Technical Analysis Report Weekly
 

01    TECHNICAL ANALYSIS – Today's DayAhead Report – 8 May 2012» 
02   FOREX – GBPUSD Latest Analysis 4 Charts»
 

Hi Traders 

Elliott Wave Theory and Crowd Surfing?
The Elliott Wave Principle proposes that collective investor psychology, or crowd psychology, moves between optimism and pessimism in natural sequences. These mood swings create patterns evidenced in the price movements of markets at every degree of trend or time scale. 

In Elliott's model, market prices alternate between an impulsive, or motive phase, and a corrective phase on all time scales of trend. Impulses are always subdivided into a set of 5 lower-degree waves, alternating again between motive and corrective character, so that waves 1, 3, and 5 are impulses, and waves 2 and 4 are smaller retraces of waves 1 and 3.

Corrective waves subdivide into 3 smaller-degree waves starting with a five-wave counter-trend impulse, a retrace, and another impulse. In a bear market the dominant trend is downward, so the pattern is reversed—five waves down and three up. Motive waves always move with the trend, while corrective waves move against it.

A correct Elliott wave "count" must observe three rules:
Wave 2 always retraces less than 100% of wave 1.
Wave 3 cannot be the shortest of the three impulse waves, namely waves 1, 3 and 5.
Wave 4 does not overlap with the price territory of wave 1, except in the rare case of a diagonal triangle.
A common guideline observes that in a five-wave pattern, waves 2 and 4 will often take alternate forms; a sharp move in wave 2, for example, will suggest a mild move in wave 4. Corrective wave patterns unfold in forms known as zigzags, flats, or triangles. In turn these corrective patterns can come together to form more complex corrections.

We're not alone in enjoying the ride..
Here at TradingLounge we use and recommend Elliott Wave priciples in technical analysis. Here are some other advocates:
Paul Tudor Jones, the billionaire commodity trader, calls Prechter and Frost's standard text on Elliott "a classic," and one of "the four Bibles of the business"
Robin Wilkin, Ex-Global Head of FX and Commodity Technical Strategy at JPMorgan Chase, says "the Elliott Wave principle ... provides a probability framework as to when to enter a particular market and where to get out, whether for a profit or a loss."

Best Rgds, Pete
PS. SEE SOME OF OUR TRADE CASE STUDIES
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01  The Detail From Today's DayAhead Technical Analysis Report – 8 May

Market Drivers

Dow Jones 008 -0.23% (AEST 5.25AM)
Base Metals Positive
US Spot Gold: 1638
US Silver: 30.00
Oil WTI: 98.00
US Copper CFD: 375
US Dollar: 79.70
EURUSD 1.3050
AUDUSD 1.02 
Dow Jones CFD 13,030
S&P500 CFD: 1368
FTSE 100 CFD: 5630
DAX CFD: 6572
Shanghai 2451
SPI CFD 4320

Commodities Trading

US Spot Gold: 1638
TradingLevels: Resistance is the MediumLevel 1650 and the current support the top of MinorGroup1 1630 then should give way soon in line with the Elliott wave count downwards towards 1600, we can expect support and bounces into Minor Group1 at 1620 and 1610.
Elliott Wave: Gold found a low at 1626 after five waves down from 1671. Current recovery must be only temporary as we are tracking a three wave move in wave 2, which will look for a reversal around 1650 mark. Critical invalidation region for bears remains at 1671.

US Silver: 30.00
TradingLevels: TL3|30.00 currently support, wait for the price to find the TL3 as resistance before looking for a short trade set up, retesting TL3 on low volume is a key element
Elliott Wave: ABC corrective pattern developing on 30.00 once completed expect a move down in line with Gold and a reversal in base metals such as copper at current highs 61.8% retracement and Indices in a wave four rally.

Oil WTI: 98.00
TradingLevels: The sharp move down is seeing the first support and bounce to retest the strength on the move down, the retest can move to 101 where the first supply is. The mTL8 98 is partly important and it could fail at that level but is expected higher, this bounce should be an ABC 5-3-5 Zigzag Elliott pattern, a counter trend, followed by further downside
Elliott Wave: Oil should revisit 98.50 area after five waves up in wave a), followed by recent weakness which now appears to be completed wave b). Wave c) in view for the next few sessions, which 95 support holds. 

