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.

Feb 112014
 

I had prepared the following article for publication in Seeking Alpha on Sunday, but I decided to share it here with you folks directly. Meanwhile Chevron Corp is already moving nicely.

Chevron Corporation is an integrated energy company with operations in countries located around the world. The company produces and transports crude oil and natural gas. Chevron also refines, markets, and distributes fuels as well as is involved in chemical operations, mining operations, power generation and energy services.

Let me be honest about one thing upfront. I don’t have a Dividend Growth Portfolio at the time of writing this article. I have been involved with the financial markets for over 30 years, and have always been in the thick of action in a variety of markets. But I neglected building a DGP. Yes, it is a serious lapse! But it is never too late to start. The goal is to reach an yield to cost of 10% within 10 years. Perhaps, Elliott Wave Analysis would help me reach that goal in a shorter time frame!

The stock had a closing price of $112.05 on Friday, 7th February 2014. If I were to buy this on Monday at $112, my own yield will be 3.59% which looks good. My Bloomberg screen shows that the 5-year Net Growth rate for dividends is 9.04% and the 3 year and 1 year dividend growth rates are respectively 11.15% and 11.11%. The P/E for the stock is 10.09. As many fundamental analysts have done adequate research on Chevron Corp and awarded it high marks, all I wanted to know before I placed my buy order was whether Elliott Wave Analysis offered me some additional clues. Is it time to add Chevron Corp to my brand new Dividend Growth Portfolio?
Let me give you a quick summary about Elliott Wave Principle. The theory was put forward by Ralph Nelson Elliott in the 1930s and has stood the test of time. Elliott discovered that all market moves in the direction of the main trend developed in a five wave pattern. Two of these five waves served to correct the first and third waves. But once the fifth wave completed, the next correction served to correct not only the fifth wave, but also the entire sequence for five waves. Hence that correction is usually bigger and lasts longer than the two minor corrections seen on the way up.
With that introduction, let us take a look at the first chart below. You can see that starting from the significant low posted in the early 1980s, Chevron Corp has a clear five wave move to its recent top. The third wave traveled a distance of 161.8% of the first wave, a classic measure for third wave moves. Some of you might recognize this ratio as a Fibonacci number. You will also notice that wave 4 and wave 2 were alternating in length and complexity. This too is as per Elliott Wave Principle.

Chevron Corp is in wave 5

Chevron Corp is in wave 5

I then zoomed in to view the fifth wave to see if that had its own five minor waves. And sure enough, I could make out a clear five wave pattern there too.

Elliott Wave Analysis of Chevron Corp

Elliott Wave Analysis of Chevron Corp

So does this mean we will now experience a decline that will be longer than wave 4 seen during the great recession of 2008? If that happens, won’t the price go down to around $79?
This is where one more important guideline from the Wave Principle will help us decide. According to the theory, we should expect at least one of the three impulse waves to extend, i.e. travel an unusually long distance. From the above two charts, it is evident that both waves 1 and 3 were of ‘normal’ proportions. Hence, it is likely that wave 5 will be extended. That means what we have seen in the second chart above is not the end of wave 5, but probably only the first sub-wave within an extended fifth wave. Seen from that angle, it would be very tempting for the investor who seeks dividend income to get a full exposure of his/her maximum position size that the portfolio would allow. It is true that we could still get a dip under $100, but that dip should be used to add some more exposure to CVX. I am going to buy my first lot on Monday, before the stock goes Ex-Dividend.

Jan 312014
 

There have been a few requests for publishing a record of the trades that the members of the Exclusive Club shared. The following is the complete list of the trades closed in January 2014. As you can see, I am very selective about the trades. The aim is to become rich slowly! WaveTimes is used by members as a supplement to their normal investment and trading activity. And because we are willing to be patient, we are successful most of the time. In January 2014 it was a 100% success rate.

Here is the link: http://tinyurl.com/WTJan2014

Jan 282014
 

You would have heard about the disappointing news from Apple. Wonder what Elliott Waves tell us about the extent of possible downmove? Take a look at the chart below. In after hours trading on Monday, the stock was already around $506. There is some mild support around 503, but think the correction of the sell off will probably come from around 497. Later on, though, we will see the decline continue to around 485. You may wonder why I have chosen to label the just completed rally as a C wave and not a 3rd wave. As you probably know (especially if you are a member of the exclusive club), our goal is to make money from the markets using Elliott Waves. Hence, I am flexible with the wave counts. However, take a look at wave B. If that was wave 2, it is a deep correction. So wave 4 should be a shallow correction, finishing near 503 and rallying again. This could still happen, but I doubt it. Too many people have been hurt by this surprise, and in any case, the broader market is looking decidedly cagey. Will investors pile on to snap up Apple stocks at 503? They will do so only if they think this latest earnings report is a one-off bad number. But many people will begin to suspect that the future is more uncertain than what they imagined last week! And that is only going to pressure the stock in the near term.

