Nov 262008

The EUR/USD rally that we are currently witnessing is capable of going back above 1.3200, but I would urge caution above 1.3215. The currency had reached 1.3294 last time, and it could still go there, but this is still a bear market, and until we get two closes above 1.3220, I would remain skeptical about its prospect.

Nov 252008

You must be wondering whether the QQQQ has posted a major bottom at $25.05. This post will help you make that decision. Users of Elliot wave principle are presented with some of their greatest difficulties when trying to determine whether a major trend has ended. We know that the level where the old trend ends is where a new trend begins, but identifying whether a rally is the first wave of a new uptrend is a tough call. A very useful approach to address this challenge is to identify the point which looks like the 4th wave of the last leg of the just finished major downtrend. (In the QQQQ, this point is 30.46). When the price movement from the perceived bottom exceeds the prior 4th wave (30.46), start counting the price movement. If a minor 5 wave count can be made now, we have probably seen the start of a new major five-wave trend. Once we establish this, we will look to buy a 50% retracement and place stops below the major bottom.  To sum up, we have to wait for QQQQ to reach 30.46 before we can speak more confidently. Unfortunately, there seems to be some tough resistance even at 29.50 now. A break past 29.50 today will be a very encouraging sign. Here are two charts for you to study. It might be to your advantage to print out both and observe what the market does over the next few sessions. Good luck! Ramki

Nov 242008

Whenever a currency or commodity or stock moves rapidly and too far, it sets itself up for a period of consolidation. As you are aware, Sterling has dropped like a stone from its peak, and after reaching its medium-term target of around 1.4570 (discussed earlier in this blog), the currency has been moving sideways. Today, it looks a bit better bid, and there is a chance that some short-covering could kick in. If such a recovery takes place, we should still be on our guard around 1.5365 because the Pound is very much still in a major bear trend, and will surely come down a lot faster than it can climb higher. I have presented a chart with some gann fans on it. There are other reasons why I think the Pound will find it tough to go above 1.5410. But any place near 1.5365 should be enough for those who are still stuck with bad ‘long’ positions in the Sterling Pound to swallow the medicine and take a loss. For those who need to hedge their exposures, this recovery(assuming it happens) will give you a decent level to take action. Enjoy!  Ramki.

Nov 242008

The Indian Rupee is again above the 50 level, and both exporters and importers are anxious about its prospect. I had taken a stance several weeks ago that the currency is more likely to be at 45 than at 57. It actually topped out earlier around 50.25 and declined below 47. But now it has climbed back above 50, creating doubts about its near term outlook. Like in any market, we have to take a view in order to benefit from the analysis. There is nothing that has happened so far that negates the elliot wave count. The fact that the Rupee has come back above 50 is in line with the double-retracement idea discussed a couple of posts earlier (see the posts about fifth wave extensions). So don’t be surprised if the currency makes an about face and comes off as rapidly as it went up. Here is another chart to guide you. A word of caution here. No amount of wave counting, or Fibonacci analysis (or voodoo or astrology) can guarantee you what the market will do next. But we do have many precedents of how the market has behaved after a fifth wave extension, and so one has to take his/her chances. The best way to protect yourself is to have stops in place. If the idea works, you should have the confidence and courage to stay with the trade till your objective is reached. Only then will your having taken the risk be worthwhile. Best. Ramki

Nov 232008

Jasmit has requested for a chart of BHP and CBA, and I suppose an Elliot wave analysis of the same. I would love to do both, but being a treasury manager, my day is already too full. So here is just the chart of BHP for you, Jasmit, and all our fellow Elliot wave fans! The chart also partially answers a question posed by yet another reader, WaveWatcher, who is wondering about how one can say the top of the SNP500 can exceed the point where a fifth wave has ended.

One of the most useful things to spot in a market that is developing is when a wave seems to extending. It becomes easier still if both the first andthird waves were of normal length, because then there is a pretty good chance for the fifthwave to extend. You are all the more certain of a fifth wave extension in such cases if the fourth wave was shallow. ANyway, once the fifth wave extension is over, you should NORMALLY expect a double retracement. The first sell off is the first retracement of the fifth wave. It usually comes to about the minor 2ndwave of the extended fifth wave (but sometimes it stops at the minor 4th wave itself). Then we get the second retracement of the prior moce, ie we see another “go” at the top, and often as get a ‘throw over” the prior top, or a channel that you could draw using Elliot wave principle. This constitutes the so-called unorthodox top. Here, dear readers, is where you should be extremely careful. The “C” wave that starts after such an irregular “B” wave top will be so devastating that it could go down all the way to the fourth wave of one higher degree, or worse, to the top of the first wave itself. This has happened in BHP Australia, and has happened in SNP500. Indeed, in SNP500, the collapse of the market is a correction of cyclical proportion, because we are not just correcting the last five wave move up from the low of 768 seen in 2002, but we are correcting the excesses of a much bigger rally, the one that started in early 1980s. Ramki