Oct 182014
 

(updated below on 25 Oct 2014)

Elliott Wave theory says that a bull cycle has five waves, and if you look at the chart of Facebook Inc, it looks very probable that the stock has completed its bull cycle. Facebook embarked on its bull run in September 2012 from a low of $17.55. The high seen so far is $79.71, a huge gain indeed. Let us now look at come Elliott Wave charts of Facebook. You should use this example as a supplement to my Elliott Wave book – “Five Waves to Financial Freedom”. Almost the first thing you can see is Facebook has completed five waves in its bull run. You will also see that I use the term ‘probably’ or “highly likely’ in my descriptions because that is the right approach when using Elliott Waves for your trading and investment decisions. There is no tool in the world that gives you a definite answer about the future, and when dealing with the financial markets, it pays to always keep in mind that you are trying to determine the odds of something happening, rather than the certainty. Elliott Wave Theory gives you the framework to do this analysis, and your confidence grows as you see the ‘crowd’ behaving as anticipated by the theory. As you read further, I suggest you open the charts in a new tab.

Facebook has probably completed fives waves

It is easy to see 5 waves in a completed bull cycle as shown in this Facebook chart

Interestingly, wave 2 took a lot of time in correcting the wave 1, but it went quite deep, just a shade over the 61.8% level. You will recognize that 61.8% is a pretty important Fibonacci Ratio. Now the key point here is this. Even as early as Q3 of 2013, you would have said to yourself that once the third wave develops, the next correction, namely, wave 4, would be deep and will happen relatively quickly. This is the principle of alternation. Please refer to FWTFF for more information on that, but there are many more examples in this free blog too.

Wave 2 was a deep correction

Facebook Wave 2 corrected wave 1 by 61.8%

A smart investor would have been ready to buy Facebook as it rallied up from the 61.8% retracement because we were then in a 3rd wave. As many of you probably know, wave 3 of any impulse bull market is the strongest up move, and it also has the highest chance of becoming an extended wave. In the case of Facebook, its wave 3 went to a measure of 323.6% of wave 1, as shown in the next Elliott Wave chart.

The 3rd wave of Facebook was an extended wave

Facebook wave 3 was an extended wave

Now some of you might wonder about my use of 323.6% as this is not a ratio that has been discussed by Frost & Prechter. During my over 30-years of dealing with financial markets and experience with Elliott Waves over that time, I have seen this ratio often enough to include it in my offering to the fund of knowledge. You can find many more examples in Wavetimes.com.

The main challenge for traders is to figure out WHERE an extended wave will end. Unfortunately, there is no certainty about that, and anyone who attempts to pick a top during an extending third wave is honestly asking for trouble. However, once the correction starts, in the case of Facebook, it was bound to be swift because, remember, wave 2 took long to develop! Take a look at the following Elliott Wave chart to see this.

Facebook wave 4 was shallow but sharp

Facebook wave 4 was shallow but sharp

The final stages of the bull run begins with wave 5. As with all impulse waves, this wave 5 needs to have its own set of five sub waves, and incredibly, these sub waves are also related to each other quite like the waves of the larger degree. But first see how one could have anticipated the end of wave 5 by computing 161.8% measure of wave 1 and adding it to the bottom of wave 4.

Determining the end point of wave 5

Anticipating the end of wave 5 of the bull cycle

And to add come confirmation, we can look at the relationships of the sub waves of wave 5 as shown below.

Sub waves of wave 5

The sub waves for Facebook’s wave 5 also follow Elliott Wave guidelines.

Now that I have shown you how to read a chart using the clues that Elliott Wave theory gives us, you should attempt to anticipate how the ensuing bear cycle will pan out. One clue I can give you is the correction will travel a distance greater than the larger of the two prior corrective waves. A second clue is the correction will take more time than wave 2 did. If you are an investor who is seeking to buy Facebook, it might be a good idea to focus on some other stock for the next several months while Facebook goes about its business of being moved back and forth by a fickle market. Eventually, it WILL come down by the measures discussed above and that is the right time to invest in this stock for its next bull run.

25 Oct 2014 UPDATE:
The recovery in the last few days to a new high has brought back the need to recompute the targets for the end of wave 5. Here are two more charts to guide you.

FB25Oct14a

FB25Oct14b

The goal of this blog is to share with you some of my experience and teach you how to use Elliott Waves. My other website, wavetimes.net, is where I discuss live trades.

Aug 142014
 

Whether you are in Indonesia or Norway or Cape Town, the examples posted in this blog will help you to get better at using Elliott Waves. The concept is the same. The example may come from a different market, but that doesn’t diminish the value of the lesson. So let’s take a look at Mahindra & Mahindra.