Jan 092014
 

Raw sugar trading at 3-1/2 year lows and traders are panicking. Technically driven selling and stop loss orders have been driving this soft commodity lower and lower since peaking in 2011 at a 30-year high. Can Elliott Wave analysis help the particpants in this important market? Sure. Take a look at this article that I contributed to Forbes yesterday.

Jan 062014
 

A few weeks ago, when Facebook shares were trading around $48, I had posted an article on Forbes saying we will see Facebook at $58.73. There was an immediate challenge of picking a short term low for the fourth wave, with one possible level being 47.40. But this was supposed to be a complex correction and it allowed further mild weakness before we went higher. And sure enough, after dipping to a low of $43.55, Facebook went roaring back to a high of $58.58. How high can this go, and what is the prognosis after we complete this up move?

Elliott Wave Analysis of Facebook

Elliott Wave analysis, as explained in my book ‘Five Waves to Financial Freedom’ is very effective to determine one’s trading and investing tactics. We know that the fifth wave can be equal to the first wave, and if you look at the first chart below, you can see why we got a quick sell off from near 58.60. The reason was many professional traders who know about the power of Elliott Waves would have sold near there. But there is also the underlying human emotion that giverns mass psychology. The general public is not so easily put off, as they still see buying opportunity at every dip. This is what culminates into a fifth wave.

Facebook Wave 5 equals wave 1

Facebook Wave 5 equals wave 1

 

Target for Facebook Fifth Wave

There are two other ways of anticipating the target for fifth wave. We can compute a 38.2% or 61.8% measure of the distance from the start of wave 1 to the end of wave 3. Occasionally, we can also see it finish at the 50% measure of this distance. the measure so computed is added to the bottom of the fourth wave to get the potential target for the fifth wave, and doing this as shown in the chart of Facebook below gives us the potential turning points. But first, take a look at the subwaves of the fifth wave in the higher degree. You can see that the 3rd wave had extended to reach 300% of the first wave.

Subwaves of Facebook

Subwaves of Facebook

 

Where will Facebook finish its fifth wave and outlook for the stock

Typically, when a third wave extends, there is a higher chance for wave 5 to reach the 61.8% target. However, as always, it never pays for an investor to wait till the very last cent!  So, I would suggest exiting all longs from near 59, and to start turning cautiously short, selling a larger amount as we get above the $62 mark. Because we will now be correcting not just the fifth wave, but also the entire five wave movement that started from below $18, you should expect the correction to be quite significant. At the very least, I expect the correction to last over 3 months, and the price to decline by at least 15%. Having this kind of expectation is possible only with the deft use of Elliott Wave Principle. You too can profit by mastering this theory and start taking low-risk trades. Good luck.

Lookout for a correction of 15% or more from around $60

Lookout for a correction of 15% or more from around $60

Dec 312013
 

As 2013 bows out and we welcome another New Year, I present you with some of the interesting stuff we looked at in the Exclusive Club in recent months. You might recall that I have already published some trades that went wrong. There is honesty, transparency and fair play in everything that we do. These charts below are just samples, by the way. In the real trades, I have shared as many as 36 charts in a recently closed NIFTY trade. We had our minor setbacks interspersed with trades that performed really well. If one uses Elliott Waves effectively, there are terrific rewards to be had. I usually tend to err on the side of caution, but those who got in at the levels I recommended for many asset classes and stuck with the original stops have had a fantastic run. Trading is all about taking a series of risks where the winning trades give you a very big cushion to handle the losing trades. Let us all look forward to a rewarding 2014, and I wish each and every one of you the very best of luck.

*Crompton Greaves (28 Nov 2013)*

“We are probably going to find some resistance between 129.40 and 130.80 and come off to between 117.80 and 121. The target is around 138.00. So we will look to buy the next dip.”

 

 

 

 

 

 

 

 

 

 

*Nike ( 8 October 2013)*

“Now this is what I am planning to do. Buy some near 70.50 and be willing to add at 69.00. Stops at 68.45, or risking $1.30. The minimum target is a retest of the recent highs above $75 so we will get a risk-reward trade off of at least 4 to 1.”

 

 

 

 

 

 

 

 

 

*Crude Oil ( 25 Nov 2013)*

The idea was to buy at 91.60 and the low was 91.77 from where it went all the way to above $100.”

