Tuesday, March 31, 2009

XAO - The start of Wave (5) down?

I thought I'd post something that looks at the smaller wave count today (noting that what is discussed here can be applied to wave structures at any time scale, so if you want to imagine a daily chart then feel free to do so :-) )

What's interesting about this wave structure is that the wave '2' zig-zag is almost too perfect. Glenn Neely highlights these formations with some caution as the wave '2' correction may not be finished if the entire structure (a-b-c) is contained within the parallel lines (sloping up to the right), which it is except for a very small throw over at the end of 'c'.

In addition, the thrust downwards after wave 'c' seems weak and has not broken the start of wave 'c' in less time than wave 'c' took to form. Hence, looking at individual waves and the time each has taken to form can provide confirmation of the completion of zig-zag corrections. This concept is explained in Glen's book mastering Elliott Wave in more detail.

There is therefore a real possibility that this wave '2' correction is yet to complete and a more complex correction to unfold. Breaking below the end of wave '1' in a small 5 wave move would provide stronger confirmation that a more complex correction is not unfolding.

Wednesday, March 25, 2009

WOR - Ending Diagonal Complete

Discussed last Wednesday, WOR looked like it was forming an ending diagonal for wave '5' of 'C', completing a Flat (3-3-5). The wave structure suggests that this has now occurred and there should be a pullback, possibly to a new low.

Whether a more complex correction is to unfold remains to be seen, but the short term wave counts on a 15min or 60min chart will clearly highlight the finer details of the declining wave structure. Should five clear waves down on the daily chart become visible, then this will provide some reasonable clarity on the directions of WOR in the coming weeks.

Tuesday, March 24, 2009

XAO about to reach an important juncture

The XAO is about to reach an important juncture that will validate one of the two scenarios shown.

The first Scenario shows the leg down that started in 2007 completed. The evidence supporting this scenario is the latest market action that is unfolding in 5 waves up.

This alone doesn't necessarily indicate that a temporary bottom is in place. The ending wave count looks a little unusual as well - wave (4) would need to be a triangle that looks a little strange as far as triangles go. However, we must still look at the possibility that wave 'A' circle down is complete. One will need to look at the next pullback with caution as it could lead into the 2nd scenario instead.

The second scenario sees wave (4) still underway as an expanded flat (or even a triangle - both alternating well with wave (2) ). The current wave structure suits this scenario a little better than the first. Two 3 wave moves are complete - 'A' and 'B'. Wave 'C' needs to be a 5 wave move upwards (which is exactly what's unfolding - so far). In addition, when comparing wave (1) down with wave (5) down - the waves are in complete contrast in the first scenario - wave (5) is simply too small. The second scenario would see wave (5) down yet to commence.

Right now, I'm allowing for both scenarios and both support a short term trend upwards. The next reasonable pullback (down to around 3400), that should occur soon, will provide further evidence as to the unfolding wave counts.

Thursday, March 19, 2009

XAO - Triple Combination

Based on the short term waves, I'm really not satisfied that we're seeing impulse moves upwards in this latest rally. Even though at first glance 5 waves appears unfolding. In any event the answer should be with us very soon.

What may be unfolding instead is a triple combination - three 3 wave moves (with intervening 'X' waves) with a triangle for the last wave. Double combinations are more prevalent on the shorter term waves, so seeing a triple at this scale would be interesting to see confirmed.

Because of the triangle at the end of these corrective waves structures, many analysts will believe a wave 4 triangle is unfolding and expect another leg up.

If the above analysis is correct, we should see the rest of the triangle play out (tomorrow hopefully), and then a strong thrust to the downside once completed.


The Euro surged against the USD overnight, hitting 1.35 up from around 1.30.

This surge can be considered as part of wave 'E' as the last leg in a multi-month triangle. This interpretation fits into a bigger zig-zag correction (5-3-5) scenario where this large triangle is corrective wave (B).

Triangles indicate the current trend will soon change (or at least correct). Since the trend is down, then one more wave down needs to unfold - in this case Wave (C) as a 5 wave move.

Wave 'E' of this triangle, the last wave to complete, should end very soon - perhaps up to the 1.38 area (or even higher, but cannot move beyond point 'C'). Once complete, there is an expectation that wave (C) will commence and head down to the 1.15 - 1.10 area.

The completion of this large multi-month zig-zag correction should see the EURO re-commence the longer underlying trend upwards.

Wednesday, March 18, 2009

WOR - Flat Correction for wave (4)

It appears that WOR is in the final stages of a flat correction (3-3-5) and the last leg - the C wave is finishing 5 waves up.

The final thrust appears to be developing as an ending Diagonal - a 5 wave overlapping move. One last push to a new short term high is needed to complete this move.

Looking at the overall wave structure, wave A is a 3 wave move, wave B is a 3 wave move and wave C is 5 waves - thus making a larger 3-3-5 flat wave structure. A larger correction could still unfold and this whole structure would become 1 wave in a larger multi-wave move (eg a Triangle)

Identifying Waves of the same Degree

Identifying waves of the same degree. For many EW analysts, it can sometimes be difficult to determine how Elliott Waves are labeled correctly. Wave alternation (different look, price or time action) helps, but also looking at the price and time action on corrective waves can also assist.

Usually if the price and/or time of corrective waves is more than 1/3 of the previous wave, then the correction could be labeled at the same degree as the previous wave. See examples.

Tuesday, March 17, 2009

XAO - 5 up
A small five wave move up on the XAO looks complete. It has also hit some key resistance levels @ 3350 as well x2 Fibonacci retracement levels of 38.2% ( from wave (4) ) and 61.8% (from wave 'b' circle).

The completed 5 waves up indicates a retracement should be forthcoming then (at least) another 5 waves up to form (at a minimum) a zig-zag correction (5-3-5). The ultimate target of the XAO may be around the 3500 level where again there is strong resistance and 61.8% fib retracement level.

The impending short term retracement (a 3 wave move, or a triangle) could take the XAO back down to 3250 (a 38.2% retrace of the recent leg up) or to just under 3200 (a 61.8% of the recent leg up) and also hitting fib levels from wave (4) and b circle as shown. As some have already suggested in the forum, this retracement may be an opportunity.

Wave (5) Down - Ending Diagonal?
The leg down from the end of wave (4) is a three wave move. So this evidence suggests either an ending diagonal is forming or wave (4) is still unfolding.

The way I've labeled this chart is to imply a large ending diagonal is unfolding. In an ending diagonal scenario, 5 waves will form but all waves will contain 3 wave moves and waves 2 and 4 will overlap. So far, wave 1 contains a 3 wave move - wave 2 up is now underway with the 1st wave of three looking complete.

Should a larger 5 wave move upwards unfold, then I would consider wave (4) still unfolding and will be a triangle.

I should also point out that the recent 5 wave move upwards could be part of an expanded flat correction as the completing waves at the bottom end of the chart are a little messy and hence can be hard to interpret - So I've also got this scenario catered for in the back of my mind (eg driving under a 3200/61.8% retrace would start to get my attention). If true, the downtrend would be underway once again.

Note: Ignore the lowest bar at the bottom of the chart - that's a 62 point data anomaly from last week