Elliott Wave International

By Vadim Pokhlebkin
Tue, 09 Sep 2008 17:00:00 ET

Since mid-July, the U.S. dollar has gained almost 20 cents against the euro. Back then, the euro-dollar exchange rate stood near $1.60; it’s now near $1.40.

This 13 percent gain by the USD may not sound like much – unless you’re an American tourist traveling to Europe. But if you look at it from a currency trader’s perspective, that’s about 2000 points (or pips) in one direction – down – in less than two months. The best way to describe this action in the EURUSD is – “falling like a rock.”

The USD’s comeback has been staggering in its persistence. And let’s not even bring up the dollar’s “fundamentals” trying to explain it: they simply make no sense. Let economists wreck their brains (and financial models) trying to figure out why, while the U.S. government is grasping at straws trying to save the mortgage industry and economy from collapsing, the dollar is gaining like there is no tomorrow. Clearly, the laws of physics don’t apply to the currency markets.

And you know what? For a forex trader, it doesn’t really matter why the dollar has been gaining. For a trader, a much more important question is – what now? What goes up must come down, and it’s true in forex trading as well. So how long can the buck continue its bull run?

The very basic Elliott wave analysis boils down to looking for three- and five-wave patterns in market charts. Five waves are impulses; three-wave moves are corrections. When an impulse ends, a correction always begins. No exceptions.

And here’s the chart of the EURUSD, copied from the latest, September 09 daily forecast of EWI’s Currency Specialty Service (some labels have been erased for this publication):

Look closely at the chart pattern circled in red, above. Can you count 5 waves within it? You’re not alone.

“…the decline underway since mid-July is stretched and possibly in five waves,” writes Currency Specialty Service editor Jim Martens in the September 09 daily EURUSD forecast. “Given the visible structure and the momentum profile, I’m not about to chase the market lower.”

From an Elliott wave perspective, the EURUSD is likely near a bottom; you can get the exact forecast for the days ahead inside the Currency Specialty Service. So don’t be surprised if the euro takes the upper hand in the days ahead. I only wonder how the economists will explain it?

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NOTE: Mark your calendars! On Wednesday, September 17, at 4 PM Eastern (New York) time, EWI’s Senior Currency Strategist Jim Martens is hosting a free, live 40-minute webinar titled “Anatomy of the Trade.” Jim will focus on how you can turn the Currency Specialty Service forecasts into actionable forex trading strategies.

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Subscribe to Currency Specialty Service now and receive webinar registration details on Monday, September 15.

Bloomberg (Japan)

By Ye Xie and Agnes Lovasz

Sept. 9 (Bloomberg) — The dollar traded near the highest level against the euro since October as crude oil fell.

The greenback pared its gains after an industry report showed fewer Americans than forecast signed contracts to purchase previously owned homes in July. The Canadian and Australian dollars fell as a drop in oil and gold prices reduced the economic prospects for commodity exporters.

“Commodities are coming under renewed pressure,” said Shaun Osborne, chief currency strategist at TD Securities Inc. in Toronto. “We have seen the correlation between crude oil and the major currencies remain strong or strengthen over the past few weeks, so weaker crude oil should translate into a weaker euro.”

The dollar traded at $1.4129 per euro at 10:11 a.m. in New York, compared with $1.4128 yesterday. It touched $1.4047, the strongest level since Oct. 9, 2007. The yen gained 0.3 percent to 107.94 per dollar, from 108.28. The euro decreased 0.3 percent to 152.55 yen, from 152.96.

Crude oil for October delivery decreased 2.1 percent to $104.13 a barrel as Saudi Arabia’s oil minister said supplies are sufficient to meet demand, signaling the Organization of Petroleum Exporting Countries may maintain production levels when it meets today. The euro-dollar exchange rate and oil had a correlation of 0.9 in the past year, according to Bloomberg calculations. A reading of 1 would mean they moved in lockstep.

