Tag: Elliott Wave

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Forex Elliott Wave Forex Market Analysis Forex Price Action Forex Technical Analysis

Is EURGBP Ready for a Fresh Rally?

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

In our latest EURGBP technical analysis, we commented on the cross moving in an incomplete sideways corrective formation of Minor degree, identified in green. Its internal structure suggested the completion of a double-three pattern of Minute degree.

Also, we saw the pierce and bounce of the September 03rd low at 0.8658, when EURGBP dropped to 0.88610, found fresh buyers there, and created an intraday impulsive move identified as the first wave of Minute degree, labeled in black.

As the next 4-hour chart shows, once the EURGBP cross completed its first wave, in black that belongs to wave C, in green, it reacted mostly bearish, developing a correction, extending the move below our forecasted area, and testing the lows of the previous bullish impulsive move.

The breakout of the short-term descending trendline confirmed the end of wave ((ii)) of Minute degree and the beginning of the third wave of the same degree, which remains in progress.

Likewise, in the last chart, we distinguish the advance of the third wave of Minuette degree identified in blue in its internal structure.

Short-term Technical Outlook

The short-term Elliott Wave view of the EURGBP cross, unveiled in the below 4-hour chart, reveals the breakout of the descending trendline that follows the wave ((ii)) identified in black, which suggests the beginning of a new rally.

Once the price found fresh buyers at 0.88998, the cross began to advance mostly bullish in an impulsive sequence of Minuette degree, identified in blue, that remains in progress. This upward move corresponds to the internal structural series of wave ((iii)) of Minute degree that belongs to wave C of Minor degree, in green.

Furthermore, considering the reduced period it took for the first stage of wave (iii) to complete, It is plausible that the third wave in progress will be the extended wave, as the Elliott Wave theory states that only one extended wave would occur in an impulsive structure. 

In this context, the current upward move could advance to the next supply zone between 0.90446 until 0.90686. But, if the cross maintains its bullish momentum, it could strike the next potential target zone between 0.91260 and 0.91464.

Finally, the current bullish scenario’s invalidation level is 0.88610, which corresponds to the origin of the wave C in green.

 

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Forex Market Analysis

US Dollar Index Advances Boosted by Surprising Economic Growth

Overview

Overview

Overview

The US Dollar Index accelerated its gains on Thursday’s trading session boosted by the surprising economic recovery in Q3 2020 that advanced 33.1%, beating analysts’ expectations. Nevertheless, although Greenback’s intraday recovers, the price could see a new decline in the coming trading sessions.

Market Sentiment 

The US Dollar Index (DXY) raises on Thursday trading session by 0.54%, boosted by Q3’s GDP growth rate, which beat the analysts’ expectations.

The US economy expanded in the third quarter by 33.1% in Q3 2020, beating the analysts’ consensus of a 31% raise. This reading is the biggest expansion in the economy following the previous  Q2 period, which unveiled a record 31.4% plunge triggered by the coronavirus lockdown.

The following chart exposes the US Dollar Index in its daily timeframe. The figure unveils the 90-day high and low range, the price action moving mostly sideways in the bearish sentiment zone. 

Likewise, the intraday activity develops a strong bullish movement during its Thursday’s trading session, which looks accelerating, supported, as already said, by the surprising Q3 GDP growth, whose figure was released on Thursday before the US session’s opening bell. 

In summary, the US Dollar Index context shows that the big picture of the market is on the bearish side. However, the intraday activity reveals an upward thrust representing an upward correction of the Greenback’s primary bearish trend.

Technical Analysis Outlook

On the technical side, the US Dollar Index unveils its price movements in an incomplete corrective formation, which still could visit fresh lows.

The next weekly chart and in log scale reveals the DXY under the perspective of the Dow Theory, which exposes to its primary trend developing an incomplete correction of the rally that the Greenback began in early May 2011 and found resistance at 103.82 in late December 2016.

Once the Dollar Index found fresh buyers, the public activity raised, driving the price towards the level of 103.82, where DXY began to develop a corrective move, which remains in progress. The first decline fell to 50% of the previous rally, finding support at 88.25, where the price reacted, developing an upward sequence.

Actually, the price action develops a consolidation structure following a sideways formation, which is in progress since early January 2018. The third segment, which looks in place, accumulates a retracement of around 66% of the corrective formation’s second internal leg. This reading leads us to observe that the current decline could be in an exhaustion stage.

The long-term Elliott Wave perspective for DXY marks its advancement in an incomplete flat pattern (3-3-5), which currently advances in its wave C of Minor degree labeled in green. This current leg could see further declines in the coming trading sessions.

As illustrated in the next 2-day chart, DXY advances its wave ((iv)) of Minute degree identified in black. According to the alternation principle, the internal segment should take more time than wave 2. In this regard, the level of complexity of this corrective formation should be higher than on the second wave. In other words, the fourth wave could be a triangle formation or a double or triple correction.

Finally, the wave C’s potential bearish target can be located below the mid-February 2018 low; it is near the 87.5 level, where the Greenback could start to develop a new bullish cycle of upper degree. The invalidation level of the current bearish scenario is placed at 98.50.

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Forex Elliott Wave Forex Market Analysis

Hang Seng Moves in an Incomplete Flat Pattern

Overview

Overview

Overview

The Hang Seng Index continues advancing mostly sideways in an incomplete bearish sequence, corresponding to a flat pattern sequence, still in progress. Once the current corrective formation ends, the Chinese benchmark will likely start developing a new long-term bullish cycle.

Market Sentiment Overview

The Chinese benchmark Hang Seng Index (HSI) shows a drop of over 12% (YTD). However, even when it has recovered 16 percent from the lows reached after the massive sell-off occurred during the first quarter of the year, the market sentiment of the Chinese benchmark index continues dominated by the bearish side. 

In the following Hang Seng’s daily chart, we can spot its 90-day high-low range. The figure exposes the index developing in a sideways movement happening since the second quarter of the year. On the other hand, the rejection of the 24,953.4 points suggests that the mid-term market sentiment is slightly bearish. 

Besides, considering that the Hang Seng Index moves on the 60-day weighted moving average, a short-term upward pressure is observed.

In conclusion, the Chinese benchmark’s market sentiment seems neutral, waiting for the price action to unveil the next trend’s direction.

Elliott Wave Outlook

Under an Elliott Wave perspective, Hang Seng’s big picture reveals the incomplete corrective movement from the end of a bullish cycle the Hang Seng Index initiated in mid-February 2016 from 18,278.8 pts. This bullish sequence ended its five-wave structural series when the Chinese benchmark reached its all-time high of 33,484.1 pts in late January 2018.

The next figure illustrates the HSI log chart on a 2-day timeframe. The price pattern reveals the Chinese benchmark moving mostly bearish on its wave (C) of intermediate degree labeled in blue, which seems incomplete. In this context, although HSI reached the minimum requirement for this movement: 100% of equal waves between waves A and C, the internal structure of its C wave is unfinished.

The following 4-hour chart exposes the internal structure of wave 4. We distinguish that the corrective structure has created two Minute degree segments, labeled in black on the figure. Considering that each leg follows an internal sequence subdivided into three waves, the Elliott Wave Theory leads us to expect its progression on a regular flat pattern.

On the other hand, short-term, the Hang Seng Index could develop a new upward movement subdivided into a five-wave sequence, which should complete the ((c)) wave of Minute degree labeled in black. Once this move ends, the Chinese benchmark could develop a new decline corresponding to a wave 5 of Minor degree, which should complete the (C) wave of Intermediate degree.

Finally, considering that the third wave of Minor degree labeled in green was the extended move, and considering the amplitude of wave 4, the fifth wave of Minor degree should not penetrate below the low of wave 3 located at 21,139.3 pts. In other words, the wave (C) of Intermediate degree identified in blue is likely not to end below 21,139.3 pts.

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Forex Signals

EURGBP Could Start a New Rally

Description

Description

Description

The EURGBP cross, in its 4-hour chart, exposes an incomplete corrective structure that completed its wave B. The completion of the wave B of Minor degree suggests a new rally corresponding to the advance of wave C of Minor degree labeled in green.

From the EURGBP chart, we distinguish that the upper degree’s corrective formation subdivided into a three-wave sequence and labeled in a Minor degree and marked in green is incomplete. It could develop its third segment corresponding to wave C, which follows a five-wave internal structure.

On the other hand, the wave B internal structure unveils the double-three corrective pattern. According to the Elliott wave theory, the double-three formation follows a 3-3-3 internal sequence and looks labeled as ((w))-((x)-((y)) of Minute degree identified in black.

In summary, the completion of the double-three pattern of Minute degree that belongs to wave B of Minor degree labeled should give way to the upward advance of wave C identified in green. This wave structure could strike at least to level 0.92. However, the price action could lead the price toward the end of wave A at 0.92916.

The short-term bullish scenario suggests the positioning on the long-side looking for a potential target from the current zone, or better, with a potential profit target at 0.9191. The invalidation level locates below level 0.9041.

Chart

Trading Plan Summary

  • Entry Level:0.91012
  • Protective Stop:0.90412
  • Profit Target: 0.91912
  • Risk/Reward Ratio: 1.50
  • Position Size: 0.01 lot per $1,000 in trading account.

 

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Forex Elliott Wave Forex Market Analysis

Silver Unveils an Incomplete Corrective Structure

Overview

Overview

Overview

Silver price advances in an incomplete corrective structure that remains in progress, after the precious metal topped at its highest level since March 2013. The market sentiment continues dominated by the bullish side. Nevertheless, the incomplete Elliott wave structure suggests that the precious metal could see a new low.

Market Sentiment Overview

The Silver price continues fading from the yearly highs that carried the price toward annual highs at $29.85 per ounce in early August. However, the precious metal eases over 19% from the yearly high, Silver advances 35.2% (YTD).

The following daily chart displays the Silver’s 52-week high and low range. The figure highlights the consolidation of Silver below $25.30 per ounce and the price action running below the 60-day weighted moving average. This market context suggests that the precious metal traders downgraded their market sentiment from extremely bullish to bullish.

On the other hand, according to the Commitment of Traders report, it is observed that the big participants’ speculative net positions remain on the bullish side. In this context, the descents developed by precious metal suggest that market participants are involved in a take-profit activity and do not represent a change in the current upward trend.

Therefore, in the long-term overview, the market sentiment remains bullish. Nevertheless, in the short-term, the declines observed represent a taking profit activity. Finally, as long as there is no confirmation of new signs of a new rally, our bias remains on the neutral side.

Elliott Wave Outlook

The next chart illustrates Silver in its log-scale 8-hour timeframe, which reveals the price action is developing the last move of a cycle, which began on March 18th when the precious metal found fresh buyers at $11.61 per ounce. The incorporation of new buyers drove the precious metal to a bullish impulsive structure development completed on August 06th when Silver reached $29.86 per ounce.

Once Silver prices found resistance at $29.86, it completed a five-wave sequence of Minute degree identified in black. Simultaneously, according to the price fractality principle, Silver finished the first wave of Minor degree labeled in green.

According to the Elliott Wave Theory, once completed the five-wave impulsive sequence, the price reacts in the opposite direction developing a three-wave movement. From the previous chart, Silver reveals that its corrective structure is incomplete.

In particular, the precious metal advances in its wave ((c)) of Minute degree identified in black. In turn, the internal structure of the wave ((c)) has pending the bearish movement of the wave (v) of the Minuette degree identified in blue. The last move will likely re-test the descending channel’s base, dropping between $21.35 and $19.44 per ounce.

Once Silver completes the bearish five-wave sequence of wave ((c)), traders may start looking for positioning alternatives on the bullish side. Finally, considering that wave 1 of Minor degree presents an extended wave’s characteristics, wave 3 of the same degree should not be the largest wave of the impulsive sequence of Minor degree.

In short, Silver’s market sentiment remains on the bullish side; however, the price moves in an incomplete corrective structure that could lead to new price lows. Once the short-term bearish sequence is completed, Silver could start producing entry signals on the bullish side, corresponding to the primary trend.

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Forex Market Analysis

How Elliott Wave View of NASDAQ Anticipates Trump’s Coronavirus Outcome

Overview

Overview

Overview

The NASDAQ 100 Index fell 2.2 percent on Friday’s trading session on the news of the US President Donald Trump’s positive coronavirus test. Still, the price action unveiled the wave B completion, suggests further declines for the US technologic benchmark in the following trading sessions.

Market Sentiment Overview

During the last trading week, the NASDAQ 100 volatility has been driven by market participants’ expectations facing the first presidential debate between US President Donald Trump and former Vice President Joe Biden.

The advance experienced by the technology index was boosted by the expectation of new economic stimulus, driving the NASDAQ 100 to raise over 4%. However, its gains were lowered after the announcement of President Trump’s positive Coronavirus test, leading it to ease up to 2.74% on Friday’s trading session.

The following 8-hour chart of NASDAQ 100 reflects the 90 days high and low range. In the figure, we distinguish that the price halted its advance towards the extreme bullish sentiment zone, closing the trading week in the bullish market sentiment area and under the weighted 200-day moving average. This market context leads us to weight a neutral market sentiment.

On the other hand, the 12-hour chart corresponding to the NASDAQ 100 Volatility Index shows the 90 days high and low range where we distinguish a sideways movement consolidating above the 200-period weighted moving average. This volatility context of the NASDAQ 100 index, added to the new test of the upper-line of the consolidation structure, leads us to expect an increase in volatility within the coming trading sessions.

Summarizing, NASDAQ 100’s market sentiment unveils that this index and its volatility figures will be driven by the news on the upcoming presidential elections on Tuesday, November 03. In particular, NASDAQ 100 could turn bearish in the following trading sessions.

Elliott Wave Outlook

The overview of NASDAQ 100 shows the full development of a five-wave bullish sequence, which began on June 15, when the price found fresh buyers at 9,383.6 pts pushing the price towards new record highs September 02 at 12,466.6 pts. Once reached the all-time high, the technological index began to perform a bearish corrective movement, which remains in progress.

The following chart shows the NASDAQ 100 in its 4-hour timeframe, where we distinguish that the price has completed a five-wave impulsive structure of Minor degree labeled green. At the same time, we can confirm that the Elliott wave theory rule, stating that there must be only one extended wave. In this case, the NASDAQ 100 index developed a fifth extended wave that ended on September 02 when the price found resistance at 12,466.6 pts. Once the fifth wave of Minor degree concluded, the NASDAQ 100 began performing a corrective sequence, which remains in progress.

In particular, the completion of the wave ((c)) of Minute degree identified in black, which completed the wave B of Minor degree, coincided with the news media release concerning the US President Trump’s positive test, activating the beginning of the wave C, labeled in green.

The following hourly chart of NASDAQ 100 illustrates the first bearish movement’s internal structure corresponding to its wave (i) of the Minuette degree identified in blue. This first downward wave reveals a drop in five moves of Subminuette degree identified in green in its internal formation. Once this second move has been completed, the technological benchmark should resume its declines.

Finally, considering that wave (i) of Minuette degree completed its descending move at 11,220.8 pts on Friday 02nd, the price could retrace, forming its second wave of the same degree. In terms of the Dow Theory, this retrace could be between 33% and 66%, or between the 11,352.3 pts and 11,483.7 pts, where NASDAQ 100 might start to develop a new decline, corresponding to wave (iii) in blue.

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Forex Market Analysis

DAX 30 Unveils Exhaustion Signals

Overview

Overview

Overview

The German DAX 30 index, which groups together the 30 most capitalized companies in Germany, shows signs of exhaustion after the rally it developed since the second half of March this year. Likewise, the Elliott wave theory’s perspective reflects the exhaustion of the bullish impulsive movement, which may be advancing in the last impulsive wave of Primary degree.

Market Sentiment Overview

The German benchmark DAX 30 shows a pause in its upward trend, consolidating the rebound that the price has been developing since March 19th when the German index found support in the yearly low located at 7,957.6 pts. Since this bottom zone, DAX 30 has advanced over 60% to date; however, this year the benchmark eases over 2.75% (YTD).

The following daily chart of the German index shows the price action running in the zone of extreme bullish sentiment. However, the shift in price below the 60-day weighted moving average reveals that it could be starting to develop a new short-term corrective process. 

Although the DAX 30 remains in the zone of extreme bullish sentiment, our market bias continues being neutral as long as the likely corrective movement is not confirmed.

Elliott Wave Outlook

The DAX 30 index overview shows a bullish impulsive sequence that looks incomplete. This five-wave structural series that began in early March 2009 currently moves in a consolidation phase, showing exhaustion signals.

In its log-scale weekly chart, the DAX 30 reveals the price moving in a possible fifth bullish wave of Primary degree identified in black. At the same time, we note that the German benchmark had developed a third wave extended of Primary degree.

According to Elliott wave theory, in an impulsive structure, there can only be one extended wave. In this context, and based on the price development formed by DAX 30, we can recognize the movement of five internal impulsive waves of Intermediate degree labeled in blue within the third wave of Primary degree. This bullish movement ended in the second half of January 2018 when DAX climbed until 13,602 pts.

On the other hand, the alternation principle between corrective waves is recognized to happen between the second and fourth waves. While the second wave performed a corrective movement that took 133 days, the fourth wave was developed in 784 days.

As for the fifth wave’s potential completion, there is still no evidence to confirm this completion. On the one hand, according to Elliott wave theory, when in an impulsive sequence, the third wave is extended, it is highly likely that the fifth wave will fail in its attempt to reach new peaks.

