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

Nov 232008

A reader has asked about a possible fifth wave extension in USD/CHF. (refer comment by Dolphin). We are currently trading at 1.2217. I see some solid supports at 1.2000 levels and tehn some more at 1.1850 levels just now. These supports could only move higher as we stay better bid on the dollar. I strongly recommend that we should look at the bigger picture first in order to get a sense of how high a rally could go, (or how deep a decline) and then figure out how to count the waves. Of course, the end result of all our counting should be to initiate profitable low risk trading ideas, which we should execute, at least with a small position. Otherwise, we will end up as mere arm-chair analysts! Anyway, here is the monthly chart of the USD/CHF and I am already making the sin of looking only at the last 5-wave decline !! Still, that gives us an idea of how high the correction could go. Enjoy!  Ramki

Nov 202008

The easiest way to make money in any market is after a fifth wave extension. While identifying the precise end point of an extension is often a challenge, you can become quite rich by joining in once the correction starts. Typically, a market comes down to the level of 2nd wave of the just completed 5th wave (as wave ‘a’), corrects higher (as wave ‘b”) and thereafter collapses as wave ‘c’ to reach the 4th wave bottom (or lower!). In the last 3-4 months, there have been innumerable instances where we have seen this happen. Regular readers of this blog have been alerted to the opportunities. Today, I am going to review those trades so that you can have a permanent record in one place of how fifth wave extensions should be used to our advantage. Let us start with Oil.
If you had been on my mailing list before this blog was started in October, you were warned when Oil was above $140 that we will go down to $50. As recently as 5th October, and on this blog, you saw this post.

Today Oil is trading close to $52 as shown in this chart.

Now let us look at the S&P500. On 3rd April, I emailed several of you that we could recover from the current level of 1367, but failure to stay above 1415 could trigger a sell off to around 1050. Here is the chart of April 2008, followed by the chart of 20th November 2008 (today).

For those of you who are interested in GOLD, this chart should open your eyes! Just a few weeks ago, on 8th October, I wrote in your favorite blog that this precious metal was ready to collapse. That was when the commodity was trading at 910, and analysts at Credit Suisse put out a bullish report on Gold. Take a look at this chart below and judge for yourself. Gold has traded well below $700 before recovering recently.

Let us look at a specific US Stock. Bank of America! This blue chip was at $26.61 back on 30th June when I alerted you that we will see it down to around $18. In fact, some of you will remember we bought the stock near there and made between 40 and 65% in a matter of days! (that was the ‘b’ wave rally). Here are two charts for your study.

Next, let us take a look at the Euro dollar. The EUR/USD was trading at 1.3560 on 12th October when I warned you that we are on our way down to 1.25. Sure enough, it has gone there already.

Are you an emerging market buff? Then this chart of the Bombay Sensex should be revealing.

What is the lesson here folks? Technical analysis can be used to considerable benefit. Yes, when it comes to pulling the trigger we all are scared. (Honestly, I made money in only some of these recommendations because my stops were too close! And even then I could not risk a very large sum. But those who had the staying power made millions. One of my clients saved over $7 million by shifting his GBP deposit into USD just before the collapse. But coming back to the average Joe (the plumber :) or trader) we should definitely take small risks at the end of fifth wave extensions. Please bookmark this post andshare with your friends. With best wishes. Ramki

Related S&P500 links:

Was that the stock market bottom?
SNP500 revisited
S&P500 and Citi

What is a significant rally in the stock markets?

Harmony in markets: S&P500

S&P 500: Potential Ending Diagonal Triangle

Ending Diagonal Triangle in S&P500?

S&P500 Elliott Wave update

S&P500 index: is a top already in?

S&P 500 update: where is the top?

S&P500 continues its rally

S&P500 remains resilient

S&P500 ready to dive?

S&P500 Update: May 19, 2009

S&P500 Elliott Wave update:21 May 2009

S&P 500 breaks higher: update 2 June 2009

Nov 192008

Thanks to some tough cost-cutting measures implemented by CEO Mark Hurd, Hewlett-Packard Company (NYSE:HPQ) is in a position to give out strong 4Q outlook. This has sent the stock price sharply higher yesterday, up over 14%. I invite you to take a look at the accompanying chart. The “C” wave has made a perfect landing at $28.23, a level which is 1.618 times the “A” wave. (wish I was trading stocks full time, as that would have been a low-risk trade there!). Anyway, there is ample material out there for you to read, a good number of them saying the party may not last much longer! From a purely technical point of view, we have to be careful near 34.20and more so at 36.00. DOn’t make the mistake of buying near these levels, folks, as there is a pretty good chance we will get a decent-sized pullback from either of the two levels. I would actually try to go short near 36.00 with a 25-cent stop! Good trading!

Nov 192008

Today’s headlines read the Bank of England were considering whether BPthey should cut the base rates by more than two points on November 6, but settled for a 1.5% cut so that they would have room to cut later on, and bolster confidence. Why is the Pound gaining ground (even if only limited ground) when faced with the prospect of further rate cuts? Obviously, it is all a matter of supply and demand at any point in time. For example, today Merrill Lynch has been mentioned as big buyers of Sterling related to Middle East investment into Barclays! Another rumor is MLL has an option payout if Sterling is above 1.5100 at ECB fix today. Bear in mind that these are only market rumors, and frequently, rumors are floated by interested parties. Being traders with limited resources, most of us should wait for low risk entry levels and position with the major trend. The trend for Sterling is still down. I see significant resistance around 1.5220 and so will be trying a small short if and when we get to near 1.5210 in the next 24 hours. If we don’t get here by tomorrow, I will forget this idea and move on! Take a look at the accompanying Sterling chart. As usual, I have drawn some Fibonacci retracements, but the key is really Elliot Wave Analysis, and Wave Analysis is more than drawing Fibonacci retracements! Enjoy.