The Elliott Wave Principle recognizes 13 known wave patterns on the price charts of financial markets. Some of these fall into the category I like to call "Casserole" patterns; meaning they develop at an easy rate that affords enough time for the analyst to walk away from his/her desk and dawdle with other things, like preparing an elaborate casserole.
The other category is the "Canned Soup" patterns; i.e. they happen hard and fast and portend sharp and dramatic trend changes ahead. When you see these structures, you barely have enough time to warm up a can of soup on the oven.
Today, I'm sitting down with EWI's
Futures Junctures Service editor Jeffrey Kennedy to discuss how the presence of one of these "canned soup" patterns -- a series of "ones and twos," in Elliott wave lingo -- in a major commodity market has him battening down the hatches.
Nico: In the November 15
Daily Futures Junctures, you present the following chart of a major commodity market that shows three sets of wave 1 and 2 at various degrees of trend underway. Could you briefly explain what this pattern is and why it is so compelling?
Jeff: It's a sequence of self-similar first and second waves. The pattern usually portends a very swift and powerful move on the horizon in a third wave, the strongest wave in an Elliott wave sequence.
Nico: Your rule of thumb is that "price action is the only thing that can confirm a wave count." What move or moves in general are you looking for from prices to bolster your interpretation?
Jeff: A decisive break of a very specific price level on the downside and "something very volatile, and very impulsive."
Nico: You also present a weekly price chart of the same commodity that shows a clear head and shoulders pattern underway since July 2010. You use what you call the "neckline measurement technique" to calculate a probable downside price target. How does that work?
Jeff: It's a measuring technique that allows you to identify a high-probability target for the impending move -- down, in this case.
Nico: Are there any other traditional technical indicators you are following that reinforce the bearish Elliott wave message?
Jeff: The MACD and Relative Strength Index are the top two. I include charts of both of these indicators in the
video analysis portion of the November 15
Daily Futures Junctures.
Nico: If your wave count is correct, how long could this market potentially belong to the bears?
Jeff: Well into 2012.
Nico: Thank you so much for your time. It certainly sounds like the odds for an exciting opportunity are in the cards for this major commodity market.
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