On the other hand, we recognize that there is no confirmation of the fulfillment of the criterion of similarity in price, time, or both between the first and fifth wave. In other words, while the first wave advanced 4,024 pts in just over two years, the fifth wave, which started in the second half of March 2020,  has grown about 5,500 pts in barely six months.

To conclude, the overall market sentiment seems to have shifted from the extreme bullish to neutral. Furthermore, the market structure shows the progress fifth wave of Primary degree progress, giving exhaustion signals. Thus, our bias for the German DAX 30 index continues being neutral.

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Forex Market Analysis

Aussie Moves Looking at 0.74 Barrier

Overview

Overview

Overview

The AUDUSD pair continues advancing toward the psychological barrier at 0.7400, which corresponds to its highest level since mid-August 2018. Currently, the Aussie exposes an extreme bullish sentiment, which rises near 5% (YTD) during this year. Nevertheless, the Australian currency could complete its third extended wave soon.

Market Sentiment Overview

During this year, the Australian currency has gained near 5%(YTD) recovering from the losses reported in the first quarter, dragged by the massive sell-off on the stock market between mid- February until mid-March 2020.

On the following chart, we observe the AUDUSD pair advancing in the 52-week high and low range’s extreme bullish sentiment. At the same time, we distinguish the price action toward the highest level reached by the Aussie on December 03rd, 2018, when the price topped at 0.74935.

The advance of the AUDUSD pair above the 60-day moving average confirms the up-up-up sentiment prevailing on the market participants.

Until now, we observe continuation signals of the current uptrend, which began on March 19th, when the price find a bottom at 0.55063. Since this level, the Aussie advanced over 33% to date.

Elliott Wave Outlook

On its 8-hour chart and log scale, the Australian currency exposes a bullish impulsive advance developed since the March 19th low at 0.55063, which remains intact after the biggest decline that carried it to lose over 21% in the first quarter of the year.

The AUDUSD pair rallies in an incomplete third wave of Minute degree, identified in black, which began once the Aussie bounced developing a leading diagonal pattern. According to the Elliott Wave Theory, the leading diagonal pattern tends to appear in waves 1 or A. At the same time, from the previous figure, we distinguish the price action progressing in an extended wave.

The incomplete third wave of Minute degree seems to advance in its fifth wave of Minuette degree labeled in blue, which at the same time, moves in its fifth wave of Sunminuette degree identified in green. This upward move could reach the 0.7495 level, where the Aussie could find selling pressure.

Once the third wave of Minute degree completes, the AUDUSD pair should start to develop a corrective sequence identified as Wave ((iv)). According to the Alternation principle and considering that the third wave is the extended movement, the fourth wave should be a triangle pattern or a complex corrective formation.

As for a potential target, the next decline could retrace to the level of 0.7065, which corresponds with the top of the third wave of Minuette degree in blue.

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Forex Elliott Wave Forex Market Analysis

Dow Jones: Still no New Record High Confirmation

Overview

Overview

Overview

The Dow Jones Industrial Average continues its advances toward the green side. During this year, it is still easing 1.08% (YTD). The DJIA index, which groups to the 30 largest capitalized U.S. companies, move in the extreme bullish sentiment zone unveiling the probability of new record highs in the U.S. stock market. Likely, it could find resistance at the 30,000 pts as a psychological barrier confirming the all-time highs observed both S&P 500 and NASDAQ 100.

Market Sentiment Overview

During this year, the Dow Jones Industrial Average eases 1.08% (YTD), returning from the bear market to bull market side. The recovery experienced by the Industrial Average, carried it to jump from the lowest level of the year at 18,213.5 pts to 28,287 pts gaining over 55%. 

The following figure compares the advance of Dow Jones and the S&P 500 in its weekly timeframe. In these two charts, we observe that both indexes move in the extreme bullish sentiment zone. However, although surprising, the recovery observed in the U.S. stock market, the Industrial Average still doesn’t confirm the all-time high of the S&P 500, reached on the latest trading sessions. 

If we look at the Dow Jones’ volatility (VXD), it is running below the 60-day moving average, which confirms that the market sentiment continues being in favor of fresh upsides on the Industrial Average.

Finally, considering that both NASDAQ 100 and S&P 500 reached fresh all-time highs in the latest sessions, the Dow Jones should follow the same path in the coming trading sessions.

Elliott Wave Outlook

The mid-term outlook for the Industrial Average provided by the Elliott Wave Analysis reveals the bullish continuation of the incomplete wave B of Minor degree labeled in green, which could push it toward new all-time highs.

The next 4-hour chart illustrates the price running in an uptrend that began on March 23rd when the U.S. Blue Chip index found fresh buyers at 18,213.5 pts, developing a corrective structural sequence that remains incomplete.

Once the Industrial Average broke upward the (b)-(d) upper-line of the triangle drawn by the wave ((b)) of Minor degree, the price activated its progression as wave ((c)), which is characterized by the inclusion of five internal waves. 

Currently, Dow Jones continues its development in an incomplete wave (iii) of the Minuette degree labeled in blue. Simultaneously, the bullish trendline looks intact, which leads us to conclude that the uptrend remains sound, calling for more upsides in the following trading sessions.

Finally, considering that both the S&P 500 and NASDAQ 100 reached new record highs, we expect further upsides and record highs on Dow Jones. A potential target could be at 30,000 pts as this psychological barrier will be a natural profit-taking level.

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Forex Market Analysis

Russell 2000 in Consolidation, Expecting for More Upsides

Overview

Overview

Overview

The Russell 2000 Index raised over 64% off its lowest level of the year, advancing from the extreme bearish to the extreme bullish sentiment zone. The incomplete complex corrective structure, still in progress, calls for more upsides in the coming trading sessions.

Market Sentiment Overview

This year, the Russell 2000 index is underperforming by 6.24% (YTD); however, it continues its recovery from the first quarter massive sell-off, when the U.S. index plummeted until its lowest level of the year at 953.77 pts, currently advancing 64.38% off its lows. 

The Russell 2000’s daily chart shows it’s moving inside the 52-week high-low range, exposing the development of a consolidation formation in the extreme bullish sentiment zone. Simultaneously, the 71-point reading observed in the fear and greed index reveals a bullish bias, helping support the upward bias that now prevails on the Russell 2000 Index. 

On the other hand, Russell 2000’s volatility index shows it’s moving in the extreme bearish sentiment zone, which increases the bullish perspective for the U.S index grouping the 2,000 small-cap U.S. companies.

Consequently, both the market structure consolidating in the extreme bullish sentiment zone and the decreasing volatility observed, lead us to expect further upsides for the following trading sessions, which could make it advance till its opening level of the year, at 1,672 pts.

Elliott Wave Outlook

The short-term overview under the Elliott wave perspective is shown in its 4-hour chart, which reveals the structure of a bullish sequence that remains intact since March 23rd when Russell 2000 found fresh buyers at 963.62 pts.

In the previous chart, we distinguish Russell 2000’s upward progression, moving in a complex corrective formation identified as a double three pattern (3-3-3) of Minute degree, marked in black, which belongs to a wave B of Minor degree labeled in green. 

The complexity level in the corrective sequence could be understood under the alternation principle context. Observing the first chart and considering the aggressive sell-off, lasting about in one month (since mid-February till mid-March), the alternation principle states that after a high-momentum level movement, a reduced-momentum move comes next, and vice versa.

Currently, Russell 2000 advances in wave (c) of Minuette degree, which began on July 10th when the U.S. index ended the wave e of the triangle pattern corresponding to wave (b) in blue. Once wave (b) was completed, the market participants pushed prices higher, carrying it till the 1,608 level on August 11th after the Russell 2000 Index found stiff resistance, which ended wave iii of Subminuette degree identified in green.

Consequently, we expect a limited sideways movement during the following trading sessions before continuing its advance toward fresh highs. Russell’s next upward movement could boost it to the 1,702.17 level, to test last February’s highs.

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Forex Market Analysis

CAC 40 Advances in a 20-Year Triangle

Overview

Overview

Overview

The French index CAC 40 develops an incomplete triangle pattern that began in late August 2000. This year, CAC 40 underperforms 17.51% (YTD), recovering from the losses that dragged it to plunge until 3,632.1 pts, losing over 39.6%. The long-term outlook leads us to foresee a potential limited upside before to resume its drops corresponding to the incomplete bearish sequence in progress.

Market Sentiment Overview

The CAC 40 index, in its daily chart, unveils the advance mostly sideways since the price found resistance in the June’s high located at 5,213.7 pts. The current trading zone coincides with the mid-region of the 52-week high and low range, which leads us to observe that the market sentiment remains with a weak bullish sentiment. At the same time, we distinguish the French Index moving between the 60-day and 200-day moving average, which confirms the consolidation sequence that the French index remains in progress.

Nevertheless, considering that CAC 40 underperforms 17.51% (YTD), we observe that the Fresh index remains under bearish pressure, on the other the consolidation above the 4,871.7 pts., that corresponds to the 50% of the 52-week high and low range, the sideways formation could drive to CAC 40 to develop a limited upside before to resume a new decline.

Elliott Wave Outlook

The French stock market tracked by the CAC 40 index moves in a triangle pattern that began in late August 2000 when the market participants carried up the price until its record high at 6,944.8 pts. Once the price found resistance below the 7,000 pts, the French index started to move sideways, developing a triangle formation that remains incomplete.

The next figure illustrates to CAC 40, in its 2-week chart and log scale, under the Elliott wave perspective. The French index develops an incomplete triangle pattern (3-3-3-3-3), which moves in wave ((4)) of Primary degree identified in black.

The corrective structural series that remains in progress since the French index topped at 6,944.8 pts in late August 2020, currently develops its wave (E) of Intermediate degree identified in blue. Simultaneously, according to the Elliott wave theory, wave (E) must have three internal segments. In this context, from the figure, we distinguish that the price action completed the first bearish leg corresponding to wave A of Minor degree identified in green, which found a bottom at 3,632.1 pts on last March from where the price started to bounce, developing the wave B that remains in progress.

Currently, CAC 40 advances in its wave B of Minor degree labeled in green. Once completed this internal leg, the French index should resume its declines, with a possible support level located at 3,600 pts, even if it could extend until 2,957 pts.

Finally, once completed the long-term corrective sequence corresponding to wave ((4)), CAC 40 should start a new long-term rally corresponding to the fifth wave of Primary degree.

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Forex Market Analysis

Ibex 35 Remains Under Bearish Pressure

Overview

Overview

Overview

The Spanish index Ibex 35 during this year underperforms over 25% (YTD). This negative performance observed during 2020 added to the price action moving below the 200-day moving average, leads us to see to Ibex 35 in a bear market. The bearish market sentiment is confirmed by the technical outlook that drives us to foresee more declines.

Market Sentiment Overview

In 2020, the Ibex 35 index moves mainly bearish after toped at 10,100.20 pts in mid-February, where the Spanish stock market began to decline in a massive sell-off that led it to lose over 42% in mid-March when the price found a bottom at 5,814.50 pts. Until now, Ibex 35 accumulates a loss that reaches 25.78 % (YTD), locating it into the bear market category.

On the other hand, the Ibex 35 prices, in its daily chart, exposes the price action moving mostly sideways below the 200-day and 60-day moving average. This market context, added to the consolidation movement below the 50% of the 52-week high and low range, leads us to observe that the Spanish stock market maintains its bearish pressure.

Summarizing, while the price action continues moving below the 200-day moving average and below 7,957.35 pts, the market sentiment of Ibex 35 will remain on the bearish side.

Technical Analysis Outlook

The long-term overview of Ibex 35 illustrated in its 2-week chart and log-scale, reveals a bearish sequence that began in early November 2007 when the Spanish index toped in its all-time high and found fresh sellers at 16,040.40 pts remains intact. 

The descending channel observed in the previous chart and the price action consolidating below the pivot level at 7,992.7 pts, leads us to maintain our bearish bias for the Spanish index. At the same time, the pierce below March 2020 low located at 5,814.50 pts could drive to Ibex 35 toward new lows. The potential declines could find support at 5,266.90 pts and even could extend from to 3,980.50 pts until 3,669.40 pts; this range coincides with the base-line of the descending channel and the reaction levels observed on January 1994 and August 1996.

The next figure illustrates to Ibex 35 under the Elliott wave perspective. The Spanish index moves sideways developing an incomplete triangle pattern (3-3-3-3-3) corresponding to wave ((B)) of Primary degree labeled in black of a wave II of Cycle degree that maintains in progress since Ibex 35 found sellers at 16,040.40 pts on early November 2007.

The potential next decline corresponding to wave ((C)) of Primary degree could drive the price to fresh lows, which has identified three possible support levels. These levels extend from 5,266.90 pts, following until 4,291.40, and could extend toward 3,669.40 pts. 

Finally, once completed the pending bearish five-wave sequence, Ibex 35 should finalize the wave II of Cycle degree, and in consequence, the Spanish stock market should start a new long-term rally of the same degree

 

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Forex Market Analysis

Dow Jones – Long-Term Technical Overview

This year, The Dow Jones Industrial Average performance went down more than 36% during the first quarter collapse that dragged to the global stock market. Although the recovery experienced by the Industrial Average after March 23th keeps its performance on the negative side, the DJ-30 index could still reach a new all-time high.

This year, The Dow Jones Industrial Average performance went down more than 36% during the first quarter collapse that dragged to the global stock market. Although the recovery experienced by the Industrial Average after March 23th keeps its performance on the negative side, the DJ-30 index could still reach a new all-time high.

This year, The Dow Jones Industrial Average performance went down more than 36% during the first quarter collapse that dragged to the global stock market. Although the recovery experienced by the Industrial Average after March 23th keeps its performance on the negative side, the DJ-30 index could still reach a new all-time high.

Market Sentiment Overview

During the first quarter of 2020, the Coronavirus spread attained the status of a global pandemic, which triggered an economic crisis, originated from a worldwide lockdown. The economic context took down the stock markets. In particular, the U.S. stock market led the Industrial Average to plummet until the 18,213.5 pts, its worst level since November 2016. 

Once Dow Jones found support in its lowest level of the year, after losing over 36%, the Industrial Average began to recover partially from of its losses, advancing near 49% from its March’s low to date.

Under this context, the upper figure illustrates the Dow Jones moving in the 52-week high and low range’s strong bullish sentiment zone. At the same time, we distinguish its price moving above the 26-week moving average, which leads us to anticipate more advances in the short-term.

On the other hand, the Institutional Net Positions (green curve) informed in the latest CFTC report unveils that the speculative bull traders increased their positioning on the long side. However, the institutional sentiment remains on the bearish side.

In summary, the short-term sentiment remains on the long side. In this context, a potential recovery could make it advance toward the 28,595.2 pts, which corresponds to the opening price of 2020. On the other hand, if the Dow Jones Industrial Average develops a new bearish movement, the next key supports are located at 26,749.9 pts and 23,904.4 pts.

Elliott Wave Outlook

Under an Elliott Wave perspective, the big picture of the Dow Jones Industrial Average reveals its advance on an incomplete fourth wave of Primary degree identified in black.

The current bull market began in early March 2009, when the Industrial Average found fresh buyers at 6,466.6 pts. In the next figure, we distinguish that the third wave corresponds to an extended movement, which ended in early February when the Blue Chip U.S. stock market index found resistance at 29,595.3 pts.

Currently, the Dow Jones index advances in its fourth wave of Primary degree, which progress on its wave (B) of Intermediate degree identified in blue. On the other hand, we noticed that the second wave (identified in black on the left of the chart) developed a simple correction in a brief lapse of time. In this context, and considering the alternation principle, the fourth wave should be a complex correction that should take longer than the second wave,  for instance, in the form of a triangle formation, or a double three pattern. After this corrective wave formation, the price action should continue the bullish trend developing a fifth wave of Primary degree with a potential target at the psychological barrier of 30,000 pts.

Finally, with the completion of the five-wave upward sequence of Primary degree, the Industrial Average would complete a motive wave of Cycle degree. Hence, the end of the current bull market will give way to a downward corrective sequence in three waves of Primary degree.

 

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Forex Market Analysis

Gold Hits a New Record High

The Gold price opened the current trading week to reach a new all-time high at $1,987.95 per ounce, approaching the psychological barrier of $2,000 per ounce. 

The Gold price opened the current trading week to reach a new all-time high at $1,987.95 per ounce, approaching the psychological barrier of $2,000 per ounce. 

The Gold price opened the current trading week to reach a new all-time high at $1,987.95 per ounce, approaching the psychological barrier of $2,000 per ounce. 

Market Sentiment Overview

During this year, the precious metal reports an advance over 31% (YTD), boosted by global recession concerns. The safe-haven metal has increased its value at a similar pace of the descents on the worldwide growth rate. A fact that reduces the possibility of an economic recovery in the near term.

In its weekly chart, the yellow metal exposes the bullish momentum that sent the price over September’s 2011 high at $1,920.24 per ounce, climbing to $1,987.95 per ounce this week.

 

On the first chart, we distinguish the price moving in the strong bullish sentiment zone of the 52-week high and low range, where we observe the precious metal reaching fresh highs. Simultaneously, the price action continues moving above the 26-week moving average, showing that the bullish bias remains intact. The separation between the moving average and price leads us to conclude that Gold is in an overbought stage. This condition may carry the precious metal to begin a corrective movement.

On the other hand, the Institutional Net Positioning – green curve at the bottom of the previous image- shown by its latest CFTC report, reveals a decrease in the speculative positioning,  decreasing by 11.12% (WoW) compared with the previous reading. This decrease exposed in the following figure illustrates the institutional net positioning moving bellow the 13-week moving average. 