I was approached by a member of the Exclusive Club on 30th June to do an analysis of this stock. THis is what I presented him. Take a look. Best to right click and open each chart in a new tab!

Start with the weekly chart where we can locate a significant low around 2002. You can see that 4 major waves have already been posted, and we are in wave 5.

We are in Wave 5 of Mahindra & Mahindra

We are in Wave 5 of Mahindra & Mahindra

I have also suggested that we are in minor wave 4 inside the fifth wave as minor wave 3 was already finished as well.How did I figure that out? Here is how. I looked at the daily chart to see the pattern and relationships.

Minor waves within the fifth wave

Minor waves within the fifth wave

As outlined in the first chart, I was pointing the member towards buying the stock as we complete the fourth wave. It seemed reasonable to expect supports around 1114. The next chart also supported this idea.

Wave c was related to wave a

Wave c was related to wave a

However, my approach has always been one of ‘safety first’ and that required me to consider what else could be going on, and where I might be making a mistake. Also, if I made a mistake, can I safely parachute out without crashing with the stock?

MnM30jun14e

So you see that I have defined my risk tolerance, as well as my profit objective. How did I arrive at the profit target? Simple. This is explained in my book Five Waves to Financial Freedom as well.

Wave 5 target for Mahindra & Mahindra

Wave 5 target for Mahindra & Mahindra

And what do you think happened to this stock?

Mahindra and Mahindra was yet another profitable idea

Mahindra and Mahindra was yet another profitable idea

Well folks. That is nothing but the power of Elliott Waves at work! Needless to say this member is very happy!
You might ask me two questions. First, we had a buy level of 1120 and the low was 1128. So whats the big deal? Well, the big deal is this client is dealing big! And he is not stupid enough to wait for the last few cents to buy. To him, what mattered was the next direction, and the size of the next move. He is a trader and investor, not someone who idly watches prices to check if it reached the target or not. The second question is have we reached the top in M&M? i.e. should we exit our position here, or perhaps consider selling short? Well, that is a question you can answer yourself by looking at the internal waves of wave 5 within the fifth, and also considering whether we will get an extension etc etc..besides, I don’t know what my client is thinking either. He hasn’t told me or asked my views yet!

Remember, this blog is only trying to teach you Elliott Waves and its application. There are no trading tips here. Enjoy.

Elliott Waves Explained

Jul 312014
 

Many traders blindly trade without paying attention to the market clues that tie up with Elliott Wave. This article discusses some strategies.

This morning, I saw a news item that went as follows “South African telecom firm MTN is keen to enter the Indian shores. CNBC-TV18 learns from sources that MTN may go for a strategic acquisition route for its India entry. Interestingly, a lot of buzz was created on Twitter after Harsh Goenka, chairman of tyres-to-software conglomerate RPG Enterprises tweeted from his handle @hvgoenka: “MTN doing due diligence of a large Mumbai-based telecom company. Will this mega deal happen?” He, however, did not answer the subsequent questions from Twitteratti. Sources told CNBC-TV18 that MTN is open to picking up financial stake in existing Indian telecom player. They say MTN is in talks with three Indian telcos — Reliance Communications , Tata Teleservices and Idea Cellular . However, Goenka’s nudge could be towards the Anil Ambani-owned Reliance Communications that has twice in the past held talks and even agreed to part with majority stake for management control in one instance.

Read more at: Moneycontrol
So three companies are being mentioned and I looked at all of them, and decided to present some of the charts for you to learn from. As I have often been saying, this blog is to help you learn Elliott Waves. For those who are seeking trade ideas, the place to go is wavetimes.net, but again, that forum is meant for traders and investors who have serious money at risk, and for the experienced traders. If you are already a member of that exclusive club, be sure to add the email wavetimes.member @ gmail.com to your contact list as otherwise my trade ideas and notifications could land in your spam folder.

The following are only some of the charts relating to Idea Cellular Ltd because, of the three companies, I believe this stock is the most likely candidate, even though Mr Goenka thinks it is RCOM (I continue to own shares in RCOM from the time I discussed buying it here at wavetimes.com when it was less than half its current value)

The first chart shows the labels for the wave 1 to wave 4 of Idea Cellular Ltd. This exercise allows you to figure out where we are in the bigger picture for this stock. You can see that wave 3 was extended, having reached 223.6% of wave 1. I suggest right-clicking each image and opening it in a different tab!

Wave 1 to wave 4 of Idea Cellular Ltd

Wave 1 to wave 4 of Idea Cellular Ltd

Further examination reveals that wave 4 has come down by 38.2% of wave 3. You will also see the principle of alternation at work. As wave 2 was a simple correction, wave 4 became complex, in the form of an irregular correction.