 

 

 

 

 

 

 

 

 

 

 

 

*Launch of consulting service*

In addition to this free blog that aims to teach you how to use Elliott Waves, what many have come to know as the ‘living book’ that supplements ‘Five Waves to Financial Freedom’, I have been running the wavetimes.net website where members receive some of my low-risk trading ideas. However, there have been numerous requests for help with stocks and commodities that I don’t include in that website. I am delighted to say that these traders can now spend a full hour talking to me where we can go over up to two specific trades of their choice in detail. Check out this link: www.wavetimes.net/consulting

Dec 012013
 

After posting a significant low on 23 August 2013 at 100.15, BHEL uptrend has gathered steam and has closed above the weekly trend line resistance. Furthermore, it has closed ABOVE two recent tops. I had discussed the bullish possibilities for this stock in Elliott Wave Analysis of BHEL that was posted on 12th September in Wavetimes. Although the stock didn’t quite make it down to the preferred buy level, the directional clue given by Elliott Waves has proved correct. Let us now take a quick look at what key levels lie in the immediate vicinity.

The chart you see below has some tentative Elliott Wave counts posted on it. It is important for you to understand that at this stage it is too early to confirm what will happen in the big picture. One thing, though, is clear. The 3rd wave did not bear the personality that is normally associated with it. So there is still a chance that this will turn out to be a double zigzag. But we need not worry about it just now. Given the current momentum, we shouldn’t be surprised to see a visit to 166 plus levels where there are some Fibonacci confluence levels. A gradual move to that level will mean it is time to take profits there. On the other hand, if it explodes higher, the stock can end up compensating the slow performance in wave 3 by having a very strong 3rd wave within an extended 5th. I am mentioning all this because trading the market using Elliott Waves is different from posting a chart with the waves neatly shown after the move is over. We need to be aware of various possibilities, and have a clear cut strategy carved out in advance. In the meanwhile, I would like to consider buying a small amount on any dip to near 152.70 with a stop below 152. That is a small risk to capture a move to 166 and beyond. While we are trying to limit our risk here, the uptrend in BHEL will be called into question only if we trade below 144.65, which is the top of wave 1 inside the current 5th wave.

BHEL uptrend

Nov 182013
 

As you know, this blog is there to help you learn how to use Elliott Waves. There are hundreds of examples of how one could be successful in the financial markets using this kind of technical analysis. There are also a few scattered examples of analysis that didn’t work out. Sometimes the analysis itself was wrong. At other times, the market just changed. The key point to bear in mind is one has to be consistent in his/her approach to trading in order to succeed. Also, success should be measured in the medium to long term. You cannot take just one or two trades and determine the method won’t work if you fail.Anyway, I thought it is a good idea to share with you a recent trade that members of the exclusive club took, and it didn’t quite go as per plan. Let us see how.

It was 31st October when I presented these charts. The first two showcased how wonderfully Elliott Waves were able to pinpoint accurately the top for the Euro. I used a 61.8% Fibonacci retracement and also confirmed its importance by measuring a 161.8% projection for the Wave C at 1.3820 levels.

EURUSD fails at the 61.8% Fibonacci retracement

The power of the 61.8% Fibonacci retracement


Wave C finishes at 161.8% projection

Wave C finishes at the 161.8% projection level

But what is the next trade idea? I saw the structure of the waves from 1.3830 and it looked like a double zigzag. If you have read my book “Five Waves to Financial Freedom” you would know that when we get a zigzag correction it often ends up above the top of wave 1.This was at 1.3560. However, I was willing to risk some money at 1.3610. I also reasoned that the second zigzag could travel deep. You can see these notations on the following charts.

A double zigzag correction in EURUSD

A double zigzag correction in EURUSD

The plan was to buy in 2 stages. One third at 1.3610 and the rest at 1.3560 with a stop at 1.3535, risking 40 pips to make at least three times that. But when the Euro made a low of 1.3582 and didn’t look like it was going to bounce, I sent out an email that we should get out if there was a recovery to 1.3630, and buy the full lot at 1.3560 (same stops). The Euro stayed afloat for some time, but it soon reached the second buy level. The supports around 1.3550 held for several hours, but the writing was clearly on the wall. I sent out another email saying that it might be a good idea to get out near the break-even level. But for all intents the trade was a goner.

EURUSD in a feeble bounce before sell off

EURUSD in a feeble bounce before sell off

What is the lesson here? Firstly, Elliott Waves don’t guarantee a profit. It does allow you to take early action to mitigate your risks. And when you are on the right track, it pays you handsome dividends. Secondly, we should be willing to accept that something is going wrong and get out of the trade quickly when such signals are presented to you. We should not stay married to a losing trade. Elliott Waves help you in the divorce from your position!