Summarizing, although the price action continues reaching fresh all-time highs, the big participants’ actions reveal a take-profit activity on their long-side positioning, which could be being helped by an extreme bullish sentiment on news media.

Elliott Wave Outlook

The short-term Elliott wave  Gold’s perspective unveiled in its 2-hour chart reveals the price moving in a terminal structural series corresponding to an ending diagonal pattern. This technical formation comes after the price rallied, developing a third extended wave of Minuette degree identified in blue.

The bullish cycle that remains intact began on June 05th when the yellow metal found fresh buyers at $1,668.30 per ounce. The impulsive sequence observed in the previous chart, reveals its advance in a third extended wave, which topped at $1981.20 per ounce on July 28th, where the price retraced from, completing its wave (iv) of Minuette degree identified in blue. 

Once the fourth wave in blue was completed, the price of Gold advanced in the current fifth wave of Minuette degree, showing an internal structure that looks like an ending diagonal pattern. This Elliott wave formation warns us about the potential reversion of the bullish trend. Although it will likely decline short-term, Gold’s bias remains on the bullish side as long as the price stays above $1,907.20. However, if the price breaks and closes below the base-line ii-iv of the ending diagonal, the yellow metal could visit the $1,907 level as its first relevant support.

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Forex Market Analysis

US Dollar Index – Technical Overview

The US Dollar Index (DXY) jumps on Thursday trading session after the FED’s policymakers decided to keep unchanged the rate at 0.25%

The US Dollar Index (DXY) jumps on Thursday trading session after the FED’s policymakers decided to keep unchanged the rate at 0.25%

The US Dollar Index (DXY) jumps on Thursday trading session after the FED’s policymakers decided to keep unchanged the rate at 0.25%

Market Sentiment Overview

In its weekly chart, the US Dollar Index exposes a downward movement with an accelerated bearish momentum that brought it to decline for the sixth week in a row, falling to its lowest level since mid-June 2018 when the DXY found support at 93.19.

 

The price action observed in the 52-week high and low range places DXY in the strong bearish zone. This market context leads us to expect more declines in the long-term. Simultaneously, in the short-term, we could see a limited recovery, which could find resistance at the 95.67 zone.

From an institutional activity perspective, the net positioning informed by the COT report released by the CFTC last Friday, reveals that speculative traders (green line) continue favoring a bearish-side positioning. 

In consequence, the long-term market sentiment for the US Dollar index remains bearish. At the same time, a short-term recovery could signify only a retracement of the primary bearish trend.

Elliott Wave Outlook

The short-term Elliott wave perspective for DXY illustrated in its 4-hour chart reveals the advance in a bearish trend that began on the last March 19th high at 102.99. Once the Greenback found fresh sellers, the bearish market participants took the price down in an incomplete descending sequence.

In the figure, we observe the US Dollar index moving in an incomplete wave ((c)) or ((iii)) of Minute degree labeled in black. At the same time, the price advances in its wave iii of Subminuette degree identified in green, this move belongs to the fifth wave of Minuette degree labeled in blue, which began on June 30th when the price made a lower high at 97.80.

Although the third wave in green touched the bearish target area located in the blue box and started to bounce, there is no evidence to support the end of the bearish cycle. Neither does the bullish divergence observed on the RSI oscillator bring us a signal of exhaustion or reversal trend. On the other hand, considering the alternation principle and that the current bearish movement has strong downward momentum, the fourth wave in green should likely evolve as a sideways sequence, possibly as a triangle pattern. This technical formation could find resistance at 94.65, corresponding to the last March 09th low. Even, the move could extend until the 95.72 level, where the price might reverse towards the primary bearish trend.

In summary, the US Dollar index currently runs in a bearish five-wave sequence, which seems incomplete. There exist a possibility that the Greenback starts to develop its fourth wave of Subminuette degree identified in green, which could find resistance in the area between 94.65 and 95.72. The current bearish scenario will be valid as long as the price stays moving below 96.37.

 

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Forex Market Analysis

Russell 2000 Technical Overview

The U.S. stock index Russell 2,000 and the S&P 500 shows a divergence in its long-term trend. While the S&P 500 reaches fresh highs recovering from its 2020’s losses, the Russell 2000 index remains negative.

The U.S. stock index Russell 2,000 and the S&P 500 shows a divergence in its long-term trend. While the S&P 500 reaches fresh highs recovering from its 2020’s losses, the Russell 2000 index remains negative.

The U.S. stock index Russell 2,000 and the S&P 500 shows a divergence in its long-term trend. While the S&P 500 reaches fresh highs recovering from its 2020’s losses, the Russell 2000 index remains negative.

As the previous chart illustrates, Russell 2000 continues moving below its 24-month moving average while the S&P 500 already moves on the bullish side. This market context could lead Russell 2000 to see more declines in the coming weeks, although, currently the short-term bias is still hinting to further advances.

Market Sentiment Overview

This year, the index that groups the 2,000 most prominent small-cap U.S. companies sheds near 11.5% (YTD), dragged by the pandemic lockdown.

The following chart exposes to Russell 2000 in its daily timeframe. On the figure, we distinguish the price moving above the 60-day moving average, which leads us to conclude that the short-term bias still remains on the bullish side.

At the same time, from the 52-week high and low range, we note the price action continues moving bellow the 1,523.65 pts, which makes us hold our bullish bias. In this context, the possibility of a strike over the 1,523.65 pts could reveal an extreme bullish sentiment on the Russell 2000 index.

On the other hand, the absence of a bearish reversal pattern discards, for now, the probability of a plummet in the U.S. stock market.

Elliott Wave Outlook

The short-term Elliott wave perspective of the Russell 2000 index exposed in its 4-hour chart reveals the recovery experienced by the U.S. stock market from last March 23rd when the price found fresh buyers at 963.62 pts.

In the previous chart, we observe a first five-wave structural sequence corresponding to a leading diagonal pattern identified as wave ((a)) of Minute degree labeled in black. The first five-wave sequence topped at 1,376.52 pts where the price started to develop a corrective move in three waves corresponding to wave ((b)) in black, which found support at 1,177.26 pts on May 14th.

Once the second wave ended, the price began a new rally, which remains in progress. After the third wave of Minuette degree labeled in blue, Russell 2000 developed a correction identified as a triangle pattern. After the breakout of the upper guideline b-d, the U.S. index resumed its short-term upward trend.

Currently, the price action remains consolidating in a wave ii of Subminuette degree identified in green. In this context, the RSI oscillator continues moving above the 40-level, which leads us to confirm the retracement and the bullish bias of Russell 2000.

Finally, the upward continuation could drive to Russell 2000 toward 1,590.42 and even extend its gains until 1,702.17 pts. On the other hand, the bullish scenario will remain valid while the price continues above 1,377.25 pts.

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Forex Market Analysis

DAX Could Resume its Advances

Commentary from our Previous Analysis

Commentary from our Previous Analysis

Commentary from our Previous Analysis

Last July 06th, we commented in our mid-term technical analysis that the German index DAX 30 showed an incomplete upward corrective structure corresponding to a potential zigzag pattern.

The following figure illustrates our previous analysis released on July 06th, in which the structural sequence reveals an incomplete wave ((c)) of Minute degree identified in black. This observation led us to expect more upsides for the German index.

Market Sentiment Overview

DAX 30, in its daily chart, unveils the recovery developed from the mid-March, which took it from an extreme bearish sentiment until the strong bullish sentiment zone. 

On the previous chart, we observe that the price action found resistance in the opening 2020 zone, at 13,126.5 pts, where the German index developed a limited retrace in the past week. 

On the other hand, DAX 30 continues moving above the 60-day moving average, which leads us to conclude that the mid-term bias remains on the bullish side. In this context, the price action doesn’t show a reversal signal nor a highly volatile trading session. That leads us to observe a change in the sentiment of the traders, driving the price toward the 52-week high located at 13,828.8 pts.

Elliott Wave Outlook

The mid-term Elliott wave perspective for the DAX 30 index illustrated in its 4-hour chart reveals the market action is running in an ascending channel that remains intact, suggesting more upsides for the following trading sessions.

In terms of its Elliott wave sequence, the previous chart presents the German index advancing in its wave iv of Subminuette degree labeled in green, which seems to develop its first internal segment. In this context, according to wave theory, considering that the price advances in a corrective structure, the DAX 30 index should complete two additional internal legs before resuming its next rally, corresponding to wave v in green.

The next upward movement should complete its wave (v) of the Minuette degree, labeled in blue, Which began on June 29th at the low of 11,949.6 pts. At the same time, after its fifth wave ends, DAX 30 would complete its wave ((c)) of Minute degree, in black, which belongs to the wave B of Minor degree identified in green. This movement could extend its gains to 13,544.3 pts and even surpass the psychological barrier at 14,000 pts. In this context, once the German index completes its current bullish cycle, it could start a new bearish movement, corresponding to wave C of Minor degree.

Finally, the RSI oscillator seems to have found support above level 40, which leads us to confirm that the bullish bias remains intact. In consequence, further upward movement on the German index is a high probability event.

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Forex Market Analysis

GBPCHF Could Start a New Bullish Cycle

The GBPCHF cross during this year underperforms over 7.3% YTD easing over 940 pips. Although the market action made it decline until lower levels since 2011, the cross could experience a recovery that could propel it toward fresh highs.

The GBPCHF cross during this year underperforms over 7.3% YTD easing over 940 pips. Although the market action made it decline until lower levels since 2011, the cross could experience a recovery that could propel it toward fresh highs.

The GBPCHF cross during this year underperforms over 7.3% YTD easing over 940 pips. Although the market action made it decline until lower levels since 2011, the cross could experience a recovery that could propel it toward fresh highs.

The Market Sentiment

The GBPCHF cross in its weekly chart illustrates the price moving below 50% of the 52-week high and low range, which reveals that market participants maintain its bearish bias for the cross. At the same time, we distinguish the 26-week moving average acting as dynamic resistance at 1.19298.

On the previous chart, we distinguish a bearish sequence that began in mid-November 2016 when the price topped at 1.5572 and looked ended on last March 19th, when the cross found support at 1.1113. Once the GBPCHF dropped until the lowest level since August 2011, the price bounced, finding a short-term resistance in the zone of 1.2212, which coincides with 50% of the 52-week high and low range.

During the previous two weeks until now, the market action moved it down, finding resistance at the 26-week moving average, which leads us to conclude that bear traders still maintains the market control.

Consequently, while the GBPCHF keeps moving below the 26-week moving average, the market sentiment bias continues being bearish.

The Elliott Wave Outlook

The GBPCHF cross under the long-term Elliott wave perspective exposes a broadening diagonal formation that began on April 17th, 2018, when the price found fresh sellers at 1.3855.

In the previous figure, we distinguish an expanding sequence that follows a 3-3-3-3-3 internal subdivision of Minuette degree identified in blue. This structural series could have its fifth wave of Minute degree (labeled in black) concluded on March 19th, when the price found support at 1.1113.

After the market participants took down the price to the lowest level of the year, the pair reacted mostly upward, developing a bounce in a five-wave sequence. This bullish movement may correspond to a wave (i) of the Minuette degree, which ended last June 05th, from where the GBPCHF cross started to develop an incomplete corrective corresponding to wave (ii) in blue, which remains in progress.

On the other hand, the RSI oscillator, which moves below the level-60, confirms the short-term bearish bias that GBPCHF maintains.

However, considering that the price action advances in an incomplete bearish wave (ii), our preferred near-term positioning remains neutral until the current bearish structure completion expects the potential rally corresponding to wave (iii), which could raise until 1.28 area.

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Forex Market Analysis

Silver: Sustained Bullish Pressure

Silver advances over 3.14% this week, increasing its gains by the sixth week in a row. The precious metal could visit the $20 per ounce, the highest level since September 2016.

Silver advances over 3.14% this week, increasing its gains by the sixth week in a row. The precious metal could visit the $20 per ounce, the highest level since September 2016.

Silver advances over 3.14% this week, increasing its gains by the sixth week in a row. The precious metal could visit the $20 per ounce, the highest level since September 2016.

The Market Sentiment

Silver, in its weekly chart, reveals that institutional participants hold a bullish sentiment. The speculative positioning identified in green, taken from the Commitment of Traders report (CoT) issued each Friday by the CFTC, confirms that institutional traders hold its long positions expecting new higher highs. At the same time, both the COT report as the price action doesn’t reveal signals of a reversal trend.

On the other hand, the strong upward momentum that can be seen on the precious metal is driving it near its 52-week high located at $19.65 per ounce. This market context leads us to expect an increment in volatility on the metal sector, which could hit new highs.

The following daily chart reveals that Silver volume remains above the 250 trading sessions average. The relatively high volume level along with its price advancement confirms that the current uptrend remains intact.

The Elliott Wave Outlook

The Elliott wave perspective sketched in the following 12-hour chart exposes an incomplete bullish five-wave sequence, which could drive prices to exceed the $20 per ounce.

The precious metal started an incomplete bullish sequence last March 18th when the price found fresh buyers at $11.64 per ounce. Once Silver started its recovery, the market participants sent it into an internal five-wave rally to $15.84 per ounce, where it completed wave ((a)) of Minute degree labeled in black.

In the previous chart, we observe a narrow-range corrective sequence developed into a three-wave structural series that failed to achieve a new lower low. This market context warns us about the potential strong upward momentum that could drive Silver toward new higher highs. In fact, the price action reveals an incomplete fifth wave of Minuette degree labeled in blue, which remains in progress.

The RSI oscillator reveals a bearish divergence, which leads us to confirm that Silver currently moves in its fifth wave, possibly belonging to a wave ((c)) of Minute degree. In an alternative count sequence, Silver could be advancing in a wave ((3)) of Minute degree.

Considering the Elliott Wave rule of extensions, the current fifth wave could be the extended wave of the entire upward sequence. On the other hand, the Fibonacci projection suggests that the precious metal could extend its gains in a range from $20.04 to $21.66 per ounce.

Finally, as long as the price action continues advancing above the $18.47, the short-term trend will continue being led by the bull traders.

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Forex Market Analysis

US Dollar Index Analysis – Is Preparing for a New Decline?

The US Dollar index (DXY) seems to be turning its market sentiment from bullish to bearish. The currency basket index against the US Dollar exposes bearish signals that lead us to anticipate a bearish outlook for the mid-term.

The US Dollar index (DXY) seems to be turning its market sentiment from bullish to bearish. The currency basket index against the US Dollar exposes bearish signals that lead us to anticipate a bearish outlook for the mid-term.

The US Dollar index (DXY) seems to be turning its market sentiment from bullish to bearish. The currency basket index against the US Dollar exposes bearish signals that lead us to anticipate a bearish outlook for the mid-term.

The Big Picture and Market Sentiment

The big picture of DXY in its weekly chart unveils that the price action continues moving by the sixth consecutive week below 50% of the 52-week high and low range, which carries us to suspect that big market participants could keep pushing lower the Greenback. During this year, the US Dollar index reports an advance of 0.16% (YTD),  dropping from 6.72% reached on March 19th when DXY reached its yearly high at 102.99.

In the previous chart, we distinguish the net positions between institutional traders (or speculative positions) in green, versus the net positions of commercial traders in red. The net positioning reveals that speculative traders are turning their bias to the bearish side; however, this doesn’t imply that DXY will plunge in the short-term.

Elliott Wave Outlook

The mid-term Elliott wave perspective for the US Dollar Index exposed in its 8-hour chart illustrates an incomplete bearish cycle that began on March 19th once the index found fresh sellers at 102.99.

In the above chart, we observe the first bearish movement identified as wave ((a)) or ((i)) of Minor degree labeled in black reveals a strong bearish momentum, which leads us to suspect that it could correspond to the first movement of a zigzag pattern or an impulsive sequence.

Once DXY had completed its first downward movement, it started a corrective sequence that at a first stage looked like a triangle formation (subdivided into 3-3-3-3-3 internal segments); however, the corrective structure corresponds to a regular flat pattern (divided into 3-3-5). This correction ended on April 24th when the price topped at 100.87 pts and give way to a new downward move corresponding to wave ((c)) or ((iii)), which remains in progress.

The third bearish structural series, which remains in progress, reveals that the price action currently develops an expanding triangle pattern. This formation follows an internal sequence subdivided into 3-3-3-3-3.

On the other hand, in the last chart, we observe the RSI oscillator moving below the 60-level, which confirms the bearish bias that the US Dollar index maintains and, in consequence, doesn’t exists any trend reversal signal so far.

Our outlook for the coming weeks for the US Dollar index foresees a limited upward movement, which could surpass the end of wave c slightly, labeled in green, at 97.80. The end of the wave e could coincide with the descending trendline. Considering the expanding triangle nature, we could expect a volatile movement in the current upside, which could imply the development of a bullish trap. Once completed this upside, the Greenback should resume its downtrend falling into a five-wave sequence.

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Forex Elliott Wave Forex Market Analysis

DAX Remains Bullish

The German index DAX 30 advances in an upward Elliott wave sequence that suggests more upsides in the following trading sessions.

The German index DAX 30 advances in an upward Elliott wave sequence that suggests more upsides in the following trading sessions.

The German index DAX 30 advances in an upward Elliott wave sequence that suggests more upsides in the following trading sessions.

DAX, in its mid-term Elliott wave outlook illustrated in the 4-hour chart, reveals the recovery that the German index develops in an incomplete zigzag pattern, which corresponds to wave B of Minor degree.