Wave 2 was simple, so wave 4 was complex

Wave 4 was an irregular correction

Now that we have satisfied ourselves that wave 4 has been completed, and that we are in wave 5 for Idea Cellular Ltd, we can go about deciding the targets for wave 5. As explained in my book Five Waves to Financial Freedom and elsewhere in this blog, we can usually compute easily three possible targets for wave 5. This is shown in the following chart.

Fifth wave targets for Idea Cellular Ltd

Fifth wave targets for Idea Cellular Ltd

But many beginning traders and analysts fail to pay attention to other clues. For example, being aware of nearby resistances as shown below.

Nearby resistances for Idea Cellular Ltd

Nearby resistances for Idea Cellular Ltd

And finally, they also fail to take into account the possibility of being wrong. Even with 30 years of doing this stuff, I make allowances for errors, which is why the trades discussed in wavetimes.net are carefully chosen to give us the best chances for success. With Idea Cellular, despite the fact that there are certain additional clues that the MTN stake speculation is pointing in their direction, Elliott Wave analysis warns us to be aware of a different possibility.

Can this be a corrective ABC rally in Idea Cellular Ltd?

Can this be a corrective ABC rally in Idea Cellular Ltd?

Having examined the various sides of the picture, we can now decide whether we should buy, and if yes, where we should buy this stock. And more importantly, where we should place a stop loss. But you can do that yourself, given the vast amount of inputs shared with you over the last so many years on this blog.

Good luck.

Elliott Wave Theory Explained

Jul 032014
 

This Elliott Wave update on Alliant Energy Corporation is a sequel to the detailed analysis posted on 1st June 2014 in Wavetimes.com. Here is the link for that post: http://www.wavetimes.com/elliott-wave-analysis-of-alliant-energy-corporation-nyse-lnt/
For your convenience, I have also appended this new chart at the bottom of the older post as well. As most of you know, this blog is dedicated to all the traders and investors who seek to improve their financial market performance. I would like to call this a “Living Book”, an extension of Five Waves to Financial Freedom.

(Some of you might be interested to check out the other website, wavetimes.net which caters to professionals who have significant money at risk)

Elliott Wave Ending Diagonal

Elliott Wave Ending Diagonal

Elliott Wave Cycle Explained

Jun 152014
 

C.R.Bard, Inc designs, manufactures, packages, distributes and sell medical, surgical, diagnostic and patient care devices. Its market cap is $10.48 billion and the stock posted its 52-week high at $150.13 on April Fool’s day. Why are we looking at this stock? It is because it has the distinction of being the top loser on the S&P index yesterday! Elliot Wave analysis of C.R.Bard Inc shows some interesting patterns. As you know, Elliott Wave Principle holds that once a five wave move is completed in an upward direction, we should look out for a large move on the opposite direction. Elliott Wave analysts look for Fibonacci relationships between the various waves in order to validate their conclusions. If you take a look at the first chart below, we can see that wave 5 finished exactly at a 61.8% measure of the distance from the starting point 0 to the end of wave 3. This has been covered in detail in my Elliott Wave book “Five Waves to Financial Freedom”.

Elliott Wave Theory further holds that each of the three impulse waves that are seen in the broad five wave rally will have its own subset of five waves. You can clearly observe this phenomenon from the next Elliott Wave chart. Interestingly, you can see that not only the third wave is made up of five sub waves, but even the third wave within the third wave has its own minor five waves. Moreover, sub wave v inside the third wave finished exactly at a Fibonacci measure (50%) of the distance from 0 to iii.

The final chart shows how we can figure out some targets for the next leg of the large correction that is expected. We measure 138.2% of the distance traveled by the first move down and project that distance from the top of wave B. The target for the C wave is thus around 125.75. It is important to understand that no move will be a straight line move. However, generally speaking, C waves tend to travel fast and so anyone who is still nursing a long position is well advised to get out of that position on any recovery.

The charts and analyses posted in this blog are for educational purposes, and supplement what you learnt in my book FWTFF. I have another website, www.wavetimes.net which offers serious traders an opportunity to learn how to trade the market using my techniques.

————
27 June 2014 update.

A member asked about the internal waves of the C wave.Take a look at the chart below. We did not reach 125.75, but did manage to get to 135.80 after first recovering to 142.37. That was a decent enough move for most people. THe key point is when we have a trade, we need to watch how the market is moving. Elliott Waves is not a black box. When the minor 4th wave reached 142.37 and it started coming off, we have to get ready for the end of the move. I have explained in FWTFF how to compute these end points. One should lighten up the exposures starting from the earliest target. I use Elliott Waves to trade, not to make predictions. Sure, the target was 125.75, but if I wait indefinitely for that target to be reached even when new information is being presented, it will be an incorrect application of the wave principle. Enjoy.

End of 5 waves in CRBard

End of 5 waves in CRBard

Elliott Wave Rules Explained