Chart of the week: New target for this stock

What do I see for 2017?

At this time of the year, it is customary to offer forecasts for the year ahead. This is a dangerous game because, as the wise man said: "Forecasting is tough - particularly if it is about the future".

Professional pundits often get it spectacularly wrong, but they still seem to keep their well-paid jobs in a supreme example of the current almost-universal phenomenon of rewards for failure. Unfortunately, independent traders like you and me are definitely not rewarded for our failures. If we get it wrong, we lose money.

I have come to the conclusion that trading the public financial markets must be one of the toughest careers on earth. As a former rocket scientist - I was a scientist at NASA for a few years - I believe it is even tougher than that. We are always dealing with scenarios involving major uncertainties in all time frames all of the time.

We often read the comment that "traders/investors/businesses hate uncertainty", as if there is total certainty at any time. There isn't. As in horse racing, there are no dead certs. All we can do is play the odds.

I am a fan of old black-and-white movies, and how many times do I read that so many films that were made on a shoestring under difficult chaotic conditions became today's well-loved classics, against the odds. Out of chaos can come order, a theme that applies in spades to the markets.

That is why I adhere to the Elliott wave model of sentiment swings because it describes best why markets make the moves they do - and crucially can often forecast with high accuracy the road-map for the future.

Last year, I showed numerous examples of this ability at work in real time in many FTSE 100 shares. For that is the supreme test of any reliable theory of market forecasting: does it work fairly consistently in practice over time. And, combined with the Fibonacci principles and my own Tramline system, I have devised a handy and simple method of market analysis and forecasting. However, it cannot be applied to every situation! There are some charts that are beyond analysis by my methods. That is when I move to more amenable setups.

But, at any time, I can find enough markets that can be analysed to keep me busy.

Of course, any tool is only as good as the expertise of the person using it. Give a highly sophisticated piece of engineering in the form of a Formula 1 racing car to a teenager and the results will usually be less than winning.

Incidentally, I am not overly concerned which company share gives me my profit - a chart is a chart is a chart. Many investors fall in love with one company or another (they buy the 'story') and avoid others. As a trader, I look at everything because most share charts display similar wave patterns and if I recognise a particular pattern in one, I zoom in on that. The name is of little importance.

Here is an example of a share I have not yet covered for COTW - AstraZeneca.

Big Pharma has had a torrid time since last summer and, while under some dark clouds, the ANZ share price fell hard from £54 to a low of £40 in December. But one glance at the chart told me the decline was likely to reverse.

Why was that? Simply because the decline is in a textbook A-B-C three waves down and three complete waves is always corrective - that is, the decline is a correction to the main trend, which is up.

Also, there was a slight overshoot of the 'last chance' Fibonacci 78% support level, but there was an accompanying large momentum divergence which told me that the selling pressure was rapidly drying up. Odds for a trend reversal at the £40 area were getting much stronger.

By my reckoning, the downside risk was limited but the upside potential much greater. This was going to be a textbook contrary trade because, even if the trade did not work, I was following my trading rules with discipline and I could set a tight protective stop. That is all a trader can humanly do.

This morning, the shares have duly advanced off the support early last month to the £44 area - a gain of 10%. And, if the budding rally can continue, I have a target set at the £48 area.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.