According to the Elliott Wave theory, a zigzag pattern is a corrective formation subdivided into a five-three-five sequence (5-3-5)

Once DAX 30 price had topped at its all-time high of 13,828.8 pts, it began a sharp selloff that ended on the March 19th low at 7,957.6 pts. Then, the German index began to show recovery signals, developing a bullish sequence into five waves of Minuette degree labeled in blue, which ended on April 30th at 11,340.1 pts. This movement led the DAX 30 to complete wave ((a)) of Minute degree labeled in black.

On the other hand, as the price advanced in the first part of the corrective wave, on the RSI oscillator, we observe that the leading indicator surpassed the 60 level and found support at 40, confirming the bullish bias of the corrective structure. At the same time, the progress in the wave ((b)) of Minute degree labeled in black pierced bellow the 40 level, leading us to confirm the end of the three-wave movement.

Once the German index completed its wave ((b)), the market participants kept pushing the price upwards, increasing the bullish momentum of wave (iii) of Minuette degree which jumped up to 12,398 pts on June 08th, reaching its highest level since February 26th. After this high, DAX 30 started to develop its wave (iv) that elapsed until June 29th when the price began to advance in a new upward sequence, which currently looks incomplete.

In the 4-hour chart, we distinguish the DAX30 moving in an incomplete bullish sequence, which could be advancing in its wave iii of Subminuette degree labeled in green. On the other hand, the bullish breakout and consolidation observed in the RSI oscillator over the 60-level lead us to maintain our outlook for further upsides on the German index for the following trading sessions.

The projection made using the Fibonacci extension from the wave ((a)) lead us to foresee a rally continuation that could find resistance at 13,544.3 pts, which coincides with the 100% of Fibonacci extension. In other words, this bullish continuation could complete the 100% of equal waves between waves ((a)) and ((c)). There exists a possibility that the German index continues advancing further to 14,464.3 pts, corresponding to 127.2% of the Fibonacci extension.

In conclusion, our main outlook foresees more upsides for the following trading sessions. Furthermore, the bullish outlook will be valid while the German index remains above 12,085.5 pts, which coincides with the end of wave ii of Subminuette degree identified in green. If this scenario happens, it would be indicative that the wave (iv) is incomplete, and DAX 30 will continue consolidating, as the bullish pressure would decrease over time.

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Forex Market Analysis

Allianz Rejection to Signal a new Bearish Wave

Allianz (XETRA:ALV), a German-based financial company, sinks near 3% in the current week after having completed a zigzag pattern (5-3-5) when the price reached the level of €194.76 per share.

Allianz (XETRA:ALV), a German-based financial company, sinks near 3% in the current week after having completed a zigzag pattern (5-3-5) when the price reached the level of €194.76 per share.

Allianz (XETRA:ALV), a German-based financial company, sinks near 3% in the current week after having completed a zigzag pattern (5-3-5) when the price reached the level of €194.76 per share.

ALV exposes in its 2-hour chart the rejection in the zone of the upper line of the ascending channel that converges with the pause zone of the first downward sequence started on February 21ts when the price topped at €232.60 per share.

In the previous chart, we observe that ALV completed its first bearish three-wave sequence corresponding to wave A of Minor degree labeled in green. In this first leg, we distinguish that Allianz, in its last move, developed a terminal Elliott wave pattern corresponding to an ending diagonal that was completed on March 19th when the stock price found fresh buyers at €117.10.

Once the price jumped in a three-wave sequence, ALV raised until €163.74 per share, completing the wave (i) of the Minuette degree labeled in blue. This movement reveals an overlapped structural series that corresponds to a leading diagonal.

According to the Elliott wave principle, a leading diagonal tend to appear in waves 1 or A. Its internal structure follows a subdivision as 3-3-3-3-3. In the figure, we observe that the leading diagonal pattern ended at €177.40 per share, where the price found fresh sellers and completed its wave ((a)) of Minute degree labeled in black.

The breakdown of the intraday trendline that advances with wave (v) of ((a)) validated the end of wave ((a)) and the start of a new movement corresponding to wave ((b)). This new corrective move carried down to ALV to find support at €139.78 per share on May 14th, where the German financial company found the incorporation of fresh buyers, who moved the market in an upward five-wave sequence corresponding to wave ((c)) of Minuette degree in blue.

The third movement corresponding to wave ((c)) of Minute degree, which belongs to the corrective structure of upper-degree, developed its rally in a five-wave sequence until the level €194.76. This move shows its fifth internal wave as an extended move.

Following the Elliot Wave Theory, we can observe that the retracement that Allianz is starting to develop could drag to the stock price until the zone of the beginning of wave (v) in blue, where the price should find support.

In conclusion, our preferred positioning remains on the bearish side until the zone that marks the beginning of wave (v) of the Minuette degree.

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Elliott Wave Guide Forex Elliott Wave

Advanced Level Elliott Wave Analysis Guide

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

We have ended the section that covers the Advanced Level of the Elliott Wave Analysis based on the work developed by Glenn Neely, “Mastering Elliott Wave.” These concepts are described and includes the following aspects:

  • Complex Corrective Waves. This section, subdivided into two parts, describes the two basic groups of complex corrections.
    • Part 1. Explains the fundamental concept of a complex corrective structure, which splits into standard and non-standard complex correction.
    • Part 2. Describes the concept of wave x and expands its conditions with its combinations.
  • Complexity in Wave Analysis. This article discusses how complexity increases as impulsive or corrective movements end. 
  • Alternation and Extensions. The first part of this section reviews the alternation principle and its different configurations. The second part covers the extensions and their conditions.
  • Counting. This educational article subdivided into three parts expose how to count waves.
    • Part 1. The first summarizes the aspects covered, then it shows the importance of wave identification and ends expanding the concept of the degree in wave analysis.
    • Part 2. The second part covers the use of retracements to define the possible type of sequence in progress. It also describes the different sequences of the patterns defined by R.N. Elliott as the first and the recount.
    • Part 3. In this part, we apply the counting process in the NZDUSD and EURGBP crosses.
  • Additional Rules. In this supplementary article, we cover a set of rules defined by Glenn Neely, as points of tangency in guidelines and the rule of time.
  • Additional Observations. This article develops the observations described by Neely, concerning the potential next movement considering the type of Elliott wave pattern in progress.
  • Advanced Applications in Wave Analysis. In this four-part series, we expand the observations described by Neely about each wave’s characteristics according to the type of Elliott wave formation in the course.
    • Part 1. The first part covers the motive waves subdivided into trending and terminal impulsive waves.
    • Part 2. This part exposes the variations of the flat and zigzag patterns.
    • Part 3. In this part, we present the characteristics of the contracting triangle pattern, particularly in its restrictive subgroup.
    • Part 4. This educational article that ends our cycle dedicated to the Elliott wave analysis covers the characteristics of the non-restrictive contracting triangles and presents the expanding restrictive and non-restrictive triangle pattern.

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 4 of 4

Introduction

Introduction

Introduction

In the previous educational article, we presented the contracting triangles and the restricting group. In this last part of our four-part series, we’ll show the non-restrictive contracting triangles and the expanding triangles with its variations. 

Non-Restrictive Triangles

This sub-group of triangles is characterized by locates in any other part of the wave cycle, not exclusively in waves 4 or B. The knowledge of this type of triangles could be useful to the wave analyst in the study of complex corrective patterns. This type of triangles tends to be produced at the end of complex corrections. Frequently, non-restrictive triangles tend to be more simple to identify than restrictive triangles.

  • Wave A. This segment tends to be the most volatile in terms of price at the time of the triangle. According to the alternation principle, if wave A is violent and takes a small portion of its completion, wave B will be slower and complex than wave A.
  • Wave E. In this scenario, the last segment of a non-restrictive contracting triangle, tends to develop a non-restrictive triangle. In other words, wave E could make a triangle inside a triangle of the upper degree. From the different types of non-restrictive triangles, the horizontal triangle tends to be the most common in the real market. The following list exposes the parts where the non-restrictive triangle.
    • Wave E in a horizontal triangle.
    • Last movement of a complex correction as a double or triple corrective pattern.
    • The fifth wave of an impulsive terminal structure.
    • The wave X of a complex correction.

Expanding Triangles

The expanding triangle tends to cheat the wave analyst more than the contracting triangle. This situation occurs because when the price moves in a volatile session, it tends to create a false breakout and quickly resuming its original trend.

The main characteristics of an expanding triangle are:

  • Wave A or wave B will be the shortest wave of the triangle.
  • Wave E tends to develop an explosive movement, higher in terms of price and time than the other waves.
  • In the same way that in contracting triangles, a contracting triangle can produce in wave E, in an expanding triangle, it can construct an expanding triangle.
  • The next movement of the triangle, which could correspond to wave C or 5, should not retrace the advance of wave E entirely.
  • The expanding triangle usually does not follow any Fibonacci relationship.
  • Expanding triangles normally occurs after a powerful movement such as an extended wave or an extended wave C. 

Restrictive Expanding Triangles

The restrictive expanding triangle tends to be placed in waves 4 and B. If the expanding triangle locates in wave B, the triangle belongs to a flat pattern. The rules applied to this group of expanding triangles are as follows:

  1. Waves A and E will be related through a 161.8%, being the wave E the largest segment.
  2. Wave A or B must be the shortest segment of the triangle.
  3. Only wave B or D can fail to try to surpass the previous wave.

Horizontal Expanding Triangle. The characteristics of this pattern are as follows:

  1. Wave A is the shortest segment of the triangle.
  2. Each leg after wave A will be larger than the previous segment.
  3. Wave E should be the most volatile, complex, and longer terms of time than the other waves.
  4. Wave E tends to be 161.8% of wave A.

Irregular Expanding Triangle. This variation of the expanding triangle is the most common to find in the real market. The main characteristic of this variation is that every time that wave B try to surpass to wave A fails in its advance. Wave E and A are show a 161.8% relationship, being wave E the longest segment.

Continuous Expanding Triangle. This type of restrictive expanding triangle is the second most common pattern to find in the real market. The continuous triangle characterizes by failing when this tries to surpass the end of wave C. If wave D fails, the pattern could show a slight bullish or bearish bias. Finally, waves A and E will be related in a 261.8%, being wave E the longest segment.

Non-Restrictive Expanding Triangles

The non-restrictive expanding triangle pattern follows the same conditions as restrictive expanding triangles. Its main characteristics are as follows:

  • Usually, they don’t have any Fibonacci relationship in their internal segments. The only relationship could be found on waves A and E, where wave E length could be 261.8% of wave A length.
  • The apex of the expanding triangle occurs before the triangle. If the apex occurs between 20% and the start of the expanding triangle, the formation should be non-restrictive.

Conclusions

In this educational article, corresponding to the last part of our four-part series covering the triangle pattern, we presented in the first section, the Non-Restrictive Contracting triangle. This group of contracting triangles tends to appear at the end of complex corrections, or the end of an impulsive terminal structure.

The second section corresponds to the expanding triangles, which are characterized by tricking the different market participants, who tend to think that the market has reversed and, after its last volatile movement corresponding to wave E, they discovered that the market in fact is resuming its previous trend.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 3 of 4

Introduction

Introduction

Introduction

The triangle pattern is the third basic model of the corrective structures defined by R.N. Elliott. The triangle contains five internal segments and tends to appear in waves 4 and B. 

Glenn Neely, in his work “Mastering Elliott Wave,” expands the definitions of contracting and expanding triangle introduced by Elliott proposing two subcategories identified as non-restricting and restricting. 

In this educational article, corresponding to the third of four parts, we’ll present the triangle pattern variations and its implications in the wave analysis. In particular, we’ll discuss the contracting triangle pattern and its restrictive subcategory.

Contracting Triangles

This type of triangle is the most frequently identified in the real market. In this group, there are two types of triangles, restrictive and non-restrictive contracting triangles.

Restrictive Contracting Triangle

All contracting triangles have a similar shape in its construction. The main characteristic is that wave E ends before the apex of the triangle. The apex tends to occur in a range of 20% to 40% of the total triangle time extension. 

Concerning the thrust, in restrictive contracting triangles, it is limited by the most extended segment of the triangle (25% approx.) This type of triangles corresponds to the formations described by Elliott in his Treatise. Moreover, these patterns tend to appear in waves 4 and B.

  • Horizontal Contracting Triangle. Each segment must measure at least 38.2% of the previous segment, except for wave E. Wave B can’t be more than 261.8% of A, wave C can’t extend more than 161.8% of B. Wave D must be shorter than wave C, and wave E must be shorter than wave D.
    1. Wave A. This wave will not necessarily be the largest in terms of the price of the triangle. Likewise, it will not be the shortest wave of the pattern.
    2. Wave B. In this case, if wave B is shorter than wave A, then the rest will be shorter. If the wave is longer than wave A, there are a few possibilities that wave C will be longer than wave B, and the triangle formation corresponds to a contracting triangle. If wave C is longer than wave B, then the structure corresponds to an expanding triangle. 
    3. Wave C. Under a few circumstances, wave C could get longer than wave B. If this scenario occurs, then the base-line should be traced connecting waves C and E.
    4. Wave D. This wave must be shorter than wave C, although it could last longer than wave C.
    5. Wave E. This one must be the shortest wave of the triangle pattern.
  • Irregular Contracting Triangle. This variation is characterized by wave B being the most extended of the structure.
    1. Wave A. In this case, wave A will tend to be shorter in terms of time than wave B. The extension of wave B should be longer than 161.8 of wave A. Wave A could be any corrective pattern except for a triple zigzag or an extended flat.
    2. Wave B. This wave should be the largest wave of the entire formation, extending until 161.8% of wave A, but never beyond 261.8%. Wave B tends to be a zigzag or a double zigzag.
    3. Wave C. This wave will be shorter than wave B and should retrace at least 38.2% of wave B. Wave C could be a zigzag, flat, or an extended flat.
    4. Wave D. This wave will be shorter than wave C and should retrace at least 38.3% of wave C. Wave D could be any corrective pattern that alternates with wave C.
    5. Wave E. This wave will be the shortest wave of the triangle pattern in terms of price. Generally, wave E will tend to be a triangle pattern.
  • Continuous Contracting Triangle. This pattern is detected through the advance of waves B and D. Wave B will be larger than wave A, and simultaneously, wave D will be larger than wave C. The thrust of this pattern would be at least 161.8% respect to the largest segment of the triangle.
    1. Wave A. This wave should not be lower than 38.2% of wave B. Wave A could be a flat or a zigzag, but never a triangle or a double or triple zigzag. Most of the time, wave A will be a flat pattern.
    2. Wave B. This wave must be the largest segment of the complete formation. Its formation could correspond to a zigzag, double zigzag, or rarely a triple zigzag.
    3. Wave C. This segment must be shorter than wave B, and can’t be more complex than wave B.
    4. Wave D. This segment must be larger than wave C in terms of price and could be any type of corrective pattern except a triple zigzag.
    5. Wave E. This segment must be the shortest wave of the triangle. If the continuous triangle moves in wave B, this wave will frequently end at 61.8% or 38.2% of the entire movement.

Conclusions

In this educational article, corresponding to the third part of the four-part series, we presented the contracting triangle pattern under the restrictive subcategory.

The contracting triangle tends to be the most common corrective pattern in waves 4 and B. As said by R.N. Elliott in his Treatise, the knowledge of the corrective formations and its implications provides to wave analyst an advantage of the potential next move of the market.

In the next article, we’ll end this four-part present the non-restrictive contracting triangles and the expanding triangles.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 2 of 4

Introduction

Introduction

Introduction

As we commented in previous articles that cover the corrective structures, R.N. Elliott considers its study as a key to understand the current market situation and what to expect for the next path.

In this educational article, we expand the observations of the flat and the zigzag pattern.

Corrective Patterns in Action

In the first part of this four-part series, we commented that impulsive waves create trends. Corrective waves correct or retrace the progression of the trending movement developed by the motive waves. A corrective structure will never appear in a wave 1, 3, 5, in a wave A and C of a zigzag, and wave C of a flat pattern.

The Flat Pattern

The flat pattern develops different variations depending on the strength of the trend or the level of complexity of the correction in progress. In its fundamental nature, the flat follows an internal sequence as 3-3-5.

On the other hand, variations in the flat pattern surge in the extensions of its waves B and C. In brief words, as wave B extends more than the 100% of wave A, wave C will tend to be short. And the lesser the retrace of wave A by wave B, the larger wave C will be.