Base Metals 

US Spot Prices (in l/b)
US Copper:           Last: 3.75+
US Nickel:             Last: 8.00+
US Zinc:                Last: 0.90+
US Aluminium       Last: 0.91-

US Copper CFD: 375
The current rally over the last session has move 61.8% of the last move down, so the 378 to 380 should hold the price, the price should now work across 375 and end up as support or resistance, as resistance the price would retest 372 the pivot within SG2 zone, which in a few degrees higher in structure the price is working through SG2 380|372|365 as support or resistance, this takes time, but in the end this zone as support or resistance will confirm the overall direction

Forex Trading 

US Dollar: 79.70
TradingLevels:  The dollar is dealing with 80 and the Euro 130 these numbers are the main support and resistance levels for these markets, so it’s only natural to see them react to these levels, as with most reactions and bounces giving them time to show there structure and strength enables us to pick up the thread… The reaction at 80 for the dollar is now looking for support, it could be lower at 7950, as the dollar works to every 50 points rather well, once support has been found then another test of 80 and the Euro 130, it’s not that they will get through on this test but it does give us more structure to work with, such as an ABC correction at the 80 and this first move down from 80 being the Wave A
Elliott Wave: ABC corrective pattern at 80 then a move up above 80. The 61.8% retracement level from the last move up from 7860 to 80 is 7920 so the current correction can come back that far.

EURUSD 1.3050
TradingLevels: The current bounce of the 12950 should find resistance at 13050 or 13072 then retest 130, this should term move would be in line with the wave four bounce from the SP500
Elliott Wave: We are keeping a close eye on current minor recovery on Eur/Usd for evidences of a corrective move which could be wave (iv).However, there is an open gap around 1.03080 so buyers
Trading Strategies: The current bounce high is at triangle trend line resistance 13050 but hasn’t covered the gap at 13080. The move up appears to be in five waves and should fall back to 13030/20, we need to see more of this small structure, but should move with the SP on the hourly basis. Using the Midpoint 10350 as support or resistance is the first step

AUDUSD 1.02 – Trade balance 11.30AM
TradingLevels: The main trend is down but expect support at 1.00, the current bounce off 101 should end around the 102 in line with the SP500 at 1372. You also understand that the price is expected to bounce around with SG1 and trading range should be within each full point unless you’re trading the weekly trend
Elliott Wave: is in a minor pull-back from 1.01 level which appears to be wave (iv) that will look for a reversal around 1.0170/1.0200 region. As such, we expect a new low, while 1.0240 holds.  are monitoring that level, which means that traders who like shorts should wait on 1.2970 break.
Trading Strategies: The price is working across 102, so far the pattern is taking shape as the Tradinglevels Classic pattern, now that the first high above the level is in place expect an ABC correction with support at 10172 Group2 zone, if after this pattern does occur look for support on 102 for a long trade, this is again the Elliott count, however an ABC corrective pattern at a level than finding support creates the long trade. If you can’t work it out then just give it time at 102 a least three swings from the current high across 102

Index Trading 

Dow Jones CFD 13,030
TradingLevels:  The NFP figures that were expect softer were softer and the price is down, the move down has the personality of an impulse wave, wave three, we can expect the price further down through 13,000 to 12800 old lows…continue to hold short indices and stock
Elliott Wave: I need to explain both counts for the trend down from the high 13,339.  The move down from the high to the low just below 13000 is in three waves, this can be an ABC bullish corrective move down. Secondly the three waves down can be part of the impulse wave (five waves) that would mean the current bounce is wave four, which should complete above now at 13050 and work lower into wave five making a new low.
Trading Strategies: cant short while the price is above 13,000, have to wait until it’s under the 13000 and retesting it on lower volume

S&P500 CFD: 1368
TradingLevels: 1372 resistance
Elliott Wave: Wave (iv) retesting 1372
Trading Strategies: Look for Wave (v) down

FTSE 100 CFD: 5630
TradingLevels: The price should work lower with the 5600 as the pivot within the pattern unfolding at 5600, this will happen over the next few sessions ahead
Elliott Wave: Wave (iv) completed 5650
Trading Strategies: Looking for a move under the last low 5550

