Wednesday, April 7, 2010

Gone fishing...

This will be my last post for the next few days as I am taking a much needed break to do some deep sea fishing. Yellowtail and rock cod are in my thoughts, and this year has many rumblings of a record season due to "El Nino". Oh, the fish stories I will have to tell...

Overall, it has been an excellent time to be an elliott analyst/trader focused on the EUR/USD pair. The patterns have been about as clear as I have ever seen them, and the counts have been relatively easy to trade. While I am relishing in such good fortune, I am also cautious of such ease. I have said it before, and will probably repeat myself a few more times... we appear to have 5 waves down from last Novembers highs. While the internal structure of the 5th wave does not quite look complete, it is now 3 weeks along it's path. Whether it turns out to be an ending diagonal, or a straight impulse move remains to be seen, but the move is heading into its latter stages. That doesnt mean that I am will stop shorting, but it does mean that I have shifted my priority to risk management first (see my recent post on managing risk).

My latest short term ending diagonal count from yesterday is still in play, so no need to update the internals quite yet. SInce I will be out of pocket for a few days, and we are near a potentially critical juncture, I thought I would post a chart of the overlapping fibonacci fans that have made up wave 5 so far, and leave you with my current thinking of potential courses the market may take.

Based on the current count I am following, we are in a wave 3 of 5, which should take us down to new lows over the next few hours. Once that breach takes place, I will be looking for support near the blue lower trendline to give a bounce (a wave 4 of 5). If it does not, and price action moves through with strength, then I would move the odds away from an ending diagonal for the 5th wave and instead to a clean impulsive wave. In the unlikely event that we begin rallying and break through the fibonacci fan that I have should with strength, BEFORE we see new lows, then I would begin to look for evidence of a corrective wave (something in 3 wave form) toward the upside that does not exceed 1.359... I would call that move a small degree wave 2 of wave 3 of wave 5. This move may happen even if we do get a new low, especially if RSI is not peaking, so I would watch for it.

Bottom line is that the trend is still down as long as short term rallies are corrective in nature, and selling patterns look impulsive. Simple, right? Stay safe... will post again on Monday.

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