  1. Failure in B. This case represents the scenario when wave B retrace between 61.8% and 81% the progress of wave A. If wave B extends beyond 81%, it means that the market is temporarily weak. Wave B will fail when the wave A be a double zigzag or a double combination. Wave C will tend to retrace the advance of wave B entirely. This variation could appear in waves 2, 4, A, B, or inside a horizontal triangle in its legs C, D, or E.
  2. Failure in C. This type of failure tends to occur when wave A experiences a complete or almost complete retracement made by wave B. When the price movement fails in wave C, the market shows a signal against the dominant trend. In this context, this pattern will appear in a terminal sequence. Wave C duration will be shorter than wave B and will show a similar duration than wave A. This variation could arise in waves 2, 4, A, B, or the wave 5 of a terminal impulsive wave.
  3. Regular. This formation is the typical flat pattern. Wave B retraces at least 81% of wave A, and wave C will advance wave B entirely. Also, this wave could extend between 10% and 20% beyond the end of wave A. In this variation, wave B will tend to be a complex structure, and its extension in time will be longer than waves A and C. The regular flat could rise in waves 2, 4, A, B, or in waves C, D, or E in a terminal impulsive wave.
  4. Double Failure. This scenario is infrequent; however, the double failure occurs when wave B to retrace beyond 81% of wave A, and wave C doesn’t extend beyond 100% of wave A. The double failure variation will look like a contracting triangle. Finally, this scenario will tend to appear in waves 2, 4, in wave A inside of a triangle or an irregular flat. When it happens in a wave B, it could belong to a zigzag, a regular on in an extended flat.
  5. Extended. This configuration occurs when wave C advance reaches between 138.2% or beyond 161.8% of wave B. Waves A and B must be similar in terms of price and time. This variation should tend to appear in waves 1, 3, or 5 as an impulsive terminal wave. In waves A, B, C, or D in a horizontal triangle, or wave E of an expanding triangle.
  6. Irregular. This is the most straightforward variation of the flat pattern. At the same time, it isn’t easy to find it in the real market. This pattern is indicative of the strength of the previous move. Wave B must be higher than wave A in price. Generally, wave C will be equal to wave A in price and time relation. This variation tends to appear in waves 2, 4, in wave B before the extended wave C of a flat, or as the wave B in a zigzag when wave C moves beyond 161.8% of wave A.
  7. Continuous. This correction is the most powerful variation of the flat pattern. This type of formation tends to imply volatile movements of the same degree. The continuous flat pattern tends to emerge in the second wave after an extended third wave. When it appears in the fourth wave, this variation could occur before a fifth extended wave. In a wave B, it surges before an extended wave C; in a triangle pattern, it could happen in the a-b-c series, or in a wave B of a zigzag that forms a triangle structure.

The following figure represents the seven flat pattern variations.

The Zigzag Pattern

The main difference between zigzag and flat pattern is that zigzag does not have a wide variety. The central aspect to take in consideration with the zigzag pattern is the extension of wave C compared with wave A, and the subdivisions number of wave C compared with wave A.

  1. Wave A. This wave must have an impulsive structure; this means that its internal structure must contain five segments. The A wave of a zigzag formation shouldn’t experience a retrace beyond 61.8% by wave B. If the wave B retraces beyond 61.8%, this could be indicative that the market is developing a complex correction as a double zigzag or a double combination.
  2. Wave B. This wave must show a corrective structure with three segments in its construction. As stated earlier, its progression should not go beyond 61.8% of wave A. This wave never will present a continuous correction. If this situation occurs, then the zigzag moves inside a triangle pattern. In this case, the zigzag will be the second wave of an impulsive sequence. Consequently, if this scenario occurs, then the wave B could not be a complex corrective structure as a double or triple zigzag, nor any other type of combination of corrective structures.
  3. Wave C. This part of the zigzag pattern contains five internal segments. Its extension could be from 61.8% to 161.8% of wave A.

Conclusions

In this educational article, we presented the variations of the flat pattern and the zigzag. These variations can provide a significative clue to the wave analyst respecting to the market situation and what to expect for the following sessions.

In the next educational article, corresponding to the third part of the advanced applications in wave analysis, we will present the variations in the triangle pattern.

Suggested Readings

      • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Advanced Applications in Wave Analysis – Part 1 of 4

Introduction

Introduction

Introduction

The Elliott wave theory applied in financial markets allows the wave analyst to support its forecasting process and make a decision in the investment stage.

This educational article corresponds to the first of four parts, which aim to help understand the current market position. In particular, we’ll present the impulsive waves and its variations.

Impulsive Waves in Action

The impulsive movements appear only in advance positions. In consequence, waves 2, 4, b, d, or x, will never be part of a motive wave. The wave analyst can find motive waves in only two market stages, in a trend structural series or when the markets develop a terminal sequence.

Trending Impulsive Waves

  1. First Extended Wave. When the market progress in a first extended wave, the second wave shouldn’t retrace beyond 38.2% of the first wave and should take more time in its formation than the fourth wave. The fifth wave will be the shortest motive wave. 
  2. First Non-Extended Wave. When the first wave is not the extended wave, the second wave can retrace it until 99%. If the first wave surges after a noticeable decline, the third wave will be the extended wave.
  3. Second Wave. If the first motive wave is (or probably will be) the extended wave, the second wave should not retrace beyond 38.2%. If the first wave is not the extended wave of the impulsive sequence, the second wave could retrace it until 99%. If in the second wave, its wave A retraces beyond 61.8%, thus the second wave should fail in its wave C.
  4. Third Extended Wave. This sequence has more chances to occur in the real market. In general, the fourth wave tends to take more time in its completion than the second wave. When the third wave is the extended move, the fifth wave tends to fail.
  5. Third Non-Extended Wave. When the third wave is not the extended wave, then the first or fifth wave will be the extended wave. However, the third wave will never be the shortest.
  6. Fourth Wave. If the fifth wave is the extended wave, then the fourth wave will be the complex correction of the complete five-wave sequence. If the first wave is the extended move, then the fourth wave will be a simple correction, and the second wave the complex correction. Generally, when the fifth wave is the extended move, the third wave will experience a retrace between 50% and 60%. If the third wave is the extended wave, the fourth wave will be the complex and retrace the third wave between 38.2% and 61.8%.
  7. Fifth Extended Wave. When the fifth wave is the extended move, its length in terms of price will be at least the length between the first and the end of the third wave. In general, this extended wave should not experience a complete retrace.
  8. Fifth Non-Extended Wave. In this case, the fifth wave should experience a retracement near to 100%. If the fifth wave belongs to the third wave of upper degree, then the fifth wave will experience a retrace until the fourth wave zone.
  9. Failure in Fifth Wave. This case is possible when the third wave is the extended wave.

Terminal Impulsive Waves.

In his work “The Wave Principle,” R.N. Elliott defined this kind of pattern as “triangle diagonal.” However, Glenn Neely to avoid confusion re-calls to this pattern as “terminal impulsive wave,” providing an intuitive and it-self definition. 

  1. First Extended Wave. In this case, the terminal impulsive wave tends to appear. The second wave shouldn’t retrace beyond 61.8% of the first wave. The third wave should extend near to 61.8% of the first wave, but it should never be less than 38.2%. The fourth wave will tend to be 61.8% of the second wave, and the guideline that connects the ends of waves 2 and 4, should be clear in its identification.
  2. First Non-Extended Wave. When this scenario occurs, the terminal structure will be the wave C of a corrective formation and not the end of an impulsive sequence.
  3. Second Wave. As we said previously, if the first wave is the extended wave, the second wave should retrace until 61.8% of the first wave. If the first wave is not an extended wave, thus the second wave could retrace until 99% the first wave.
  4. Third Extended Wave. When the third wave is the extended wave, rarely the market will develop a terminal impulsive wave. The likely context in its appearance could occur in a wave C, not in a motive wave.
  5. Third Non-Extended Wave. If this scenario occurs, the first wave will likely be the extended wave, and the fifth wave will be the terminal impulsive wave.
  6. Fourth Wave. The third wave should not experience a retrace beyond 61.8% by the fourth wave.
  7. Fifth Extended Wave. This scenario can happen if the structure advances inside of the fifth wave of upper degree or when the terminal impulsive sequence is the wave C of a corrective pattern, except in a horizontal triangle.
  8. Fifth Non-Extended Wave. In this scenario, the fifth wave shouldn’t be higher than 61.8% of the third wave, and the fifth wave shouldn’t be more complex than the other two impulsive waves. The fourth wave should take less time and price than the second wave.

Conclusions

In this educational article, we reviewed the context of each case of extended, non-extended, and corrective waves, which advances in a motive sequence.

In particular, the wave analyst must maintain in consideration that in an impulsive sequence must have only one extended wave, in this context, a complex correction should appear before or after an extended wave.

In our next article, that corresponds to the second part, we’ll present the observations in corrective waves, in particular, we’ll discuss the flat and zigzag patterns.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave

Additional Observations in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

R.N. Elliott, in his treatise “The Wave Principle,” emphasizes the importance of the corrective patterns knowledge. Elliott adds that its comprehension can provide to wave analyst an advantage in the forecasting process.

Glenn Neely, in his work “Mastering Elliott Wave,” not only expands this information defining a set of observations about the different corrective patterns and its potential implication for the next path. He also extends these observations to impulsive structures.

Corrective Patterns

The significative movements occur after a correction; in this sense, the knowledge of the potential extension of the next move provides a valuable edge to wave analyst.

The following list shows the corrective formations according to their strength level.

  1. Triple zigzag. This complex corrective pattern is the strongest of the corrections group. The triple zigzag rarely appears in the real market; however, its appearance is indicative of its strength (or weakness) level. When it surges, it will raise on a terminal structure, or in a triangle pattern. Once the triple zigzag ends, the next move will not experience a complete retracement.
  2. Triple Combination. This type of complex correction can be formed by a combination of flat, zigzag, and triangle. Usually, it will end with a triangle pattern. Once the triple three formation ends, the next path would tend to retrace the entire movement even in an upper degree. If this pattern surges as a terminal structure, the next move should entirely retrace the formation triple three.
  3. Triple Flat. This complex formation corresponds to the combination of three flat patterns. In this case, the next path should not retrace its advance completely, except when the Elliott wave structure surges as a terminal structural series in the fifth wave.
  4. Double Zigzag. This complex corrective pattern should not experience a complete retracement by the next movement.
  5. Double Combination. The double combination is a complex corrective pattern that generally could contain a zigzag or a flat formation with a triangle. In the same way, this structure tends to end with a failure in wave c. This pattern tends to be entirely retraced by the next path.
  6. Double Flat. This complex combination surges in rare cases. However, when it rises, generally, the next move will not retrace the complex structure fully.
  7. Extended Zigzag. This variation of the zigzag pattern generally appears in triangle formations or at the end of a terminal structure. The next path of an extended zigzag generally will never be entirely retraced.
  8. Extended Flat. This variation tends to emerge in triangle patterns. In the same way that the extended zigzag, the next move should not retrace it completely.
  9. Zigzag. This standard corrective pattern can be found in the real market. In general, the next path could retrace wholly and partially the extension of the zigzag pattern.
  10. Flat. Although this pattern and its variations are typical, the retracement of the next movement tends to be unclear.
  11. Double Three. In general, the extension of this complex corrective pattern tends to warn about the potential next movement. In short, while most extended being the double three pattern, the next move will be stronger.

Triangles

Glenn Neely, in his work, considers that triangle patterns require a different treatment. 

  1. Contracting Triangle. The thrust developed in a contracting triangle is a movement with a higher level of momentum. This move will be bigger or smaller, in terms of time, depending on its nature. If the contracting triangle is horizontal, the next path will be equal to the largest segment of the triangle. In the irregular contracting triangle case, the next movement will reach the 161.8% respecting to the largest leg of the triangle. Finally, in the continuous contracting triangle, the thrust can reach the 261.8% of the broadest segment of the triangle. 
  2. Expanding Triangle. In this kind of triangle, the thrust differs from the case of the contracting triangles. The thrust of an expanding triangle tends to be minor than the most extended segment of the triangle.

Impulses

The advantage of the next movement of an impulsive wave is the knowledge of the potential correction. In this context, it is tough to determine what kind of correction will occur before the corrective sequence begins. 

  1. Trend. After the motive wave completion, the impulsive movement should not experience a retracement beyond the origin of its first segment, except if the impulsive wave corresponds to a fifth wave. In general, waves A, 1, or 3, should not experience a retrace greater than 61.8% by the next move.
  2. First Extended Wave. When the extended wave is the first move, the motive wave should experience a retracement until the end of wave 4. 
  3. Third Extended Wave. In this case, once the impulsive wave is completed, the motive structure should experience a retrace between the high and low of the fourth wave.
  4. Fifth Extended Wave. The next corrective structure of a fifth extended wave should retrace more than 61.8% to the impulsive move.
  5. Terminal Structure. The movement after a terminal structure should retrace the progression of the terminal structure completely. The time elapsed in the evolution of the corrective move should be shorter than 50% of the time elapsed in the making of the terminal structure.

Conclusions

In this educational article, we discussed the observations described by Glenn Neely in his work “Mastering Elliott Wave” concerning the potential next movement, depending on the pattern in progress.

In this context, Neely, following the steps of R.N. Elliott, provides an ample proportion of time to describe what to expect after a corrective structure. This knowledge could provide the wave analyst an advantage in its comprehension about the market situation and what should be the potential next move.

In our following article, we will present the advanced applications in the wave analysis in a four-part series.

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

Categories
Forex Elliott Wave

Additional Basic Rules in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

In our previous educational article, we learned to recognize and count waves finishing the essential topics in the wave analysis process.
From now, we will start to present additional concepts and rules described by Glenn Neely in his work “Mastering Elliott Wave,” which would support the wave study.

Points of Tangency in the Guidelines

The tangency rule will help wave analysts in the process of identification between impulsive and corrective waves. This rule establishes that in a five segments pattern, only four internal movements will be touched simultaneously. This rule can be applied in impulsive and triangular formations.

The following figure illustrates a different set of Elliott wave structures where the wave analyst can apply this rule.

From the figure, the guidelines of both the first and second patterns converge each other. In the third figure, the guideline is parallel. The wave analyst must consider that the different segments that conform to the Elliott wave structure under analysis must have the same degree.

The following figure illustrates the tangency rule application in complex corrections.

From the figure, we distinguish that once touched the fourth point, corresponding to wave C completion, the price reacts against the direction of wave C. This reaction corresponds to a wave X. Its finalization will give the start of a new corrective structure from where the wave analyst could apply the tangency rule.

Rule of Time

Time is an essential element when the wave analyst makes its market study. According to the Elliott wave theory, in an impulsive structure, the two non-extended waves tend to be similar in price, time, or both. In corrective waves, a zigzag pattern its waves A and C tends to be identical in terms of time.

In short, the rule of time establishes that there can not be three adjacent waves of the same degree, which be equivalent or similar in time in a simultaneous way. 

The next picture illustrates the rule of time applied in impulsive structures.

From the figure, we observe that:

  1. If the two first segments of a pattern are equal or similar, the third segment will be different in terms of time, price, or both. The theory says that the third move will elapse the sum of the first and the second part.
  2. If the second segment lapses more than the first move, the third segment will be related in 61.8% or 161.8% of the first movement.
  3. If no one of the waves matches in terms of time, these could be adjusted in a Fibonacci ratio.

The following figure exposes the rule of time applied in corrective waves, in particular, the case of a flat pattern.

In some cases, the time elapsed by the wave C will be the sum of the time-lapsed by waves A and B. However, in the real market, the typical situation that could occur is that waves A and C will tend to match in terms of time, and wave B will be longer.

Conclusions

In this educational article, we started to present two basic rules for the wave analysis process. The first one corresponds to an extension of the canalization process, which its use allows the wave analyst to visualize with an objective method to define what kind of structure could be developing the price action.

The second one will bring the wave analyst a tool that would make a forecast of what could be the next path the market could take.

In the next educational article, we will present the advanced rules defined by Glenn Neely in his work “Mastering Elliott Wave.”

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave Forex Signals

CADJPY Moves in an Elliott Wave Triangle

Description

Description

Description

The CADJPY cross, in its 4-hour chart, shows a triangle pattern that should continue the upward movement of the previous impulsive move in the following trading sessions.

The Elliott wave perspective of CADJPY reveals the price action is running in a descending triangle, which could be ended its wave (e) of the Minuette degree labeled in blue. At the same time, CADJPY should be ending its wave ((ii)) of Minute degree in black.

The upward movement developed in the Thursday trading session, warns us that CADJPY could resume its advances in a wave ((iii)) of Minor degree.

Our bullish scenario considers an upside entry from the current zone at 76.373. In a conservative outlook, we expect a potential profit target at 77.973.3

Finally, the upward scenario will be invalid if the price action declines below 75.573.

Chart

Trading Plan Summary

  • Entry Level: 76.373
  • Protective Stop: 75.573
  • Profit Target: 77.973
  • Risk/Reward Ratio: 2 
  • Position Size: 0.01 lot per $1,000 in trading account.
Categories
Forex Elliott Wave

How to Count Using the Elliott Wave Principle Part 3 of 3 – Advanced Level

Introduction

Introduction

Introduction

Previously, we presented in a theoric way several criteria to realize wave counting, which could allow the wave analyst to foresee the likelihood next path of the market. In this educational article, we’ll analyze some examples in the real market.

Case 1 – NZDUSD Advances in a Corrective Sequence

The NZDUSD price in its hourly chart shows the progress in two consecutive corrective patterns. Our intraday analysis begins at the intraday high at 0.61305 reached on April 14th.

The price market reveals a decline in five internal segments of Subminuette degree identified in green. Once completed this move, the kiwi reacted bullishly, moving upward in three waves. This move ended a wave (b) of the Minuette degree labeled in blue. 

Observe how the price action completed the wave (c) of Subimiuette degree, developing an ending diagonal pattern, as commented on the previous article. The breakdown of this Elliott wave formation suggests the beginning of a bearish sequence that will correspond to a wave (c) of the Minuette degree.

The bearish sequence corresponding to wave (c) ended at 0.59104 on April 23rd reveals us that NZDUSD completed a zigzag pattern of Minuette degree.

The next move, developed by the NZDUSD cross, reflected the advance as a flat pattern and ended at 0.61758 on April 30th, when the kiwi developed an ending diagonal in the same way that the wave (b) of the previous zigzag pattern.

