I do not usually comment on political matters as this is outside of my remit – unless there is a clear market impact as there was on Thursday with the latest Brexit twist. Some cabinet ministers resigned over the plan and that hit sterling hard.
The ultra Brexit-sensitive currency cross EUR/GBP hs been an interesting study recently. I watched as the market declined into the recent low as sterling was favoured over the euro. Previously, sterling was heavily sold as there was pessimism over any ‘good’ Brexit trade deal and the recent decline helped to correct that negative extreme.
But then the mood switched as hope broke out that a ‘good’ Brexit could be obtained.
But when the market staged a rebound in a small scale five up, it appeared a bull phase was about to start with the euro out-pacing sterling. This was the chart I posed
So now all I needed was a good entry. But sadly, the volatility picked up considerably and finding such was tough. In fact, when there appeared hopes for a ‘good’ Brexit deal the market moved lower into new lows and that cancelled out my five up bullish scenario. Sometimes, Elliott Wave is not a good guide to good forecasts, but it usually is.
But with that new low, I could now label the decline a valid A-B-C on a momentum divergence and that implied a swift reversal. And that is precisely what occurred on Thursday – in spades with a 150 pip surge.
So I have been vindicated after all with my bullish stance. However, as we all know, timing is a very tricky affair and usually I need two or perhaps three attempts before latching onto a good entry.
Of course, in reality these short-term Brexit influences have little bearing on the overall trends. Yes, they can magnify daily price ranges as emotions run hot and heavy, but the prevailing trend remains in force. But they make a great story for those needing a believable ‘explanation’ set out for them.
It is rather like football punditry. Yes, the experts are great at explaining why X scored a wonderful goal, but what is their track record at predicting results before the matches? As a market analyst and also trader (two very different skills), I must predict movements ahead of time.
With the growing prospects of a Labour government looming into sharper focus, it is no wonder sterling was hit hard. That would place my long-standing forecast for parity with the dollar that much more realistic. But of course, there are two sides to every coin and a weak sterling would please UK exporters no end and really discombobulate the French! So will they be frantically buying sterling to prevent any loss of UK business? Stranger things have happened.
Reach for the stars!
I have posted before about how in a roaring bull market, all sorts of pie-in-the-sky projects are proposed during the highly optimistic and positive times. And they come crashing down as the mood changes – along with the stock market. Last time, I highlighted Hyperloop One. Today I post the Russian plan to send robots to the moon which has the intention of mining the asteroid belt for minerals. Is this another case of ambitious over-reach?
Never mind that the asteroid belt lies a fair distance out as it is located between Mars and Jupiter (about 3 AU from the sun), it surely must be one giant leap for mankind to build robots with that capability. My mind is truly boggled – after all, I have some experience in this field having worked at NASA during the Apollo moon landings era.
And while at NASA all eyes were on the next step after the moon – manned missions to Mars was the next project. In fact I was assigned to the Mars Exploration Team. But most us knew this was pie-in-the-sky (literally) as the funds involved were astronomical (sorry) and would never be achieved in my lifetime. That prediction has come true, so far and was another care of bullish over-reach.
So I fear this Russian dream will go the way of Hyperloop One as the stock market works lower. Russia is not a wealthy state (even more so now with oil prices slumping) and the money will surely run out long before any minerals are mined, let alone bringing them back to earth (along with tons of very expensive useless rock).
Beautiful Elliott Waves in the Dow and S&P
And that brings me to the stock markets. VIP Traders Club members will know that I have been posting highly accurate price targets recently at significant turns.
Last time, I suggested the market was due for a significant decline and noted the Dow had hit the precise Fibonacci 76% retrace at the 26,280 level and I proposed that was the top of wave 2 leading to a decline in wave 3. And that was indeed the case as the market fell hard all week. In fact, it hit my first target at 25,200 and then my secondary target at 24,950.
This is what I wrote in my Flash Alert to VIP Traders Club members on Wednesday: Wave 5 could turn at the Fib 62% at 24,950 but since we are in a third of a third down (the strongest wave in the book), I would not be surprised to see wave 5 extend much lower.
and in fact, it touched 24,780 (170 pips lower) in wave 5 before staging my forecast rally which continued into yesterday. The large momentum divergence at the low gave the game away – decent rally phase ahoy!
But what another terrific demonstration of the power of Fibonacci – in fact, I managed to forecast highly accurate targets for both up and down waves all along the decline – including the pivotal large wave 2 high at 26,280.
But it is the S&P that more clearly shows the power of Elliott Wave analysis. Here is the 2-hr chart from the ATH in September
For many of us, a bear market is defined as a series of lower highs and lower lows, and that’s fine as far as it goes. But that really doesn’t help a swing trader who wishes to pinpoint the turns with high accuracy. For that, we need the Elliott Wave model (along with Sr Fibonacci’s help).
Here, a bear trend is defined as a series of waves where the down waves are in fives and the up waves are in threes. And this is neatly demonstrated on this S&P chart. But there is a lot more there it can reveal.
Note the momentum divergences at the lows that heralded an immediate counter-trend bounce. That is useful information.
Purple wave 2 was topped right at the area of where red wave 4 of the previous wave down also topped. This is a typical turning point for counter-trend rallies. It was also a pretty accurate Fibonacci 62% retrace of purple wave 1 – another typical turning point for counter-trend rallies. Strong clues that wave was about to turn.
All in all, this is a textbook chart – and describes a very bearish picture. The only things that could force a re-think is for the market to suddenly catch a bid and move to new ATHs, which I consider highly unlikely.
Is the Aussie rising from the dead?
I like trading currencies (usually!) because they have extremely wide participation and although some are manipulated by central banks and other government bodies, many display very clean EWs, Fibs and tramlines. So here is my analysis of the Aussie dollar, which has fallen on hard times in recent months. First, I start with the long term weekly picture
I have two main options – either the recent low is a B wave leading to a C of 4 wave up, or it is in red wave 5 which is moving much lower. In order to judge which polar opposite action is most likely, here is the daily
The move off wave 4 or A was in a beautiful trading channel contained by my tramlines with a nice pigtail in wave 3. Pigtails are often found at the end of third waves because these are the strongest wave in the five wave impulsive pattern and thus are prone to a tramline overshoot.
But early this month, the market broke decisively above my upper tramline, fell back in a bullish kiss and is currently moving sharply higher. This is very bullish action. And that places my purple C wave option at the top of my list.
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