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.