On the other hand, from the two patterns analyzed, we note the alternation principle in the corrective sequence, while the first correction is a zigzag, the second one is a flat pattern. 

Finally, the two consecutive corrective patterns, lead us to observe that NZDUSD completed a 3-3 sequence. In this context, the study of previous waves will reveal what should be the likely structure in progress and what could be the potential next move.

Case 2 – EURGBP Begins a Five-Wave Sequence from a Different Low

The second case considers the scenario when the market starts a five-wave sequence from a higher low. 

The EURGBP cross in its hourly chart shows the aggressive sell-off developed on December 12th, when the price plummeted to 0.82758. After this decline, the price consolidated and reached a slightly higher low at 0.82767 from where the cross began an impulsive movement identified as wave (i) of Minuette degree labeled in blue. 

Once the second wave ended, EURGP realized a third extended wave, which boosted the cross until 0.85917 reached on December 23rd. 

In this case, we observe the alternation principle in action. As the second wave is a simple correction. In consequence, the fourth wave must be a complex correction. In fact, from the chart, we observe that EURGBP developed a triangle pattern, which retraced beyond 38.2% of the third wave of Minuette degree. This context leads us to conclude that the cross should not reach a new higher high.

In this sense, the price action realized a limited higher high, which topped at 0.85959 last January 14th, from where it started to decline.

Conclusions

In this educational article, we showed a group of examples. In the first one, corresponding to the NZDUSD cross, we learned how the price action tends to end in ending diagonal patterns. 

In the same way, we observed the alternation principle applied in corrective waves, while the first corrective structure corresponded to a zigzag, the second formation built a flat pattern.

In the second chart, we observed that an impulsive sequence not necessarily will begin in the lowest (or highest) level of the price chart. This context makes us remember that an Elliott wave structure could finish developing a failure in the wave 5 or C.

On the other hand, the retracement experienced by the third extended wave beyond the 38.2% warned us about the exhaustion of the bullish momentum. This context provides us a signal of the limited potential next move corresponding to the fifth wave.

 

 

Categories
Forex Elliott Wave

How to Count Using the Elliott Wave Principle Part 2 of 3 – Advanced Level

Introduction

Introduction

Introduction

In our previous educational article, we discussed the basic concepts of the Wave Principle developed by R.N. Elliott and the wave counting process.

Glenn Neely, in his work “Mastering Elliott Wave,” describes a series of rules that will allow the wave analyst to objectively identify what kind of structural sequence is developing the price action.

In this educational article, we present a summary of the basic rules described by Neely and their impact on the wave analysis and counting process.

Use of Retracements in Wave Analysis.

When the wave analyst faces his first real-time market analysis, it may seem confusing to define what kind of wave the market is developing.

To solve this problem, Neely defined a set of rules that will allow the wave analyst to determine what kind of sequence the market develops.

These rules are described as follows.

Our reader can examine with more detail these rules and the Fibonacci retracements use in wave analysis here.

Types of Structural Series

R.N. Elliott, in his work “The Wave Principle,” defined some specific patterns that tend to repeat across the time. These patterns are built by different structural series that the wave analyst should know before to start the counting process. These Elliott wave structures are formed as follows.

Impulsive waves (:5)

  • Impulse – 5-3-5-3-5
  • Leading or Ending Diagonal – 3-3-3-3-3

Corrective waves (:3)

  • Zigzag – 5-3-5
  • Flat – 3-3-5
  • Triangle: – 3-3-3-3
  • Double Three – 3-3-3
  • Triple Three – 3-3-3-3-3

Remember that double and triple three are combined patterns.

The First Count and the Recount

As the level of complexity increases, wave sequences tend to create new waves of a higher degree, which can lead to confusing the wave analyst to identify where each wave begins and ends. For this, we use the validation channels and rules we have seen in previous articles.

Usually, the first analysis tends to be the one that presents the greatest challenge, because it tends to consider the highest level, or the lowest, to start the wave count. However, not necessarily the lowest, or highest level will be the beginning of an impulsive structure. This situation occurs because most methods of analysis consider the highest and lowest level as the starting point for analysis.

In terms of wave theory, a structural sequence will not end at the highest (or lowest) point due to the loss of momentum of price action. This situation will be reflected in one of the following four ways:

  1. An impulsive sequence containing a failure in the fifth wave.
  2. A flat pattern will end with a C-wave failure.
  3. A complex formation will end with a non-restrictive contractive triangle.
  4. An impulsive structure ends with a terminal pattern.

The following figure shows each of the four scenarios where the sequence will not end at the lowest level.

When a potential impulsive pattern experiences a reversal higher than its beginning, then the recount must consider that the origin of the previous movement is not the origin of an impulsive structural series, but can be part of a complex corrective structure.

Conclusions

In this educational article, we review different criteria described by Glenn Neely in his work “Mastering Elliott Wave,” which allow the wave analyst to identify what kind of structure the market could be developing.

Later, we reviewed the different patterns that R.N. Elliott described in his work “The Wave Principle” and his internal sequences. Currently, the patterns described by Elliott in the 1930s still can be recognized in the real market.

Finally, we discussed the cases where the market does not finish or start a new impulsive or corrective sequence from the lowest or highest point but will depend on how the previous structural series ends. 

In the next educational article, corresponding to the third and last part of the wave counting process, we will see a series of examples of wave counting and identification.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Elliott Wave Forex Signals

Gold Could Develop a Bearish Wave C

Description

Description

Description

Gold, in its 2-hour chart, illustrates a decreasing advance that could correspond to a corrective structure in progress, which could result in further declines.

The Elliott wave sequence suggests the possibility of an incomplete wave ((c)) that could be developing its internal wave (ii) of the Minuette degree identified in blue.

On the other hand, the yellow metal retraced until 50% of the last bullish sequence. This retrace makes us foresee that the upward cycle could be in an exhaustion stage, and Gold couldn’t realize a new higher high that surpass the April high at $1,747.74 per ounce.

Our bearish scenario foresees a decline from the current area at $1,696 per ounce, with a potential bearish target located at level $1,676. 

The scenario forecasted will be invalid if the price surpasses and closes above $1,711 per ounce.

Chart

Trading Plan Summary

  • Entry Level: $1,696.62
  • Protective Stop: $1,711.62
  • Profit Target: $1,676.62
  • Risk/Reward Ratio: 1.33
  • Position Size: 0.01 lot per $1,000 in trading account.
Categories
Crypto Market Analysis Forex Elliott Wave Forex Signals

Bitcoin Cash Prepares for a New Rally

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

The price of Bitcoin Cash (BCH/USD) is preparing to develop a new rally that could take it to beat the previous highs of March, located in the area of 352.96.

BCH/USD, in its 4-hour chart, shows the advance of a potential upward impulsive sequence that began when the price found its bottom at level 133.67 last March 13th.

From the previous chart, we observe the price action advancing in its wave ((iv)) of Minute degree labeled in black. At the same time, this ongoing structural series is forming the internal segment corresponding to wave (c) of the Minuette degree identified in blue.

The wave (c) in progress began at the top of April 30th, located at level 275.95, when Bitcoin Cash completed its wave (b).

The internal structure of the wave (c) shows the intraday downward trendline joining the sequence of lower highs, which leads us to conclude that the short-term sentiment maintains on the bearish side.

On the other hand, according to the Elliott wave theory, for the long-term structural series to be a valid impulsive sequence, the wave ((iv)) must not penetrate the area of wave ((i)).

In this context, the corrective downward movement currently being developed by BCH/USD should not fall below the 200 level, which corresponds to the top of the wave ((i)).

On the other hand, one of the aspects that consider both the alternation principle and the construction of the extended wave indicates that an extended wave will be preceded or followed by a complex corrective structure.

Considering this Elliott wave concept, from the 4-hour chart, we observe that the current corrective sequence shows a level of complexity higher than the complexity level developed by wave ((ii)). Consequently, once the structural series of wave ((iv)) will complete, BCH/USD should perform a new upward impulsive movement that should present the characteristic of an extended wave, which could surpass the level 352.

In conclusion, as long as the wave ((iv)) of Minute degree does not finish, our preferred positioning will remain neutral, waiting for confirmation to enter on the bullish side that allows incorporation to the wave ((v)).

Categories
Forex Elliott Wave Forex Signals

EOS Consolidates on the Leading Diagonal Pattern

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The EOS prices develop a bullish sequence following the Elliott wave structure of a leading diagonal pattern, which began on the March low at 1.4200.

The price action developed by EOS and reflected in its 4-hour chart, shows the cryptocurrency testing the baseline of the leading diagonal pattern, which links the end of the waves ((ii)) and ((iv)) of Minute degree labeled in black.

According to the textbook, a leading diagonal pattern is an impulsive structure having five internal segments, which are subdivided into an internal sequence 3-3-3-3-3. This pattern tends to appear on the first wave of an impulsive series.

So far, EOS completed a five-wave bullish sequence of Minute degree. This impulsive wave began in the March low at 1.4200. At the same time, this structural series gave rise to a higher-grade impulsive wave corresponding to the wave 1 of Minor degree labeled in green.

Following the wave theory described by R.N. Elliott, since EOS completed an impulsive movement, the market must perform a corrective sequence of the same degree and in the opposite direction to the previous move.

From the previous chart, we observe the price action developing a corrective downward movement. Within its internal structure, we recognize that the sequence in progress could correspond to a wave ((b)) of Minute degree identified in black.

This movement, which is composed of a three-wave internal structure, is moving on the baseline of the leading diagonal pattern. A bearish breakdown would activate the wave ((c)) in black.

Once EOS completes this three-wave sequence, it will end the wave 2 of Minor degree, and consequently, the price action will give way to a third upward wave.

According to the alternation principle between the impulsive waves, considering that the first wave has a lower momentum, the third wave could have a higher momentum than the first one.

In conclusion, in the short term, our preferred positioning remains on the bullish side, which will be confirmed once the Minor degree wave-2 is finished.

Categories
Forex Signals

Litecoin Shows Two Potential Scenarios

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

Litecoin is progressing slightly upward within a complex structural series, which leads to foresee two possible scenarios.

The cryptocurrency Litecoin against the US Dollar (LTC/USD), in its 8-hour chart, shows the plummet that led it to lose more than 70% of its value since February 13th when the price topped at level 84.193. 

Once Litecoin hit the top at 84.193, the price made a three-wave bearish sequence, which ended on March 13th when the price found fresh buyers at level 24.850. In the previous chart, we distinguish this structural series identified in the waves ((a)-((b))-((c)) of Minute degree in black.

After LTC/USD completed the wave ((c)), the price action began to advance in a complex structural series with its internal movements composed of three waves. This sideways movement with a slightly upward bias leads us to foresee two potential scenarios for currency crypto.

Scenario 1 – Triangle Pattern in Progress

The first scenario considers the possibility that Litecoin advances in a triangular formation belonging to a wave B of Minor degree labeled in green.

According to the Elliott wave theory, a triangle pattern is composed of a series of five internal segments, which is subdivided into three waves following the 3-3-3-3 structure. Likewise, within a price cycle, this pattern tends to appear in waves 4 and B.

Scenario 2 – Developing a Leading Diagonal

The second scenario presents the option that the price action develops an ending diagonal pattern.

This type of pattern is composed of five internal waves overlapped one each other and follows a 3-3-3-3-3 sequence.

If the price action develops this scenario, the next movement should correspond to a wave 2 of Minor degree, and it should be composed of a three-wave structural series.

The main consequence of this scenario would be that, once the wave 2 completion, Litecoin should perform a bullish wave 3.

At the same time, considering the alternation principle of the wave theory, this third wave should have greater upward momentum than that momentum observed in the current wave in progress.

In conclusion, our short term preferred positioning is on the neutral side until the completion of the current formation.

Categories
Forex Signals

USDJPY Shows an Incomplete Bearish Sequence

Description

Description

Description

The USDJPY pair, in its 2-hour chart, exposes an incomplete bearish Elliott wave formation as an ending diagonal pattern, which suggests the possibility of further declines for the coming trading sessions.

Currently, USDJPY develops a bearish corrective sequence that began on March 24th, when the price topped at 111.715. 

The internal structure of the three-wave sequence shows an incomplete ending diagonal pattern in the wave (c) of Minuette degree labeled in blue, from where the price should develop its fifth wave of Subminuette degree in green.

The intraday chart shows a consolidation structure in progress, which could provide an opportunity to place us on the sell-side. Our potential profit target locates at 105.812, which coincides with the lower line of the downward diagonal. 

Our bearish scenario will be invalid if the price breaks and closes above 107.512, or surpass the upper line of the diagonal pattern.

Chart

Trading Plan Summary

  • Entry Level: 106.812
  • Protective Stop: 107.512
  • Profit Target: 105.
  • Risk/Reward Ratio: 1.43
  • Position Size: 0.01 lot per $1,000 in account.
Categories
Forex Elliott Wave

How to Count Using the Elliott Wave Principle Part 1 of 3 – Advanced Level

Introduction

Introduction

Introduction

Wave counting is a systematic process by which the wave analyst identifies in a logical and standardized order the movement developed by the action of the market.

R.N. Elliott, in his work “The Wave Principle,” comments out that counting is not the most relevant part of the study of wave theory; however, this process empathizes that it is useful when studying the market progress across time.

Elliott, the Wave Principle, and Financial Markets

The Wave Principle, defined by R.N. Elliott, is part of the law of nature, which, when known, can make predictions without knowing the underlying causes that originated this phenomenon.

In this context, financial markets are the result of a socio-economic interaction, which reflects the psychological feeling of the participants interacting in the negotiation process.

Despite the interests of each market participant, the outcome of the trading process is reflected in a price chart.

Elliott, in his work “The Wave Principle,” detected that price tends to make repeated movements over time. 

On the one hand, there are movements that, over time, create trends. Elliott defined these movements as impulsive and are characterized by being composed of five segments.

On the other hand, Elliott described movements that oppose to impulsive moves as corrections and are composed of three internal segments.

Once the price action completes an impulsive sequence and a corrective movement, the market completes a cycle and starts a new one of similar dimension or degree. 

The following figure shows the complete structure of a cycle.

What We Have Studied So Far

Until now, our study of wave analysis has included the following aspects:

  • Identification of directional and non-directional movement.
  • Impulsive and corrective structure.
  • Types of corrective waves.
  • Extensions.
  • Canalization.
  • The alternation principle.
  • Validation of impulsive and corrective waves.
  • Complex corrective structures.
  • Identification and wave degrees.

The process of analyzing and identifying waves will be an integration of all these concepts, which will allow the wave analyst to make a high probability forecast for the next market movement.

The Degrees Importance

R.N. Elliott defined a set of degrees that do not obey a specific timeframe, for example, hourly chart, or 2-day temporality. But allow the wave analyst to evaluate a structural sequence that maintains a proportionality in terms of price and similar time.

Also, the use of the degrees allows us to identify, and in turn, to predict what will be the next movement that should act for the price in a given time horizon.

The following table shows the different degrees described by Elliott and the contributions incorporated by Prechter & Frost in his work “Elliott Wave Principle.”

In general, our analyses will start from the Subminuette degree.

Conclusions

In this first section, we have seen the basis of the Wave Principle developed by R.N. Elliott. Likewise, we review the structure that makes up a complete cycle and concludes with the description of the different degrees that Elliott defined to maintain a systematic order in the process of analysis.

In the next educational article, we will review the different regression rules that will allow us to systematize the counting process in the first wave count.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
  • Prechter, R., Frost.A.J.; Elliott Wave Principle: Key to Market Behavior; New Classic Library; 10th Edition (2005).
Categories
Forex Elliott Wave

Alternation and Extensions in the Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

In previous articles, we discussed the concepts of alternation and extensions and their importance in wave analysis.

R.N. Elliott, in his work “The Wave Principle,” described alternation as a principle of nature. Likewise, since financial markets are the result of human activity, and consequently part of nature, they are governed by the “law of nature.”

Elliott also identified the existence of extensions as part of impulsive movements. In particular, in his Treatise, Elliott points out that extensions should appear only on one of the three motive waves and never on more than one.

In this educational article, we will review and expand on the concepts of Alternation and Extensions applied in wave analysis.

Alternation

As we have seen in previous articles, alternation can be recognized in different forms, which are detailed as follows:

  1. Price, which corresponds to vertical advance, either increasing or decreasing.
  2. Time, which corresponds to the time taken by the construction of each wave.
  3. Severity, which is the ratio of the wave to the impulsive pattern, this aspect applies only to corrective waves 2 and 4.
  4. Complexity, which refers to the number of subdivisions that the Elliott pattern has in development.
  5. Construction, an Elliott wave pattern, can be a flat, zigzag, triangle, etc.

So far, we have studied the characteristics of alternation in the first three aspects. 

In impulsive structures, they can alternate in terms of time and price. However, in corrective structures, alternation in terms of price is usually not relevant. 

However, on alternation in time, in particular, one must verify the time taken by each phase of the corrective pattern, which in general will be very different from each other. Likewise, in terms of severity, if a corrective wave produces a deep retrace to the previous impulsive wave, likely, the next corrective wave will not show a deep retrace and vice versa.

The next aspect that corresponds to the alternation principle is complexity or intricacy, which refers to the number of internal subdivisions that have an Elliott wave pattern, compared to the number of subdivisions that have the adjacent structure.

In practical terms, it will be useful for the analysis of poly-waves and multi-waves. In this way, it will be helpful for one wave to be subdivided and the other not. 

The following figure shows cases for impulsive and corrective structures.

