Twitter (NYSE: TWTR) has made some fantastic gains since its IPO in November. What is the outlook for Twitter? Has Elliott Waves been effective in trading this stock? Answers for these questions are found in my latest post in Forbes. Check it out.
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.
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.
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.
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
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.
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.
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.
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.
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!
Elliott Waves Analysis can be a powerful tool in the hands of an alert trader. A few days back, I had suggested that Hindustan Dorr Oliver stock (NSEI:HDRR) Was set to roar having already completed a five wave down move and looked ready for a bullish triangle breakout. Well, the stock has delivered with the upside breakout from the triangle, and reached a high of INR 15.65, which is well over 20% up from the level of 12.53 it was trading at on the day Wave Times presented the analysis to you. Take a look at the Elliott Wave chart below to see how it turned out.
Unfortunately, the company has also delivered some bad news! And it is trading down from the recent highs. Elliott Wave fans are anxiously asking whether we will be able to rally back, because we had suggested a target of nearly INR 18. What is the outlook for Hindustan Dorr Oliver from here, they ask. Well, the way I use Elliott Waves is to use a count till it is useful, and then look elsewhere for new opportunities. But I can say that there still exists a chance for a recovery because we have come down by 50% of the latest 3rd wave within the fifth wave. Maybe we are in the process of completing wave 4 after which we will get one more recovery? Also, the upper boundary of the bullish triangle, where there were several tops, will now act as a support. Only a close below that upper trend line will cause a bout of anxiety, and perhaps a revisit of the Elliott Wave counts. We shall see.
The Elliott Wave chart of Hindustan Dorr Oliver (HDRR) stock has an interesting chart formation. Let us start from the significant high of 159.40 seen in August 2010. Since that time, the stock has been nothing short of decimated, and investors have been pulverized. The low seen was 7.55. The recovery from that low has been slow, which is natural. Let us see if we can count some waves from the top. Actually, it may make better sense to present a wave count from a more recent top, 39.80 seen on 9 July 2012. DO you see a five wave pattern completed from there?
What happens at the end of a Five Wave Move?
Hindustan Dorr Oliver seems to have completed a five wave move from a significant high of 39.80. What happens when a five wave move is finished? Elliott Wave theory says we will get a correction that should be bigger than either of the two minor corrections seen in the just finished five wave move. Wave 2 was from 21.69 to 31.43, traveling 9.74. So we should anticipate the current rally to reach 9.74 or more from the low of 7.55. The minimum target then becomes 17.29, which is 30% higher than current levels.
A Triangle Formation?
Do you see a bullish triangle pattern? Perhaps this is an X wave separating a zigzag correction? Or more optimistically, perhaps we are in a complex wave 2 after which we will get an explosive third wave? In any case, a close above the upper trend-line of this Elliott Wave chart will send the bears scurrying for cover, and give the bulls more confidence.
Using Elliott Waves
The main reason why traders use Elliott Waves is because it gives them an edge, which I would like to call an Elliott Wave Edge. While there are no guarantees about making money, this edge allows traders to anticipate which direction the next move is likely to be, and also compute how far the move can take us. Traders are also able to figure out where they should place a stop if the next wave that develops doesn’t meet the Elliott Wave rules, or Guidelines. You can read about the Elliott Wave edge and how traders win in this article here. You can also read detailed explanations about Elliott Wave Theory, the rules,and wave personality in this reference article.
Trading NIFTY using Elliott Waves by Ramki of Wavetimes.com
In my last Elliott wave update on the Nifty Index (posted on 3 July 2013), I had presented you with a big picture scenario. The third chart in that post had one level as 5112 being 61.8% of wave A. It is gratifying to note that on 28 August, the index reached within 6 points of that level (5119) before it commenced another move higher. To those who don’t understand markets, 5119 will appear far away from the 4300 level which was written in my notes at the bottom of that chart. These people will have serious difficulty in making any money if they pursue technical trading. There are a couple of things that one needs to understand about Elliott waves. A big picture outlook is just that. It gives us a broad road map. Timing an entry to capture the next large move will demand paying careful attention to waves in the shorter cycles. In today’s post, I am presenting you with an example. This is a 10-minute chart! You can see that I have put some tentative Elliott wave labels on it. These are still work-in-progress, and are by no means conclusive.
