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

Jun 102014
 

Elliott Wave analysis can be applied to any number of securities, be an individual stock or index or commodity, or just about anything that is traded in a liquid market. Today, we will take a look at the Elliott Wave analysis of Arabtec Holding Co. This us a popular stock that trades in the Dubai financial markets. In case you haven’t heard, Arabtec Holding Co. (ARTC) headed for its biggest three-day rout since March 2013 as some investors speculated Aabar Investments PJSC, its second-largest investor, is cutting its stake in the Dubai builder. To tell you the truth, I hadn’t heard the news either until AFTER I prepared the charts and mailed them to a friend who runs a large trading desk in Dubai.

The first chart below shows a couple of interesting things. For example, we have a failed 5th wave within the larger first wave. That was followed by a deep correction that went past the 50% retracement level.

Wave 2 of Arabtec

Wave 2 of Arabtec

We then got a fantastic rally was an extended third wave, which went to the 361.8% projection level of wave 1.

Wave 3 went to 361.8% projection of wave 1

Wave 3 went to 361.8% projection of wave 1

After an extended third wave, it is usual for wave 4 to come down to the 23.6% retracement level. This is what happened with Arabtec

Wave 4 down to 23.6%

Wave 4 down to 23.6%

We can anticipate the end of wave 5 by establishing relationship with wave 1. With Arabtec, it was 123.6% of wave 1.

Anticipating end of wave 5 in Arabtec

Anticipating end of wave 5 in Arabtec

If you are wondering how far the fifth wave went past the target, take a look here
Arabtec-5

And what happened at the end of a five wave move?
Arabtec-6

Arabtec probably has a little more ground to the downside, so we have to look at the near term charts to figure that out. I am sure you are now capable of doing that exercise. Go ahead, and give it a shot.

Jun 012014
 

Alliant Energy Corporation (NYSE: LNT) has been part of David Van Knapp’s Dividend Growth Portfolio since 2010. In his article in Seeking Alpha, David celebrates the 6th birthday of his portfolio and showcases the stocks that go into that portfolio. The first stock in the list of 18 stocks is Alliant Energy Corporation.

As most of you know, I look at stocks from an Elliott Wave perspective first, and so decided to do a detailed study of Alliant Energy Corporation. Elliott Wave analysis is a method that many professional investors embrace because it gives them several clues about where in the market’s progression we currently are. Briefly, Elliott Wave Analysis says that all impulse waves are made of 5 waves, and once a five wave movement is completed we should expect a correction.

Alliant Energy Corporation’s Elliott Wave charts reveal that we are in the fifth major wave higher, and within that fifth wave, we could potentially be in the fifth sub-wave. Usually, investors should start planning on a strategy to exit their holdings during this fifth-of-the-fifth wave. However, with Alliant Energy Corp the story is slightly different. The first and third waves that we have seen so far were both of normal proportions. Besides, the two corrections in wave 2 and wave 4 positions were both relatively brief. This leads one to anticipate an extended wave 5. So, we might as well be patient and wait for a move to around 60.50 before we take a fresh look at this stock. What follows are a set of 11 Elliott Wave charts of Alliant Energy. Study them carefully to see how the market seems to dance to the magic wand of Elliott Waves. Good luck. (I suggest you right click on each image and open in a new tab)

Alliant Energy Corporation -chart 1

Alliant Energy Corporation -chart 1

Alliant Energy Corporation -chart 2

Alliant Energy Corporation -chart 2

Alliant Energy Corporation -chart 3

Alliant Energy Corporation -chart 3

Alliant Energy Corporation -chart 4

Alliant Energy Corporation -chart 4

Alliant Energy Corporation -chart 5

Alliant Energy Corporation -chart 5

Alliant Energy Corporation -chart 6

Alliant Energy Corporation -chart 6

Alliant Energy Corporation -chart 7

Alliant Energy Corporation -chart 7

Alliant Energy Corporation -chart 8

Alliant Energy Corporation -chart 8

Alliant Energy Corporation -chart 9

Alliant Energy Corporation -chart 9

Alliant Energy Corporation -chart 11

Alliant Energy Corporation -chart 11

Date: 3 July 2014 Elliott Wave update for Alliant Energy Corporation
On 1st July, Alliant Energy Corp reached a high of 60.89 and today, just 2 days later, it is down at 58.25. WHat new clues are available? Take a look at this chart.

Elliott Wave update for Alliant Energy

Elliott Wave update for Alliant Energy

Apr 232014
 

In this post, I am going to present you with Elliott Wave analysis of Wockhardt Ltd. One of the members of my exclusive club had approached me for a consultation back in January 2014. It was the 14th of January, to be precise, and the stock was trading at Rs 413.65. The member sent me the following brief note:

“I consider myself as long term investor. I hope your advice/analysis will help in some of my long term investment decisions. By long term I mean I could hold for more than a year, if required.

