Friday, April 23, 2010

Euro Rebounds... but for how long?

If you have been following these posts, you know that I have been bouncing back and forth as to whether we are an ending diagonal 5th wave, or a diagonal wave 4th option. Both are similar in form, but with the breakthrough yesterday to new lows, and what would have to be a very shollow "e" wave of the triangle, the ending diagonal view took the spotlight. The diagonal 4th is still the most likely alternative, but if we break through 1.3524 to the upside, the diagonal 4th option is completely off the table.

The selling didnt quite reach the lower blue line as I was anticipating yesterday, however, after doing some more analysis overnight, I realized that a touch of the blue line on the bottom would have eliminated the ending diagonal option completely, as wave 3 would have stretched out to be longer than wave 1 (a rule breaker in Elliott rules). The bounce that played out overnight was critical to the ending diagonal option.

Ending diagonal's are very rare and only take place where the preceding moves have gone too far, too fast. The Euro's move down from 1.51+ last November to 1.32 could be described as such a move. Even still, because of the rarity of seeing this pattern, and even more rare being able to identify it in real time before it is almost complete, I will continue to be vigilant in moving alternatives to the front and center as they become viable.

Thursday, April 22, 2010

EUR/USD Breaks Through to New Low!

I was watching for a new low and now we have it, and with a nice break of both the short term (green), and long term (white) trend channel lines. And so far, I do not see signs of the downtrend diminishing. Because we have not had a significant counter-trend move that I have mentioned might take place over the last few days in what could be called a "wave e", I have lowered the probability of the diagonal 4th wave pattern that I have had as primary over the last week, and gone back to the ending diagonal 5th option from last week.

There are always alternatives in elliott wave analysis, and it is sometimes challenging to know which one is playing out in real time. From my recent post though, I hope everyone has been taking away the most important lessons I have learned while trading using elliott wave... when both the top and alternate scenarios are pointed in the same direction, you can be wrong on the exact pattern and still have winning trades.

Again today the difference matters very little for the short term. Likely more room to the downside. The next area to watch for for this round of selling to end is along the lower blue trendline, which is currently declining through 1.3120. I will be specifically watching for a crossover in the MACD, and a divergence between new price lows and RSI extremes to help judge whether the trend may be changing.

Wednesday, April 21, 2010

EUR/USD - "D" wave of diagonal continuing...

It appears that wave "d" of the triangle has extended (of wave iv), which was the alternate discussed in yesterday's post. Look for a bounce over the next 24 hours to start forming wave "e" of the triangle, up to between 1.3550 to 1.36. Should the selling continue below the purple trendline support without a bounce into that area, chances increase that wave iv is already over and that wave v has begun heading to new lows. Either way, the name of the game is watch for opportunities to place short positions.

Note the various trend channels I am watching on different timescales. I adjusted the green and purple slightly earlier yesterday. The blue has remained unchanged for over a month. This upper channel line has provided significant resistance. A break above would likely mean a much more significant retracement of the entire move down from last November highs.

A break below 1.328 would eliminate most remaining bullish alternatives, although even without the break these are very low in probability.

Tuesday, April 20, 2010

EUR/USD diagonal wave in motion...

There are a few options for the patterns lately on the short term charts, but the overall pattern has displayed 3 wave movements in either direction, which is a sign of a diagonal... the move preceding the final in a sequence.

Primary short term count favors the down trend, with an (e) wave ending this morning or with an allowance for some additional upside to make it to resistance above 1.3550 before wave (e) ends.

Alternate is still the diagonal, but had wave (d) still in progress.

Monday, April 19, 2010

Monday Morning Euro Update

From my post on Friday...
"If we are in a triangle, wave D will probably end along the white line, and probably someone in the neighborhood of 1.34, before a 3 wave bounce in a wave E."

And here's Friday's chart with trendlines...

The only addition I have made to this mornings chart is a new potential green channel, which at the moment, looks like it may be simply a slope change of the yellow on the way down to touch the white. The alternate is that it may be the beginning of wave "e" of a larger 4th or B wave triangle (see my post last week for details on this count). If we break through the upper green, this is how I will be viewing the action. Wave "e" could move into the 1.3550 area, which I would see as an opportunity on the short side as long as it is in 3 waves.

Adherance to trends why I love trading the spot forex market, and even more, the EUR/USD.

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