I have no problem discarding a wave count that has served us so well since March of 2009. Likewise, the count I am presenting here will also have a life-span. Once its time comes, we will have to let it go too. The most important consideration is whether the waves are consistent with the underlying philosophy, and whether we are adhering to the rules and guidelines that Elliott had propounded. The previous wave count correctly anticipated a rally from 1.4226 to 1.5500. We are some 200 points above that top. But we also used a minor wave analysis to identify a resistance at 1.5655. So the slippage has been about 100 points from there, and we have not been hurt by that move. Now it is time to take an altogether fresh look at the charts. Here are two charts that I believe are quite clear by themselves. The current rally in GBPUSD looks like an extending fifth wave, and could eventually reach 1.6175. Howver, look for a minor setback around 1.5860, but more importantly between 1.5950 and 1.5970. Later on, from 1.6170, I might be looking for a drop of 10 big figures. But we will discuss that as we appraoch that top.
In my recent Elliott wave analysis of GBP/USD, I had suggested that 1.5655 is an important level, and if we fail there and come below 1.5530, perhaps we can kiss the Sterling Bulls a fond goodbye. But the love story is far from over, it looks. Goldman Sachs has put out a note (published in Sunday Times) that the UK ‘will bounce back stronger than America, the eurozone and other advanced economies, with predicted growth of 2.9% next year’. In the face of such evidence, and our technical resistance already violated (although not yet on a closing basis), it becomes imperative to go back to the charts and do a re-count. I will do that tomorrow. Remember folks, never be scared to change your mind. What matters is whether you made money, not whether your medium term count needs revision. Elliott wave analysis is only a tool to improve our chances of making money. How you use this tool to give you the edge is what is important. Ramki
The market is a great teacher. One has to take victories with the humility that next time one could be terribly wrong. Have we nailed the Sterling correctly yet again? Perhaps. But we will never know until the rest of the market is convinced. Right now the top has held quite nicely. But remember that strong bulls seldom die without a fight. We need to have the nerve to stay with the view, and the wisdom to get out if proved wrong. First supports now lie near GBP/USD 1.5530, but if we go any lower, perhaps it will be time to write the obituary of the Sterling Bull and rejoice the birth of a new baby bear.
The Medium Term Elliott Wave Analysis of GBP/USD posted here on 11th May (when Sterling was trading at 1.4836) suggested that we will first dip to 1.4226 and then rally to around 1.5500. The actual low was 1.4230 and today we are trading at 1.5590 levels. A couple of days I had prepared the chart you see here, where I am expecting the Pound to run into some selling once it gets to 1.5655 levels. In the medium term elliott wave analysis referred above, I had said the GBP can resume its decline towards 1.3600 once we top out around 1.5500. You must be wondering if I still subscribe to that view. The answer is Yes. I don’t usually change my medium term view until proved wrong. I will revisit that count if we close above 1.5710. For the time being, given the positive sentiment for the Sterling Pound, we shouldn’t except a direct collapse. Rather it is more likely that we will see a dip to the mid 1.52s and then recover again, perhaps to 1.5500 area and only then commence a serious decline. Remember, it is seldom a straight line move. We shall look at this currency pair in a few days to assess how things are going.
The Sterling Yen cross, or GBP/JPY has been a bit difficult to trade for most people in recent weeks. Clearly the easy-money days are gone. Yet, one can hardly recommend a buy here. The sentiment is overwhelmingly negative and we don’t know how much exposure UK banks have to the smaller Spanish Banks. Using Elliott Wave Analysis to study Sterling/Yen, my best guess now is we are tracing out an expanding diagonal triangle pattern. If we stabilize at 116.35/50 levels, then maybe one can profess the possibility of a recovery to 135.00. But later on we could come off once again. On the whole, anyone who is wanting to buy Sterling versus Yen is well advised to sit tight until the storm passes.
I would like to start by pointing to this link dated Septermber 27, 2009, where I had reiterated the bearish call for Sterling Pound, GBPUSD. Today, I was shown a research report from Morgan Stanley where they are going short the Pound here at 1.4850 with a stop at 1.5100 for a move down to 1.3500. That downside objective rang a bell 😉 , so I decided to take a fresh look at the Sterling charts. I have decided to publish two charts for your benefit. The first chart shows the down move from 1.6880 area is currently in its fifth wave. Thus, we are in the last wave down in the current cycle. However, we have to remember that any one impulse wave in a sequence will tend to extend. The question is, will this 5th wave extend? Btw, isn’t it interesting to observe that when the 5th wave travelled 50% of the distance covered by the first 3 waves, it turned around and raced higher? (Of course, it was convenient that the $1 trillion rescue package was announced about the same time! But these technical levels seem to know in advance when the good news will arrive, don’t they?) Now the first chart above is actually the 3rd wave within the bigger 5th. To appreciate that, you have to look at this second chart.
After you look at this chart, you will realize that those who have placed their stop at 1.5100 looking for 1.3500 will be stopped out if this analysis is proved correct. Of Course, no one will know until later what is going to happen, and it is easy enough to come up with nice looking charts and comments. Yet, I felt compelled to place on record what I felt at this point in time. As a bonus, I am also giving you a third chart on GBP/USD. This looks at the 5th wave discussed at the top more closely. We could finish at 1.4403, or more likely at 1.4226. Then allow a recovery towards 1.5050 as a first step. We will then come down again, by which time some of the bearish sentiment will wear off. Later on we should go further up towards 1.5500 before the much bigger down move to 1.36 could start. We shall see. All of this will be in vain if we go directly lower towards 1.3600, but if that happens, we will start salivating for a much bigger recovery later on because a HUGE five wave move from 2.1161 would be close to its completion. Enjoy!
After the Pound broke past the resistance at 1.5157, there was little to hold it back. The target appeared to be 1.5615/20 levels, and the attached two charts will testify why I felt like that. In fact, I had even emailed some of the old faithfuls this morning that the time for the bulls may be running short. However, economic data in the form of consumer confidence has dealt a blow and we are already seeing a lot of selling and a test of 1.5360 is not far away. In any case, if we get back to 1.5610 levels for any reason, there is a
valid reason to take a punt on the short side, as always with an affordable stop.
Now that the Sterling Pound has almost reached its short term objective above 1.5100, it is natural to wonder what next? If we break above 1.5110, then there is a chance to take a look at 1.5157, which marks a 61.8% retracement level of the prior drop. Selling near there is a low-risk trade. However, if we start coming off directly, then there is a small chance that we will get a recovery late tonight or tomorrow to retest the 1.5100/10 level before coming off. You can decide whether to sell at 1.5155 or at 1.5104 depending on whether we break higher directly, or if we come off quickly to 1.5050 levels first. Enjoy!
After rallying back sharply to 1.5380, the Pound has come off in what looks like a five-wave pattern. The final leg of these five waves is likley to be completed soon, and so we should get ready for a recovery back towards the previous fourth wave around 1.5110. So trade accordingly. The prior low at 1.4780 offers key support, while even 1.4835/50 can hold up.
Every now and then, the market will enter into a complex corrective phase. It is quite hard to forecast the degree of the complexity, and where the correction will end. All one can do is to take his/her chances at key levels. Right now I see some resistance between 1.5220 and 1.5230. Assuming that this completes the correction, we will get back nicely into the bear trend. However, be aware that if we rally back above 1.5235 AFTER coming down to around 1.5100 or lower, then we could actually be looking at 1.5420 or somewhere there by next week. Your clue comes from a very fast rally after dipping to 1.5090 or so. So be nimble. Ramki