The euro reversed its earlier gain after failing to sustain an increase above $1.42 today, convincing some investors that the dollar’s 12 percent rally from the record low of $1.6038 set July 15 is sustainable, said Brian Dolan, chief currency strategist at FOREX.com, a unit of online trading firm Gain Capital in Bedminster, New Jersey.

`Parabolic Decline’

“The euro-dollar looks to be set for a parabolic decline to the $1.3830 and $1.3840 area,” said Dolan.

The $1.3840 level is a 50 percent retracement of the euro’s rise from the November 2005 low of $1.1640 to the all-time high of $1.6038 set in July, based on a series of numbers known as the Fibonacci sequence, according to Pak Lai Ng, a technical analyst at Forecast Pte in Singapore, citing charts that predict price movements.

The support level, where euro buy orders are concentrated, lies on an ascending trend line that began in February 2002, Ng said. Fibonacci analysis is based on the theory that prices rise or fall by certain percentages after reaching a high or low.

Royal Bank of Scotland Group Plc cut its forecasts for the euro versus the dollar today. The single currency will end the year at $1.40 before weakening to $1.35 by the end of the first quarter of 2009, it said. The bank’s previous predictions were $1.50 and $1.45, respectively.

Internetnews

The bears showed on Tuesday that they’re still in charge, but is downside momentum waning?

September 9, 2008
By Paul Shread

We noted yesterday that the lack of buying conviction was a problem for the stock market, but we didn’t expect the mortgage rescue gains to evaporate this fast.

Today marked the third 90% downside volume day in this range sine June 26 — that’s a lot of selling pressure without much of a movement in price, which suggests that downside momentum may be waning. But until we get some confirmation of a bottom — a 90% upside day would be ideal — the risk remains to the downside.

The S&P is now back down in the range of its 1200-1217 lows; if that goes, 1155-1163 should be very strong support. To the upside, 1242, 1250, 1267 and 1276 are resistance.

In January 2007, our friends at Elliott Wave International issued a special report called “2007: The Year of Financial Flameout.” The forecast in that report has largely come to pass. At the beginning of this year, EWI delivered a NEW, up-to-date special report entitled “2008: The Year Everything Changes.”

Even as 2009 draws near, this could well be The Most Important Investment Report You’ll Read RIGHT NOW. Obviously, some of these forecasts have already occurred, but many of the forecasts in this report will unfold in the future – and in the present, it’s YOURS FREE!

Even as you read this, the financial markets and economy are confirming the scenario spelled out in “The Year Everything Changes.” Please don’t wait. Your portfolio cannot afford to be without these valuable market insights.

It’s not too late for you to position yourself for the short- and long-term opportunities just around the corner.

The Most Important Investment Report You’ll Read in 2008 is yours free when you take 30 seconds to join Club EWI, also FREE.

Scienceray

Eight Amazing Fibonacci Number-carrying Flowers

One of the most well-known orderly sequence of numbers in mathematics is the Fibonacci series. It was named in honor of Leonardo Fibonacci, the famous Italian mathematician of the middle ages. The now famous series of numbers is given by the infinite elements: 0,1,1, 2,3,5,8,13,21,34,55,…; and figuring out the pattern, one can deduce that each next element is generated by adding the last two numbers preceding it. Quiet astonishingly, many occurrences in nature such as in flowers carry these numbers; examples of which are given below where the numbers indicated are elements of the series.

See more…

Indian Markets - Technical Analysis & Thoughts

As a trader I have always been fascinated by market psychology. By its definition the process of ‘price discovery’ is intrinsically a large experiment in human emotion which is driven by greed and fear. Although the former is what brings people to the market in the first place, in 9 of 10 cases it is the latter that proves to be the basis of their financial demise. As Peter Lynch put it: “The real key to making money in stocks is not to get scared out of them.”

