Thursday, May 20, 2010

Euro: Classic Elliott Wave Patterns

I have rarely seen elliott wave patterns so clear as they have been in playing out over the past months in the EUR/USD pair.

I have always found that elliott wave is easiest to trade where volume and volatility are present. Volume is needed to capture the largest social mood patterns, and volatility to amplify the patterns so that it is easier to see in real time. As the heaviest traded currency pair in the world the EUR/USD meets the volume characteristic needed, and the volatility over the past months due to the sovereign debt crisis surely has amplified the patterns.

The moves over the past 24 hours since my last post are no exception. The market has moved almost precisely as Elliott guidelines and wave patterns would indicate. Anyone who doubts that Elliott wave cannot assisst in helping narrow the possibilities of where the market should head, or just simply believes that markets are entirely random and unpredictable needs to see the past few days charts.

Yesterday had us in a clear 5 wave pattern off new lows for the EUR/USD (new 4 year lows in fact). Elliott wave analysis indicated that we should see a correction back to the area of the previous fourth wave and toward the common fib retrace area starting at 38%... followed by at least another 5 wave rally to new highs in a wave c or 3.

Here is yesterday's chart:

Here is today's chart:

The wave ii or b low of just below 1.23 is both within the are of the previous 4th wave, and squarely in the fibonacci zone. More important, is that its wave structure was overlapping in its form and in 3 waves. This was a significant clue that made going long near these levels relatively easy with defined risk (for me, the max risk I was willing to take was the end of the fib zone near 68% retrace level, but a wave 11 or b could have gone all the way to test the low and still have been valid, albeit much less probable). The reward happened as elliott wave predicted in a wave 3 or c move up to new highs.

Wave 3 or c is either over or has one more pop up to new highs before it is complete. Warning to the bulls though that the move down on the ultra short term charts can be counted as impulsive, so caution is needed.
Once wave 3 or c is completed (if it is not already), it becomes critical to watch the pattern of how the market corrects the move... if impulsive in 5 waves down, the we likely head to new lows before another shot at rallying. If in 3 overlapping waves, then we indeed be in a 4th wave and headed back up to complete the 5th wave of the move off the lows. Should the latter happen, it would mean a larger rally was unfolding, after a 3 wave correction.

Time to watch carefully and plan the next strategic trade...

I will be at a conference all day tommorrow, so no posts until next week. Good luck to you all and be careful out there. Volatility and risk are back in full force! 

Wednesday, May 19, 2010

Euro - 5 waves down followed by 5 waves up

 Yesterdays post warned that 5 waves down on the hourly charts was nearly complete and that we would likely be heading for a rally to at least correct the impulse wave down occuring since 1.304. The post proved timely as within the hour the EUR/USD began rallying. The post also mentioned the fiurst significant support at the area surrounding 1.2425.

The rally appears to have completed or nearly completed 5 small degree waves up, and has stalled near 1.2425. This indicates that the trend at some degree has changed. To what degree is unknown. I have placed both options for counts on today's chart, but we will have to wait and see. Until then, I will keep laser focused on the short term charts for hints either way. Until then, we are in for a correction of the EUR/USD rally likely to fib areas which also fall in the price area of the rallies 4th wave. For those of you who are new to Elliott wave analysis, this is a common retracement area for 2nd waves, so I will be watching this area for support. If I was still short, this would be a respectible area for me to exit my shorts and either wait for more clues or go long for the next wave up (whether it is a c wave or 3 wave doesnt matter to us very short term traders).

My gut and the fact that the latest low was not accompanied by a decent RSI divergence has me leaning toward the ABC option for this rally (more downside to come before a more significant rally), but I will let the market show me the way.

Tuesday, May 18, 2010

EUR/USD - 5 Small Degree Waves Down...

Forecast yesterday was right on as we plunged into a new low this morning.

I can count 5 waves down as being completed or very close to being completed since last weeks high of 1.3094 on the hourly charts for EUR/USD. So, irregardless of the larger counts, we are very near at least a break in the downward trend for now. Still no sign (five wave impulse upward on any timeframe) of a bottom as of this writing however.

Previous fourth wave area surrounding 1.2425 will be the first siginificant resistance for any bounce to encounter.

As for me, I am watching and waiting for the structure of any bounces that develop. It is time for caution and risk to prevail.

Monday, May 17, 2010

EUR/USD Downside target realized, and then some...

Back from a very restful vacation taken during one of the most volatile times in the market in memory. Equity markets dropping 9%+ in a matter of minutes a week ago Thursday, and the Euro seemingly freefalling through support levels of the past few years.

I must admit, I did keep an eye on the markets, and even placed a few short positions in the EUR/USD... I couldn't resist. No posts though... had to keep my family commitments first!

Clearly, the Euro has blown clearly through the target of 1.289 in mid-May I had posted back in March... and it did so without much resistance at all, which throws the entire idea of a lower yellow trendline (shown for the last time below) holding back selling pressure. And this morning, another breakthrough to 4 year lows! What a time to take a vacation!

Since it has been awhile since I have posted my position on elliott wave counts on the EUR/USD, rather than dive right back into the short term charts, I thought I would get back into the swing of things with an update on the minor degree count I think is most probable governing the trend since last November, and speculate a bit about where I see the market possibly moving from here.

The biggest change in the minor count I am following is that it appears that wave 5 is extending. It is very common for 1 wave to extend in an impulsive wave, and since wave 1 and wave 3 are nearly equal, it is ideal for me in identifying the larger wave structure that wave 5 extends because the presence of an extension reinforces that we are indeed in an impulsive wave. 

There are certainly other more bearish counts from some very smart analysts. One of which has us in the throws of an intermediate wave 3 after a series of 1-2's. I would rather not go into the pro's and con's of other views right now, and would rather stick with the one that has made the most sense to me along the way beginning, and has worked out very well for trading purposes.

This count has some more downside ahead moving toward a completion of 5 minor waves down (intermediate 1 wave completion), which I speculate will be followed by an intermediate wave 2 that if it is an ideal second wave, should last for a few months and take us into the most common retracement fibonacci levels and end within the previous minor wave 4 price range.
Ping your blog