The alternation in terms of construction corresponds to the patterns that compose an impulsive or corrective structure. 

For example, in a corrective sequence in which the first movement is composed of a zigzag pattern, the next corrective move can be any structure, minus a zigzag. 

In this context, in the real market, a typical sequence is first the appearance of a zigzag and then a movement corresponding to a flat pattern, as shown in the following figure. Likewise, if the price action develops an impulsive structure, the next movement will correspond to a corrective structure of the same degree.

 

Extensions

Usually, in wave analysis, the extension and subdivision concepts tend to be used interchangeably. However, Glenn Neely, in his work “Mastering Elliott Wave,” shows that both terms are independent.

On the one hand, the extension corresponds to the wave with the longest movement in favor of the trend. As we have seen in previous articles, the extended wave appears in a single wave, and this may be in the first, third, or fifth wave, but it will never be present in more than one simultaneously.

On the other hand, the term subdivision applies to the number of segments constituting a wave, which can be impulsive or corrective.

Thus, the extended wave will not necessarily be the one with the most subdivisions. Likewise, as the complexity of the wave under study increases, the level of subdivisions that constitute it will also increase.

Finally, as indicated by R.N. Elliott in his Treatise, the extended wave is a relevant factor in terms of the behavior of an impulsive wave, either by what the most complex corrective wave will be. It can also lead the wave analyst to avoid losses and obtain gains from its knowledge.

When the first wave is extended, the structural sequence has a wedge shape. In this series of waves, the ends of waves 1 and 3 and waves 2 and 4 are joined. Usually, the fifth wave will end up under the higher guideline. The structure shall be complete when the price action violates the lower guideline joining waves 2 and 4.

When the third wave is the extended one, the fourth wave should not retrace beyond 38.2% of the third wave advance. If the retrace extends beyond 38.2%, this would be indicative of a weakness in impulsive movement, and consequently, the fifth wave should not reach a new high.

Finally, when the fifth wave is the most widespread, waves 1 and 3 may be similar, the third wave being slightly longer than the first and the fourth wave the most complex corrective wave compared to the second wave. The fifth wave will have the appearance of a false rupture of the directive that joins waves 1 and 3.

Conclusions

In this educational article, we have seen the importance of the principle of alternation in wave analysis, which can provide valuable information in the study of price action.

Also, knowledge of the alternation principle can help the wave analyst to identify which wave will be extended. In particular, when the analysts look to incorporate to the trend when it is in progress.

In the next educational article, we will study the process of wave counting and counting.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Understanding the Complexity in Wave Analysis – Advanced Level

Introduction

Introduction

Introduction

Financial markets are the result of human interactions where one party buys and the other sells. The results of these actions are reflected in a price chart. 

R.N. Elliott studied the interactions between these two forces that move the market. In his study, Elliott detected that specific patterns repeat themselves over time. He also identified that the price tended to move in impulsive and corrective movements.

Elliott recognized that as time progresses, the price develops movements that, in its basic unit, correspond to segments, those that have a low level of complexity. 

The complexity increases at an additional level as these segments complete a series of three or five movements, giving origin to the wave. 

Later, as a wave is completed, another movement emerges, giving course to a new wave. As this ordered sequence advances in time, the price forms structures that we could call as “poli-waves,” which Elliott defined in the form of patterns corresponding to a structure or wave of higher degree.

The interaction between different sequences of “poli-waves” or basic wave patterns, give origin to a more complex structure, which we can define as “multi-wave.” In turn, when a succession of 3 or 5 multi-waves completes, the price action creates a structure of a higher degree whose complexity level is higher. We can call this complex structure as “macro-wave.”

Multi-wave Construction

Multi-waves are complex structural series that is characterized by having at least one poly-wave in their internal structure. The type of waves can be impulsive or corrective.

Impulsive Multi-waves. They are structures in which one or several of their impulsive waves are poly-waves. Its training requirements are as follows:

  1. Of the three impulsive forward waves, only one must be a poly-wave; the other two can be simple movements.
  2. At least one of the two corrective waves can be a poly-wave, the other can be a poly-wave or a simple wave.
  3. The longer-lasting corrective wave 2 or 4 will occur just before or after the extended wave.

The following figure shows the different patterns of multi-waves of impulsive nature, being the second case, which corresponds to the third extended wave the most common.

Corrective Multi-wave. In the same way as multi-impulsive waves, the corrective multi-waves must contain specific requirements, which are described below.

  1. One or two of the waves that are divided into five waves in the longer pattern should be able to be subdivided as a poly-wave. If it has only one structure subdivided into five, it will be a Flat, while if it has two structures divided into five, it will be a zigzag pattern.
  2. The multi-wave B wave is likely a corrective poly-wave.

The following figure shows two types of corrective multi-waves.

 

Complex Multi-waves Construction

The complex multi-wave analysis does not differ from complex wave analysis composed of poly-waves. The difference is that complex multi-waves are composed of multi-wave groups and not poly-waves.

Macro-waves Construction

As the market develops, the structural series can be grouped as multi-waves and thus form a macro-wave. 

Impulsive Macro-waves. This type of structure is composed of a multi-wave in one of its three impulsive waves, while the other two will be a poly-wave. 

Corrective Macro-waves. Must contain at least one multi-wave, and another wave must be a poly-wave. If the structural series has two multi-wave, the complex structure will be a zigzag, and its formation has only one multi-wave, the corrective structure will be a flat pattern.

Conclusions

In this educational article, we have seen how, as time advances, the complexity of the waves also increases. 

However, the wave analysis whose level of complexity is higher, being it a multi-wave or macro-wave, must be realized in the same way to that studied in the wave analysis section corresponding to the intermediate level wave analysis. 

This situation leads us to conclude that the market behaves in a fractal way over time, and wave analysis does not change regardless of the proportion of time studied.

In the next educational article, we will expand on the concepts of alternation and extensions.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Complex Corrective Waves Analysis – Advanced Level – Part 2 of 2

Introduction

Introduction

Introduction

In the first part of the complex corrective wave analysis article, we presented two conditions that suggest the development of a wave x. 

The first condition considers whether the second compacted corrective wave retraces less than 61.8% from the first correction. The second condition occurs if the second corrective structure retraces more than 161.8% from the first correction.

Glenn Neely, in his work “Mastering Elliott Wave,” indicates that if the first condition occurs, then the market performs a complex correction with a small wave x. While for the second case, the price action develops a complex correction with a large wave X.

Condition 1 – Complex Correction with Small Wave x.

When the wave analyst identifies a non-standard wave, there is a high probability that the wave x is smaller than 61.8% of the previous corrective phase. This type of wave tends to take the form of an impulsive sequence. However, its internal details rule out this possibility.

The non-standard structural sequence or series may have various combinations, which are detailed below:

  1. Double zigzag (5-3-5-wave x-5-3-5)
  2. Double three (5-3-5-wave x-3-3-3-3-3)
  3. Double three (5-3-5-wave x-3-3-5)
  4. Double flat (3-3-5-wave x-3-3-5)
  5. Double three (3-3-5-wave x-3-3-3-3-3)
  6. Triple zigzag (5-3-5-wave x-5-3-5-wave x-5-3-5)
  7. Triple three (5-3-5-wave x-5-3-5-wave x-3-3-3-3-3)
  8. Triple three (5-3-5-wave x-3-3-5-wave x-3-3-3-3-3)

From the above list, the triangular formation likely corresponds to a contractive triangle. On the other hand, waves x can be other corrective waves without altering the entire structure. 

The wave analyst must take into account the application of the alternation principle. In particular, the x-wave will alternate with its preceding wave. For example, if the first compact wave corresponds to a zigzag, the x-wave will be a plane or a triangle.

The following figure shows two examples of complex corrective waves that accomplish thew first condition. In particular, the case corresponds to a double zigzag, and a double three consisting of a zigzag pattern and a triangle structure.

Condition 2 – Complex Correction with Large Wave X 

When the wave analyst detects a complex correction in which the wave X is larger than the previous correction in terms of price, the entire formation will be classified as double or triple three patterns.

This structural series can have various combinations, which are detailed below:

  1. Double three (3-3-5-wave X-3-3-3-3-3)
  2. Double three (3-3-5-wave X-3-3-5)
  3. Triple three (3-3-5-wave X-3-3-5-wave X-3-3-3-3-3)
  4. Triple three (3-3-5-wave X-3-3-5-wave X-3-3-5) 

In summary, the structural series of both conditions have been listed in the most likely order of occurrence.

As in the first condition, the following figure shows two cases of double three patterns.

Conclusions

So far, we have seen the different construction characteristics of complex corrective waves and how to differentiate each type of complex wave.

In particular, we saw the two main conditions that characterize complex corrective waves.

In the following educational article, we will present the conditions associated with each particular formation.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Signals

Gold Could Decline in its Firth Wave

 

 

Description

Gold, in its 2-hour chart, shows an intraday recovery after the bearish sequence started on April 14th when the price found sellers at $1,747.47 per ounce.

Once the price soared above the upper line of the ascending channel and sellers pulled-down the precious metal, Gold began to develop a downward movement. This sequence looks like the third wave of Subminuette degree identified in green.

If our intraday analysis is correct, the recovery observed on Monday’s session should reach the zone between 38.2% and 50% of the third wave.

On the other hand, the RSI oscillator bounced and didn’t surpass the level 60, which make us foresee further declines.

The sell-side position will activate at the psychological level at $1,700 per ounce. As a conservative scenario, we expect a re-test of the previous low at $1,670, which would correspond to the fifth wave of Subminuette degree in green.

Finally, our bearish setup will be invalid if the price soars and closes above $1,725 per ounce.

Chart

Trading Plan Summary

Categories
Forex Elliott Wave

Complex Corrective Waves Analysis – Advanced Level – Part 1 of 2

Introduction

Introduction

Introduction

Complex corrective waves are groups of waves that do not have an internal structure subdivided into three or five waves. In general, complex corrections tend to appear in waves fourth or B. Moreover, these formations are divided into two categories standard and non-standard.

Standard Type

An impulsive or corrective Standard wave formation does not imply that it is formed by a series of three or five adjacent segments. Usually, one of its corrective waves will possess a greater number of internal subdivisions creating a more extensive structure in terms of time. This condition will create a context in which can verify the alternation principle.

If the standard complex wave is in an impulsive sequence, it may be in wave 2 or 4. Otherwise, if this complex wave appears in a corrective phase, it will be between waves A and B.

The following figure shows a simplification of standard complex waves in an impulsive sequence and a corrective structure.

Non-Standard Type

Complex corrections only occur if there are at least two corrective sequences compacted in their three-wave structure and separated by a corrective formation that acts as a connector between the two corrective patterns. This type of waves must be given under certain conditions; likewise, they must meet specific rules that occur only once the waves have been compacted.

Retracement Rules

If the wave analyst found a compact corrective pattern that confirms a retrace less than 61.8%, or greater than 161.8% by the next corrective wave, and then produces another corrective wave, then the wave analyst should analyze the corrective structure as says the specifications section.

If the grouping conditions commented previously don’t meet, then the corrective structure shall be standard. In this case, the wave analyst should work the corrective sequence in the same way as discussed in the section “Corrective wave analysis – Intermediate level.”

On the other hand, the extension or duration in the time of the corrective wave doesn’t affect its analysis. A complex corrective structure can last for days and even years without this changing its structure. In this context, the wave analyst must maintain order in the use of the labels of each formation.

Non-standard Complex Wave Specifications

The first principle of a complex corrective wave implies the existence of a wave X, which acts as a connector for two standard Elliott corrective wave formations. The wave analyst should keep in mind that this point is the key to understanding non-standard patterns.

There exist two conditions to recognize the behavior of waves x.

  1. The first condition indicating the development of a wave x occurs when two compact corrective waves of a higher degree are separated by an intermediate corrective wave, which may be standard or non-standard. The first corrective wave must experience a retrace of less than 61.8% from the intermediate wave. In general, the wave x (or intermediate wave) will have a lower level of complexity than the other two corrective structures.
  2. If the price action reveals three corrective waves compacted consecutively, so that the second correction is at least 161.8% higher than the first, then it is highly likely that the second corrective structure will be a wave x. In general, the three complex waves will have the same complexity level.

If the market develops one of the two conditions commented previously, the market has likely developed a non-standard corrective formation.

Conclusions

In this educational article, we discussed the fundamental principles of a complex corrective structure and the importance of wave compaction in identifying and analyzing wave structures. 

In previous chapters, we have seen how to recognize the principle of alternation in the analysis of both impulsive and corrective waves. In this sense, the wave analyst must take into account this concept, which will allow him to identify what will be the next most likely movement.

In particular, R.N. Elliott, in his work “The Wave Principle,” defines the alternation of corrective waves and their complexity as follows “if a corrective wave is simple, the following will be complex, and vice versa.” Within a complex corrective structure, the compacted corrective patterns that compose it will also alternate with each other.

In the next article, we will look at the construction of complex corrective waves according to each condition. 

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
Categories
Forex Signals

Gold – Completed an Upward Sequence

Description

Description

Description

Gold, in its 2-hour chart, shows the completion of an upward five-wave sequence at $1,747.74 per ounce on Tuesday 14th.

The last bullish move corresponds to wave (v) of the Minuette degree labeled in blue. At the same time, we observe the thrust developed by the yellow metal as a false breakout. This movement warns us about the potential upward sequence completion.

On the other hand, we observe the bullish trendline in the fifth wave of Subminuette degree in green pierced. This bearish reaction gives us a second argument for the exhaustion of the bullish sequence.

In conclusion, we consider a sell-side position at $1,718 per ounce, with a potential bearish target at $1,673.64 per ounce. This level converges with the end of the third wave of Subminuette degree in green.

Our bearish scenario will be invalid if the yellow metal surges and closes above $1,753 per ounce.

Chart

Trading Plan Summary

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Forex Elliott Wave

How to Simplify Wave Analysis – Intermediate Level

Introduction

Introduction

Introduction

How to simplify wave analysis can seem a confusing task. However, if we consider the concepts we have previously studied, the process may be more straightforward. 

Until now, we have studied concepts and principles such as types of waves, internal characteristics of each kind of pattern, wave channeling rules, price and time alternation, and wave validation criteria, among other aspects.

In this section, we will see procedures in which we will transform the complexity into a basic market structure.

Waves Compaction

Compaction is the analysis process in which a sequence of adjacent segments that make up an impulse or correction structure (5 or 3) is grouped. Given the dynamic nature of price action, any Elliott wave pattern, once completed, can be labeled as impulsive or corrective. Therefore, this technique cannot be applied, while Elliott’s formation is in progress.

Once an Elliott wave pattern has been completed, the structure of the series can be compacted, which will make as a basic structure. Then, the formation we will use as a base in the following process for the analysis and compaction can be repeated.

Regrouping

Regrouping is the process you perform after compacting waves. At this stage, the wave analyst will use the compacted wave as the base structure of the following wave group and thus construct a series of larger waves, which may be standard or non-standard.

Integration

Integration is the process in which the wave analyst uses short-term compacted waves to form larger wave structures to be included in long-term charts. For example, once a short-term wave pattern is completed, this structure can be transferred with its labels to the long-term (or higher degree) chart. 

This process can be useful for information references when comparing short-term and long-term graphs to obtain a more logical and accurate idea of the next market movement.

The Principle of Complexity

This principle is useful for the classification of subdivisions of an Elliott pattern. Its usefulness lies in the possibility of combining large scale patterns and determining the relative name of the degree of each segment.

In other words, when a wave advances in the short term, it is straightforward to identify each segment and thus identify and label wave pattern. As time progresses, this wave increases its complexity, and the process of compacting waves is required. Once the wave is compacted, another wave is completed on a higher degree. 

Consequently, the complexity tends to grow as the waves increase, and they combine to give way to new waves.

The principle of complexity may not be relevant in the short-term analysis. However, as the horizon of analysis increases, the usefulness of this principle becomes essential. In this respect, the Elliott guidelines identified at the same consecutive level, have the same degree.

The Concept of Degree

Until now, we have used the term Degree superficially referring to an ambiguous time horizon as short, mid, or long term. 

In Elliott wave theory, the degree is not related to a specific timeframe, for example, 15 minutes, an hour, 5-day, etc. It is related to the order in which the different wave patterns are completed. 

R.N. Elliott, in his Treatise “The Wave Principle,” states that both labeling and degrees are not the ultimate purpose of wave analysis, but are an instrument that allows keeping an order to be maintained within the analysis process.

A wave degree is determined by the wave compacting process from the short to the long-term. Once the short term wave has been completed, it will be a segment in a higher time range or greater degree.

R.N. Elliott defined the following degrees to classify the order of market movements.

  • Subminuette
  • Minuette
  • Minute
  • Minor
  • Intermediate
  • Primary
  • Cycle
  • Supercycle
  • Grand Supercycle

The different degrees are represented in increasing order in terms of temporal magnitude. 

On the other hand, Prechter & Frost, in their work “Elliott Wave Principle,” incorporated six additional degrees, as shown in the following table.

In practical terms, to have a reference to the temporality to be used in the analysis process, when Elliott developed wave theory, the smallest data time range available corresponded to the hourly graph. Consequently, the wave analyst can begin by assigning the Subminuette degree to the wave structures that are completed in this temporality and thus advance successively from there.

Conclusions

In this article, we have seen how a systematic process can simplify the process of wave analysis.

The wave analyst can simplify the market analysis helped by the use of the compaction process, which should be realized once completed a wave pattern. Later, by using grades and labels, the wave analyst will be able to maintain a simplified order in the study and, in turn, make a forecast of the next most likely market movement.

