines with the lower one possessing a Prior Pivot Point (PPP), which is the high of 8 March and at least five accurate touch points including the wave 3 low.

My pencilled-in wave 5 low also lay on it, so odds were good the tramline support should provide a base for a rally of some kind.

But without this Elliott wave framework (that gives high probability forecasts for important reversals), how many traders/investors would just give up and conclude it's still in a bear market and going lower?

And this is what I wrote last week: 

"In fact, the wedge has gone and I now have a good tramline pair (with parallel lines) where the upper line clips the wave 4 high.

If this level at £1.64 can hold, we may have a base for the rally phase I had originally pencilled in back in July. But what is spoiling this picture is the lack of a momentum divergence. That may be crucial."

So has this tramline support held so far? Here is the latest 2-hour chart showing the final fifth wave:

Source: interactive investor      Past performance is not a guide to future performance

In fact, the chart has traced out a superb textbook mini-five wave pattern with a very large momentum divergence at the low that signals a reversal is back on the cards.

A break above the pink mini trendline would help confirm this bullish scenario and project a move up to at least the £1.76 area with higher potential.

At least, I have now the basis for a renewed bullish stance and crucially, a low risk trade where a stop loss can be set under the low at the £1.62 area.

John Burford is the author of the definitive text on his trading method, Tramline Trading. He is also a freelance contributor and not a direct employee of interactive investor.

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