In my book “Five Waves To Financial Freedom” I have explained in detail what happens when a five-wave move is completed. The main challenge lies in determining whether the move is actually finished. There are many ways of counting a move, and what you see here is one example. A short-term trader could have benefited by counting it like above, and by selling at 6220 with a very tight stop. I have often stated that trading the markets requires a little more than an ability to count waves. This is where many of us suffer from weakness. We choose to believe that what we are able to ‘see’ is how the markets will behave. If there is one important lesson you need to master before you expose real money it is the willingness to accept you could be wrong, and knowing beforehand what you will do when you are proved wrong. You need to evaluate various scenarios, and determine which gives you the best risk-reward trade off. Then, you need to be patient for the markets to come to your desired level. And if it does come there, you need the courage to actually pull the trigger!! And finally, you need to be diligent to monitor the position to take corrective action if the market sends out fresh clues that are counter to your thinking. It is precisely because of these challenges that you need to be wary of trade ideas that come at you thick and fast from various sources, including TV channels. It is so easy to say ‘buy here with a stop there’ and not bother with that recommendation beyond that date. After all, there are new recommendations for you to look at the next day!! Anyway, I wish you good luck with your trading. This blog aims to teach you the methods, and nothing more.
Ramki of WaveTimes.com
Elliott Wave analysis is one of the most versatile tools in the hands of a trader, provided he/she knows how to use it correctly. At WaveTimes you have the opportunity to learn more about the Elliott Waves.
Old timers know that my favorite formation is where we see an extended fifth wave. In fact, it has been a recurrent theme in WaveTimes that extended fifth waves can make you rich. You can do a search for that in the web and see the various examples given in this blog. I believe the concept has also been well covered in the book “Five Waves to Financial Freedom”. In today’s post, we will look at a popular index in the Indian markets known as Bank Nifty Index.And you guessed right, we will see another example of an extended fifth wave and what happened next. And importantly,these concepts will work in ANY well traded market, and even if you don’t have any interest in India’s BankNifty Index, I suggest you spend a few minutes to read and understand the Elliott Wave ideas enumerated below.
The way to start counting your waves is from a significant top or low. Let us start with the important top around 13,430 that was posted on May 20, 2013. I suggest that you right click each image and open it in a new tab.
As you can see, the first sell off is labeled as wave 1 and we got a 50% correction of that as wave 2. The next wave down was the third wave, and this was followed by a ‘Flat’ correction as the fourth wave. This fourth wave was 38.2% of the third wave as shown in the Elliott Wave chart below.
After the fourth wave was completed, the markets set off earnestly to the South and we got an extended fifth wave. As you know, a wave is known as an extended wave when its proportion is unusually long in relation to its counterparts in the cycle.
The extended fifth wave shown above has traveled 138.2% of the distance seen from the start of the first wave till the end of the third wave, i.e. from points 0 to 3.But what happened afterwards is most instructive. True to its form, once the extended fifth wave completed its own minor fifth wave, we got a massive bout of short covering, and the market raced back to the level of wave ii within the extended fifth wave. This is what I have taught you many times in this blog and in my book. Imagine how much you could have made by buying near the end of the extended fifth wave!
My next Elliott Wave chart shows how the rally evolved from the lows. The chart below shows that we got a second wave that came down by 70.7% of the first wave. As you probably remember, there is something known as ‘alternation’ in Elliott Waves. If wave 2 was a simple correction, we should expect wave 4 to be complex. Likewise, if wave 2 was a deep correction (as is the case here) we should anticipate the 4th wave to be shallow. These are all illustrated here for your benefit.
And finally, could one have anticipated where the fifth wave will finish for teh rally from the bottom? Of course, yes! Remember what you read in “Five Waves to Financial Freedom”? We compute the target for the fifth waves by measuring the distance from 0 to 3 and then calculating some ratios. In the present case, the fifth wave finished exactly at the 61.8% measure of the that move. See the next chart for this.
Well folks, that brings us to the end of this post. What you need to know is that it is possible to anticipate the terminal points of moves, and while there are no guarantees that it will work, you will have a chance of taking a low-risk trade at those points. Trading is all about taking sensible risks. This is what we should all be doing. I realize many of you still have difficulty in counting waves, but that is a challenge you will overcome with practice. Good luck.
When I return from my holidays in the second week of October, I plan to spend more time on this blog. A lot of you have been requesting for more frequent updates, and I will try and squeeze some more time to continue to teach you how to use Elliott Waves. Take care until then. Ramki ( Sao Paulo)