Could you please look into the following stock for me: (I understand this will cost me 2 credits)
Market – India – NSE
Company – Wockhardt limited
Symbol – WOCKPHARMA
Exposure – None at this time.

Comment: This stock has comedown from around Rs. 2000 and currently trading at 420. It saw a low of 350 about 3 weeks back. Did it start its uptrend? Since the company is in pharma industry, it is subjected to lot of FDA regulations. I think FDA’s adverse observations made the stock to drop in recent times.”

I looked at the chart, and could make out that it was going to be a challenge to come up with a sound analysis. I prepared a set of 10 charts and will share with you some of them here. Please note that this is not a marketing message. The idea is to allow readers to see the value of Elliott Wave analysis, and how someone with experience with Elliott Waves could come up with a sound strategy. I recommend that you open the charts in different tabs.

Wockhardt Big Picture

Wockhardt Big Picture Elliott Waves

Wockhardt First Target for C wave

Wockhardt First Target for C wave

3rd wave target within the C wave

3rd wave target within the C wave

Verifying 4th wave as correct

Verifying 4th wave as correct

Identifying possible end of wave 5

Identifying possible end of wave 5

Analyzing minor waves of wave 5

Analyzing minor waves of wave 5

As can be seen from the above, I have finally come to the conclusion that a major correction is now over, and the rally that started off from that low is the first wave of a new cycle. Now comes the more interesting part, the one about where to buy.

Have we finished 5 waves of wave 1?

Have we finished 5 waves of wave 1?

WCKH-10-14Jan14

So we have identified a low-risk entry point. However, there were other considerations like risk-management and what size to expose. Yet, an initial entry point has been identified.

This member went long a decent position size at an average rate of 430. He probably purchased some on the way up after the dip, a smart investor I must say. He understood the size of the upcoming recovery, and wasn’t penny wise when it was the right time to take a risk. A majority of traders do the opposite. They take big risks when they should be cautious, and take small risks when everything points to a favorable move! Anyway, this is what happened. I am sharing with you just the plain chart without any notations. We got a dip down to below the 400 mark twice in the days that followed and the stock is up by nearly 70%.

The power of Elliott Waves

The power of Elliott Waves

Mar 102014
 

Today’s FT carries an interesting report filed by Miles Johnson, their Hedge Fund Correspondent. This report says that Seth Klarman, one of the most respected investors, has raised the alarm over a looming asset price bubble, and specifically mentions Tesla Motors , (TSLA:NSQ). He has warned of the potential for a brutal correction across financial markets. See this link: Seth Klarman warns of asset price bubble

So I decided to check out the charts for Tesla Motors to see if Elliott Waves could offer us additional clues that might help us play along with the view professed by Mr Klarman.

Take a look at the first chart below. It clearly shows that we are in the fifth wave of a move that stated back in Q3 of 2010. According to the Elliott Wave Principle, it is normal for one of the three impulse waves within a five wave sequence to be extended, i.e. for it to move a greater distance than the other two impulse waves. The chart below shows that the first and third waves were roughly equal is measure (i.e. they were of ‘normal’ proportions). This also ties in with another feature of Elliott’s observations that often enough, two impulse waves tend to be equal in dimensions. You will also observe the principle of alternation in the two corrective waves seen, whereby when wave 2 was shallow, we got a wave 4 that was deep.

The next chart shows how to anticipate a possible end point for wave 5. Because we are expecting wave 5 to be extended, one possible terminal point is at a place where wave 5 would have traveled a distance equal to that from point 0 to point 3. This comes at $295.

 

We will now zoom in to the fifth wave and see if the sub waves of the fifth wave can give us additional information. As you probably know, every impulse wave is composed of its own set of five sub waves. We can immediately see that sub wave (3) was extended to reach about 300% of sub wave (1). Wave (2) was 50% of wave (1) and wave (4) has already corrected to a 23.6% measure of wave (3). All these Fibonacci Ratios are common measures used by Elliott Wave Analysts to add confidence to their reading of the waves.

 

The final chart below uses the technique I have described in my book “Five Waves to Financial Freedom” where we measure the distance form point (0) to point (3) and compute a 38.2% and a 50% measure. These measures, when added to the bottom of wave (4) will give us potential targets for wave (5). Interestingly, if we add a 38.2% measure to wave (4) at 235, the target comes just below $295 which we already saw earlier. And should wave (4) come down some more to reach a 38.2% correction of wave (3) – that is reach $217, then we will get wave (5) to land at 291 if we add a 50% measure of (0) to (3).

Because of these confluences, we should go with the belief that there is a high probability for Tesla Motors to complete its extended fifth wave just below $295 and commence a very sharp decline that can take it all the way down to $137. This is the level where the extended fifth wave had its sub wave (2) end. There are numerous illustrations of this phenomenon explained in this blog as well as in my book so much so that I have often informed readers that fifth wave extensions can make us rich! Good luck and happy hunting.