Of course things change profoundly when you find yourself in an ensuing bear market - but in a way things remain exactly the same. Only that the dynamics now switch into reverse, in that the ‘upside’ is the continuous slide down and that the ‘downside’ are the various episodes of corrective bull rallies. Nevertheless, many investors seem to have a psychological barrier towards ’shorting’ stock and it is probably fair to say that an overwhelming majority have never shortened a single stock in their life. After all, it is a bit ‘unnatural’ for Joe/Jane Sixpack to grasp the concept of selling something now just to buy it back later, hopefully at a lower price. I have tried to explain this idea to some of my friends and most of the time they just give me a polite smile and hastily proceed to change the topic of conversation. As I enjoy getting invited back (especially since the food is free and the women are hot) I don’t press the issue. And finally, as I am an evil speculator I am aware of the fact that for every penny I wrest out of the market someone else out there has to lose it. It’s a zero sum game, no matter what anyone tells you.

The other aspect of investors losing money in a bear (and also bull) market is that they fall prey to their own cognitive biases. Let me suggest a few of my favorites - you can find the full list in Curtis Faith’s ‘Way Of The Turtle’ - a most excellent read:

Loss Aversion - The tendency for people to have a strong preference for avoiding losses over acquiring gains.
Sunk Cost Effect - The tendency to treat money that has already been committed or spent as more valuable than money that may be spent in the future.
Recency Bias - The tendency to weigh recent data or experience more than earlier data or experience.
Bandwagon Effect - The tendency to believe things because many other people believe them.
Low of Small Numbers - The tendency to draw unjustified conclusions from too little information.

I guess you get the picture - people often (if not most of the time) make decisions which are driven by human emotion, not by rational analysis. The natural instincts of our deeply ingrained reptilian brain might be well equipped to staving off natural enemies and surviving a cold winter, but are completely orthogonal to the skills needed in making money in the market. Yes, we all like to believe that we are stone cold traders who can press the buy button when our instincts scream at us to start selling everything now! But evidence points quite to the contrary - most traders fail because they sooner or later fall prey to their own fears. Of course there is a good portion of people who have a trading system without a statistically reliable edge or have no trading system at all, but this is not today’s topic.
Reducing the ‘Noise’

The Internet and modern information technology as a whole has given small time investors/traders access to a wealth of data and tools that was reserved to a wealthy elite just a decade ago. I should know - I was there and remember paying top Dollar for a trading platform that does not even come close to what I am now able to enjoy for free today. On top of that I am able to access a vast amount of information and news at the push of a button, right from the convenience of my home. I can also watch financial networks covering the market pretty much 24×7 (not that I personally ever do, but it’s there). For the fundamental trader I can only guess that this is pure heaven, however for the technical trend trader (yours truly) all that data in some ways may be more of a curse than a blessing. You see, the human brain is not very good at absorbing vast amounts of information. We are good at averaging - some call that ‘fuzzy logic’, and most of us are very visual. Which is why man traders eventually embrace technical analysis. As the thinking goes - all that vast amount of fundamental data which we could not possibly hope to digest is simply reflected by one main denominator, the actual market price of the underlying equity or commodity as depicted by a price chart (remember, I was talking about ‘price discovery’ at the beginning). Add to that some time tested chart patterns like ‘triangles’, ‘head and shoulder formation’, ‘double tops/bottoms’, etc. and you’d think that trading should actually be fairly easy, right?

Well, as you probably have learned from the tribulations of life as a trader - the answer is no. We just can help ourselves it seems and sometimes - and I actually dare to say most of the times - the majority of us are unable to see the forest for the trees.

Market Oracle
By David Petch

The mid-term Elliott Wave count of the HUI I shown below, with the thought pattern forming denoted in green and the alternate path shown in grey. The likely pattern forming for wave (A).[B] is an elongated flat (wave C is greater than 161.8% of wave B) ; internal wave A is a zigzag, followed by wave B forming a flat (3-3-5), with wave C component forming the impulse. Wave C.[B] is underway at present, with the final leg down underway to complete the pattern…lows should be put in place between 310-320. Within 2-3 weeks, this pattern should be complete, with a subsequent move to 430-450 before curling down again. The USD has one final leg up to complete the present upward move before heading lower…this will likely coincide with a bottom in gold and the HUI.

