Wednesday, January 22, 2014
What constitutes an acceptable pullback for Rio Alto?
Rio's put out its earnings news, so I guess you'd expect the price to stop here while the market decides whether the price should hang at this level or move somewhere else.
Plus, the price did already kinda hit its inverted H&S target of around $2.25 or so, as well as the tiny $2.40 reversal from September, so the market might have finished self-fulfilling all of its TA-based price expectations for now.
So what should I think about its chart?
I'd expect the market to assert that it's quite overextended and has to bleed off this move, though maybe it can do so just by staying horizontal. But the problem is there's so much room down to the EMA(16) and Bollinger mean.
But should an EMA(16) be used to govern this sort of move? I tend to feel that the more emotional and volume-driven a move is, the smaller the EMA you need to govern it. After all, if you're saying EMA is support of a trend, then a faster trend needs a faster EMA to govern support, no?
So here's the same chart, but with an EMA(7) instead:
I used the EMA(7) on this chart because, as you see, it seems to do a better job of sticking to the closing or intraday prices shown on the candles. Because of that, I'd think it's a better descriptor of support in the recent movement.
So if we expect the recent newfound love of Rio to continue, it should probably not drop below $2.25 or so.
If the recent newfound love is done, though, then maybe it can drop to the targets described by the EMA(16) and Bollinger mean, which suggests $1.92-$2.06.
And that, in a nutshell, is how I diddle with EMAs.