In the following article, we’ll start the advanced level of the wave analysis with the study of complex corrective waves.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
  • Prechter, R.; The Major Works of R. N. Elliott; New Classics Library; 2nd Edition (1990).
  • Prechter, R., Frost.A.J.; Elliott Wave Principle: Key to Market Behavior; New Classic Library; 10th Edition (2005).

 

Categories
Forex Elliott Wave

Validation Rules of Corrective Waves – Intermediate Level

Introduction

Introduction

Introduction

Contrary to the case of impulsive waves, corrections do not require a sequence of retracements. The confirmation of the corrective patterns depends on the lengths of waves A and B within the correction. 

The validation of a corrective structure is defined in two stages. If both stages are verified, then the wave analyst will be sure that the corrective formation is correct. It should be noted that there is the possibility that only one of the two stages is validated; this does not limit that the pattern being valid.

Flats and Zigzag Patterns

Case 1 – Wave A is Larger than Wave B

In this case, the wave analyst must draw a trendline linking the origin of waves A and the end of B.

The first stage will verify the authenticity of the corrective formation if the price action violates the trendline O-B within a period equal to or less than the interval of wave C formation.

In case the time-lapse is longer, then the price action could be developing a terminal structure, or wave 4 of wave C could be incomplete, or the corrective pattern analyzed is not correct.

If the analyzed pattern is correct, then the second stage must be revised. In this stage, the wave analyst must study time lapsed in the complete retracement of wave C, which must be in a time equal to or less than the time spent in the formation of the wave C.

Case 2 – Wave B is Larger than Wave A

In this case, the first stage would fulfill if the wave C undergoes a complete reversal in the same or shorter time when the time lapsed in the wave C construction. 

The second stage will fulfill if the price action exceeds the trendline O-B in a period less than or equal to the time that took the wave C formation.

Triangles

As we have seen in previous articles, there are two types of triangles, contracting and expanding. Unlike flat and zigzag patterns, where the first stage of validation consists of the violation of the trendline O-B, in the case of triangles, the trendline B-D violation is the one considered.

Contracting triangles are the easiest to validate after the violation of the trendline B-D. However, this does not happen in the same way in expanding triangles. 

In expanding triangles, validation comes determined through the “no confirmation.” That is, once the wave E finishes, the price action should not reverse the advance of wave E completely. 

Therefore, this retracement would discard out any possible violation of the guideline B-D, or it would take longer to reverse the advance of the wave E than the duration of the wave E.

Validation of a Contracting Triangle

As mentioned above, in the case of triangles, the guideline B-D is used instead of the line O-B. The first stage of validation of the contracting triangle pattern will occur if the price exceeds the line B-D for a period less than or equal to the time it took to construct the wave E.

The second stage is defined by the thrust that occurs after the wave E in a triangle, which should exceed the highest (or lowest) price achieved by the triangle. In turn, the thrust should finish within a time range that not exceeding 50% of the duration of the triangle.

Conclusions

In this educational article, we have seen that the criteria for validation of corrective waves differ from impulsive waves in terms of the conditions to consider for a valid pattern. 

Also, we reviewed the importance of validating each structure under analysis. That will help the wave analyst to verify if the pattern identified is correct or not. 

This knowledge will allow the analyst to facilitate the realization of forecasts on the potential next movement of the market.

In the next educational article, we will review some key concepts for the process of analyzing waves such as wave compaction, degrees, and introduce the concept of complexity in the wave analysis.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).
Categories
Forex Elliott Wave

Validation Rules on Impulsive Waves – Intermediate Level

Introduction

Introduction

Introduction

In our previous articles, we have seen that impulsive waves have construction rules. However, some rules, or principles, allow the wave analyst to validate or confirm each guideline. These rules are divided into two groups, which we will detail in this educational article. 

First Rule – Validation of the Trend Line 2-4

This rule will apply once the impulsive pattern ends. The wave analyst must trace the trendline joining the end of waves 2 and 4. Then, the impulsive wave will be confirmed if the price action pierces the trendline 2-4 in the same or less proportion of time it took to form wave 5.

In case the fifth wave takes longer, the price develops a terminal structure or wave 4 that has not still ended, another possibility is the wave analyzed does not correspond to an impulsive formation, but to a corrective wave.

Second Rule – Retracement from the fifth wave

Within an impulsive wave, the wave analyst must recognize which the extended segment is. Depending on this factor, it will be possible to determine the level at which the price could fall, determined by the wave 2 and 4 price range within the momentum structure.

First Wave Extension

In this case, the retracement should go to the end of wave 4. However, if the price extends its retracement beyond the end of wave 4, then the impulsive wave will end up with a larger correction in terms of price and time.

Third Wave Extension

The price has to return to the fourth wave area of ​​the impulsive pattern and will generally finish near the end of that wave. If the retracement comprises more than 61.8% of the complete motive sequence, then the third wave would involve a higher degree impulse wave completion.

Fifth Wave Extension

When the extension appears in the fifth wave, the price should reverse at least 61.8% of that wave, although it might not retrace the complete wave. If the price retraces the complete progression of the fifth wave, then the retracement would complete a higher degree pattern.

In this case, the following could happen:

  1. The fifth wave extension pattern is part of a higher degree impulse, which is also a fifth wave extension, or
  2. The extension of the fifth wave is a wave C of a flat pattern or a zigzag.

Fifth Wave Failure

A fifth wave failure occurs when wave 5 of an impulsive sequence is shorter than wave 4 high. It generally occurs when the opposing trend is stronger than the initial impulsive movement trend. Consequently, if the wave analyst detects this type of failure, it should notice that the movement following the fifth wave is highly likely to reverse the forward movement of the impulsive movement completely.

On the other hand, if the motive movement was bullish, there should not be further highs until the price has fully retraced the impulsive bullish sequence. This affirmation is analogous if the impulse is bearish.

Conclusions

In this educational article, we have seen how to validate an impulsive sequence in terms of its correction. Also, we commented on the potential of the next path, respecting the fifth wave retracement and what is the extended wave in the impulsive sequence.

Likewise, we have seen the case of the failure in a fifth impulsive wave and what will be the impact in the next movement.

In the next educational article, we will see the process of validation of corrective structures.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level Part 3

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

In the previous article, we expanded the ideas of the triangle pattern; in particular, we talked about the contracting triangle and its variations. In this last part dedicated to the triangle pattern, we will review the non-limiting triangle.

Non-Limiting Triangle

Non-limiting triangles do not differ much from limiting triangles. Both types of triangles must meet the minimum construction requirements. However, they will have the following characteristics:

– Channeling. In the case of the non-limiting triangle, the trend lines are not convergent but divergent.

1. Congestion occurs just at or near the apex of the convergence lines.

The wave analyst should note that the term “just or near the apex” refers to the end of wave E being close to the intersection of both trend lines and the extent of wave E to be measured in terms of the time spent in the triangle formation.

b. The triangle pattern is considered Non-Limiting if the measurement of time elapsed from its beginning until the end of wave E, and the apex occurs after 40% of the interval has passed.

c. There must be a post-thrust correction that must return to the apex area.

If the triangle met any of these three conditions, then the triangle will be said to be of the non-limiting type.

Post-Triangular Thrust

The distance of the thrust outside the limits of the non-limiting triangle does not have a specific restriction. However, it can reach the length equivalent to the longest segment of the triangle. 

Likewise, once reached this extension, there is a possibility that the price will continue in the original direction of the thrust.

Expanding Triangles

Expanding triangles are very frequent in complex corrections. It is characterized because as it progresses in its formation, each segment, or the majority, is larger than the previous one.

The rules that characterize the expanding triangles are described below:

  1. Wave A or Wave B will always be the smallest wave in the triangle.
  2. In most cases, the E wave will be the longest.
  3. Expanding triangles cannot be part of wave B of a zigzag pattern. Nor can they be part of an intermediate wave, that is, waves B, C, or D of a triangle of higher degree.
  4. In most cases, the E wave will be the longest and most complex segment of the triangle. This wave can be formed by a zigzag or by a complex correction.
  5. Generally, wave E will pierce the trend line joining the ends of waves A and C.
  6. Line B-D should act similarly to contracting triangles.
  7. The extension of the thrust of the expanding triangle must be less than the longest wavelength of the triangle.
  8. When comparing the length from wave E to wave A, it must be verified that each previous wave must be greater than or equal to 50% of the next wave.

The following figure shows the three most common types of expanding triangles, of which the irregular is the most likely to appear in the real market.

 

In expanding triangles also exists limiting and non-limiting triangles. However, in this type of formations, there is no post-triangular variation between one and the other. The difference lies in the wave position that the triangle holds, which can be “standard” or be part of a complex correction.

Limiting Expanding Triangle

The term “limiting” refers to whether the triangle is a fourth wave or a B wave. Its main characteristics are described below.

1. An expansive limiting triangle usually appears in wave B, particularly in irregular failures or in flat wave formations with failure in wave C.

2. The thrust outside the triangle is a minimum of approximately 61.8% of the structure, measured from its highest to the lowest level.

Horizontal Expanding Triangle

This variation rarely appears in the real market. However, this does not mean that there is no possibility of it showing up in real markets.

The main characteristics of a horizontal triangle are:

1. Wave A must be the smallest of the formation.

2. Waves B, C, D, and E y must each exceed the final point of the previous wave.

3. There is a possibility that wave E will exceed the guideline of waves A-C.

Irregular Expanding Triangle

This variation is more common, and its characteristics are as follows:

1. Wave B is smaller than Wave A, while the rest of the waves maintain their increasing characteristics.

2. The longer the duration of the pattern, the higher the chance that the guideline will tilt up or down.

Continuous Expanding Triangle

This expanding triangle has a bias due, on the one hand, because wave B is longer than wave A, and on the other hand, because wave C is the shortest. The E wave, meanwhile, can be more volatile or “violent” than the rest of the waves.

Non-Limiting Expanding Triangle

These types of triangles tend to appear in complex corrective formations, for example, in the first or last stage of a complex sequence. In this sense, in a complex corrective structure, the thrust will generate a wave X.

Finally, concerning the apex, it is located before wave A and must be produced before it reaches 20% of the construction time of wave A.

Conclusions

With this article, we have ended the standard corrective patterns defined by the Elliott wave theory. As we have seen in previous examples, expansive triangles also usually appear on waves 4 and B. However, this does not mean that they cannot appear on wave 2.

In the next educational article, we will see the process of validating impulsive structures.

Suggested Readings

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

 

 

 

 

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level Part 2

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

In our previous article, we saw that the triangle pattern is the most common of the three standard formations defined by R.N. Elliott. In this educational post, we will review the different types of variations of this corrective structure.

Contractive Triangle

Within the group of triangles, this formation is the most common of all. The minimum requirements of this structure are:

1. Once the contractive triangle is completed, the price must make a “thrust” that should be greater than or equal to 75% of the largest internal segment. On the other hand, this movement should not exceed 125% of the most extended triangle segment.

The following figure shows two cases. In the first, we see that wave A is the most extended segment of the contracting triangle after wave E is completed. The thrust can reach between 75% and 125% of wave A.

In the second case, we observe that wave B is the most extensive of the contracting triangle. Analogously to the previous case, we distinguish that the thrust made by the price should not be less than 75% nor greater than 125 of wave B.

2. In this type of triangle, the thrust must further exceed the highest (or lowest) end it reached during structure formation.

In other words, when the contracting triangle is about to be completed, two parallel lines should be drawn over the most extended segment, depending on which side the thrust is on, the price should touch the top or bottom line.

3. The E wave must be the smallest of all the segments of the triangle in terms of price.

As we observe in the following figure, the internal segment corresponding to wave E must be the smallest of all in terms of price, but not the time it takes for this movement to complete.

Limiting triangle

R.N. Elliott defined the limiting triangle as a formation that occurs in the waves fourth and B. Its name is because its completion must occur under specific conditions,

The completion of the limiting triangle in wave E must happen in the range of 20% to 40% before the apex point of the triangle.

Horizontal Limiting Triangle

1. The trendlines of the triangle must move in opposite directions.

In other words, when drawing the ends of the triangle corresponding to the end of waves A-C and B-D, the trendlines must correspond to a contracting triangle respecting the basic structure defined by Elliott.

2. The apex of the triangle must be within a range whose amplitude is 61.8% of the most extended segment of the triangle and whose center is the midpoint of that segment.

In the case of the previous figure, the most extended wave is wave B. However, this is analogous for the situation in which wave A or wave C is the longest in the triangle.

3. Wave D must be smaller than the internal leg corresponding to wave C. Likewise, the segment corresponding to wave E must be shorter than wave D.

 

Irregular Limiting Triangle

This type of triangle must perform a higher thrust and with greater speed than in the case of the horizontal triangle. The distinctive element of this formation is wave B, which must be longer than wave A. In general, its main characteristics are as follows.

  1. Wave B should not be higher than 261.8% of Wave A. Under normal conditions, it should be less than 161.8% of Wave A.
  2. Waves C, D, and E must be smaller than the previous wave.
  3. The trend lines of the triangle must have opposite directions.

Running Limiting Triangle

This type of wave can be confused with the Double Three corrective structure. Its main characteristics are:

  1. Wave B is longer than Wave A. It is also the largest segment of the triangle.
  2. Wave C is smaller than Wave B.
  3. Wave D is shorter than Wave C.
  4. Wave E is shorter than Wave D and is the smallest of the triangle.
  5. The thrust after the completion of wave E can become more extensive than wave B and even reach 261.8% of wave B.

Conclusions

In this educational article, we have examined the different variations of triangles and expanded their contracting variants. We must emphasize that its importance lies in the fact that this type of formations, in particular, the contracting triangle, is the most common of all triangular patterns. The knowledge of how triangles behave can provide the wave analyst with an advantage that would allow him to more accurately predict what the next market move would likely be.

In the next article, we will see the last part of the corrective formations. In particular, we will review the non-limiting triangles and their main characteristics.

Suggested Readings

– Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).

Categories
Forex Elliott Wave

Analyzing the Triangle Pattern – Intermediate Level – Part 1

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

The triangle is a corrective pattern that has five internal segments. In this educational article, we will review how to analyze the triangle formation.

Triangles and their Characteristics

Within the set of corrective structures defined by R.N. Elliott, triangle formations are more complex to analyze compared to flat and zigzag patterns. This complexity occurs because there is no specific time span that marks the end of this structure.

Despite the complexity of the triangles, it is the most common Elliott pattern to find in the real market. The knowledge of this formation will help wave analysts to understand the price position within the market.

Construction Rules

The construction rules defined for the triangle pattern are detailed as follow:

– Triangles have five internal waves, regardless of the complexity of the inner segments.
– A complete three-wave corrective structure builds each part that makes up the triangle.
– The triangle can have a bullish or bearish inclination. However, its internal structure should not change.
– The triangle has six reference points of the same degree, the origin of wave A, and the end of waves A, B, C, D, and E. From these six extremes, the wave analyst should only channel four points through the contraction lines. The points to consider are the end of wave A with the end of wave C and the end of wave B with the end of wave D.
– The base-line of the triangle is the line that joins the end of waves B and D, and its function is similar to the guideline that joins waves 2 and 4 in an impulsive wave.

The following figure represents the construction model of the triangle pattern.

As can be noted, the triangle pattern tends to appear in a fourth wave or a wave B, in some exceptional cases, this pattern could appear in a second wave.

GBPUSD Consolidates in a Triangle Sequence

The next figure illustrates the GBPUSD pair in its 4-hour timeframe. In the chart, we observe that the Cable rallied since September 03rd when the price found its bottom at level 1.19589.

Once the GBPUSD pair moved in three waves identified in green, the fourth wave consolidated sideways, developing an expanding triangle.

The triangle pattern reveals the alternation principle in terms of time and price.

The GBPUSD pair alternated in terms of time being the triangle pattern more extended in comparison with the second wave. In the same way, the retracement developed by the second wave is sharp compared with the narrow correction realized by the fourth wave.

JP Morgan Consolidated in a Triangle Pattern

The chart below shows JP Morgan Chase & Co (JPM) in its log-scale 2-day timeframe. The ticker JPM developed a bullish impulsive sequence subdivided in five waves from early 2016 when the price found buyers at $52.50 per share.

In the same way, the third wave that was formed corresponds to an extended wave, which makes us conclude that the first and fifth waves will not be extended, and they will be similar in terms of price, time, or both. In this case, both waves are identical in terms of time.

On the other hand, we observe that JPM consolidated developing an expanding triangle pattern with a slight bearish bias. Besides this structural bias, the internal sequence is respected by the price action.

Also, we distinguish the wide extension of the triangular sequence, which moved from late February 2018 until mid-August 2019, when JPM ended its internal wave E labeled in green.

Once JPM completed its fifth internal segment, the price action continued its previous bullish trend and soared to record highs at $141.10 per share.

Conclusions

From the cases analyzed, we can verify the Genn Neely’s affirmation that suggests that “the triangle pattern is a common formation that appears in the market.”

Also, we verified how the alternation principle works in the real market, while a corrective wave is simple, the other will be complex.

Finally, according to the examples reviewed, the triangle pattern could appear independently of the market analyzed,  as on currencies, stocks, indices, etc.

In the next article, we will review the different variations of the triangle pattern.

Suggested Reading

  • Neely, G.; Mastering Elliott Wave: Presenting the Neely Method; Windsor Books; 2nd Edition (1990).