Elliott Wave Financial Forecast

The Media’s Comic Book Version of Markets
By Nico Isaac
Wed, 03 Sep 2008 11:00:00 ET

Imagine reading all about Wall Street in comic book form. The superhero of the story would be the U.S. stock market. Who would be the bad guy? Well, if reporting by the financial press is any indication, the villainous Black Gold. The two characters stand at opposite extremes of light and dark, good and evil. If one is rising, the other must always be falling.

Like the diligent staff of Superman’s “Daily Planet,” the mainstream media gives regular accounts of the struggle between Oil and Stocks. Case in point: On Friday, August 29, the Dow Jones Industrial Average suffered a powerful triple-digit decline that erased the entire week’s gains. To the experts, a rise in OIL lurked guiltily in the background.

In their words:

“US Stocks Weakened By Oil’s Rise.” (DJ MarketWatch)
“US Stocks Shaken While Oil Stirs” (Forbes)
“Wall Street falls as oil prices rose on hurricane fears in the U.S. Gulf. The weather map was as much the focus of stock traders as the Big Board.” (Wall Street Journal)

(Oil & Stocks: The Real Story. The September 2008 Elliott Wave Financial Forecast presents a side you won’t find anywhere else AND one you can’t afford to miss. Learn More Today)

Now, what if you discovered that this whole notion really was no more true than the average comic book? That high oil prices DO NOT necessarily hurt stocks, and that low oil prices DO NOT help them? Well, in the brand new September 2008 Elliott Wave Financial Forecast, that’s exactly what our analysts do — via the stunning close-up below:

The conclusion of the chart is indisputable: “There is no consistent correlation between oil and stocks.” Prices in both markets rose together from October 2002 to October 2007, briefly parting ways until rejoining the downside in May 2008. From there, crude oil has dropped 14.4% and the Dow, 11%.

Consider this the first of many myth-debunking wake-up calls to come: There is no certainty that a continued slide in crude oil will jumpstart the U.S. economy into recovery mode.

The September 2008 Elliott Wave Financial Forecast offers a few more, equal in weight and import. Such as:

Financial Bailouts do NOT guarantee that troubled banks won’t fail
Low interest rates do NOT provide a tailwind for equities
Gold is NOT a surefire “safe haven” during economic downturns
Recession is NOT the worst-case scenario for the contracting economy, but rather something far more serious.

Don’t wait another minute. Get instant access to the complete Financial Forecast Service TODAY and discover where the leading economic sectors will be tomorrow. Click here to get started.

How to make money almost anywhere, even on a desert island.

It is probably every traders dream to trade from their own personal tropical island and make money, but can it be done? Oh yes, and in this short video I show you how it can be achieved. What you will see can be done from any location… so if you are on your own private island or you are still saving up to make that big purchase, this technique can be applied.

The dollar index, which is receiving a lot of publicity lately, is featured in this educational video. This index has made a major push to the upside. The question is, do you know what catalyst pushed this market higher? The other question is how high can the dollar go?

If you think it all happened just by luck, that this index is headed higher, think again. In my video I explain and show you in detail why this index is gaining upward trajectory and give specific price targets on the upside.

Summer is over, and it’s time to get serious about the markets. Watch this video and see how you can get a leg up on the market for the rest of the year.

There is no need to register to watch this video, just enjoy!

Best,
Adam Hewison
President, INO.com

Even if you are adept at Fibonacci technical analysis and can cluster using all the Fibonacci methods, the question always comes up - which Fibonacci cluster is most likely to be the most accurate and useful? We may have the answer to that. Our Fibonacci Focuser Tool can be placed from any high or low and immediately provide different price levels that are most likely to be the most significant for Fibonacci clusters. The example below is for Crude. The Focuser Tool was showing you back in January 2007 that the 145 price level could become significant.

The Fibonacci Focuser Tool is explained, and the simple formula provided, in our Fibonacci ebook.