DAX CFD: 6572
TradingLevels: The bounce off 6500 has occurred and now the rally will run out of stream and test the 6500 again, if and when the 6500 is the tested resistance you can short
Day Trading: Looking for short trade set ups from 6600 or under the 6500 to be safer

Shanghai 2451
TradingLevels: didn’t reacted to the Greece or French elections, in fact the Shenzhen traded higher on track with the Elliott count 

SPI CFD 4320 – Trade balance 11.30AM
TradingLevels*: The sharp move down in the ASX200 creates a top in the rally. The XAO turned on the mTL5|4500.  We should see lower prices there is support at 4300, however the more important support is 4200 the pivot within MinorGroup1 the 4200 as resistance. At this stage we can see it’s a top in place with the a retest of the trend that will now search for support at the 4300 - 4272 and 4250
Day Trading:  If you have been short then covering most of the position at 4300. The current rally off 4300 should be an abc bounce in line with the SP500. The Trade balance today at 11.30 needs to be navigated. Less is more when uncertain.
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Technical Analysis Summary

The current move up in Indices should be a corrective rally bounce as wave four, essentially the Dow bouncing off 13,000 support and this is reflected across most markets in their own ways. Because it’s a wave four, the bounce will be low, but it can be sideways and complicated, but once completed will see wave five down. This wave five will complete Wave C of the larger ABC correction.

Trading Quote

"If you personalize losses, you can't trade." – Bruce Kovner

Today's Financial Events 

Time        Currency  Detail                                               Forecast    Previous
11:30am  AUD           Trade Balance                                 -1.37B         -0.48B   
3:45pm    CHF           SECO Consumer Climate                -18              -19   
All Day     EUR           French Bank Holiday       
7:30pm    AUD           Annual Budget Release       
8:00pm    EUR           German Industrial Production m/m   0.8%           -1.3%   
10:15pm  CAD           Housing Starts                                   206K          216K   
10:30pm  EUR           ECB President Draghi Speaks       
12:00am  USD           IBD/TIPP Economic Optimism          50.3             49.3   
7:00am    NZD           RBNZ Financial Stability Report       
9:01am   GBP            BRC Retail Sales Monitor y/y           1.3%   
9:15am   USD            FOMC Member Lacker Speaksm

NOTES: Prices may change as this Technical Analysis report is written from 3.30 - 6.30AM
Always think things out for yourself, we are only here to bounce ideas around.

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02  FOREX: GBPUSD Latest Elliott Wave Analysis

GBPUSD 1 Hour Chart
Tuesday, 8 May 2012 at 1:20:00AM AEST

Cable is trading nicely higher from 1.6113 low, where A)-B)-C) pull-back from the top is showing first signs of a completed wave (4). The reason is a current rise through channel resistance line which is indication for continuation of a larger trend. Daily close above that line and even better above 1.6200 should put wave (5) in progress for days ahead. 

GBPUSD 4 Hour Chart
Monday, 7 May 2012 at 4:25:00PM AEST – corrective pull-back

Cable is weakening from 1.6300 where an extended wave (3) found a peak. We still believe that pull-back is contra-trend, corrective movement, labelled as wave (4) which will form a base in the near-term somewhere around 1.6080/1.61 area. Rise above 1.6200 will put bulls back into action.

GBPUSD Daily Chart
06 May 2012 – more upside within wave C

A trend-line connected from 2012 lows caused a strong buying few weeks back, and sent prices higher, into a wave C leg; third leg of a zig-zag after a running triangle in B wave. As such, we are now focused on more strength within wave C towards 1.6400/1.6500 area.

Pair will reverse into a bearish stage only when support line gives way!

GBPUSD Weekly Chart
19 February 2012 – wave (B) triangle

A decline from 2008 pick into 2009,  1.3500l ow was in five waves, which in Elliott Wave theory indicates a direction of a larger trend. This is called an impulse wave, and once this leg is complete you will see a reversal in price, against the trend, normally into a slow, choppy and overlapping price action which is personality of a correction. Well, this is exactly what we are seeing on cable since 2009 lows. As such, we are very confident that pair is trapped in a corrective pattern, triangle which is near completion. Now wave E), final leg underway, which will top-out in first half of 2012.

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