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Category: Commodities
Lean Hogs: What Does Price Gap Mean For Trend?
How does a price gap fit into an Elliott wave pattern?
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| By Vadim Pokhlebkin |
Published: Tue, 01 Apr 2008 15:30:00 ET |
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Elliott Wave International's Senior Commodities Analyst Jeffrey Kennedy once wrote this about price gaps in his monthly Futures Junctures:
"Now for a simple lesson in basic chart analysis: Gaps usually occur in wave three, the strongest of the three impulse waves. It does not matter if you are looking at a one-minute chart of the S&P, or a monthly Copper chart. Find a gap, and you can bet it’s a third wave at some degree."
It's a relevant quote, because, as you can see in this chart, on Monday (March 31), prices of Lean Hogs futures showed exactly that – a gap, to the downside (some labels have been erased for this publication):
In the April 1 issue of his Daily Futures Junctures, Jeffrey reiterates his earlier point about gaps: "As you know, price gaps occur most often in wave three, and especially in wave three-of-three."
You can find out what that means for Lean Hogs in the April 1 Daily Futures Junctures (online now). And if you're curious to learn more about how price gaps fit in with Elliott wave analysis, here are more of Jeffrey's thoughts:
"The three most common gaps are breakaway, continuation and exhaustion. Breakaway gaps appear at the beginning of a trend. In Elliott terms, this gap most likely comes in wave one of three. Continuation gaps come within the middle of a trend and often mark periods of extreme acceleration in price. Continuation gaps are common in wave three of three. Exhaustion gaps come in the latter stages of a trend denoting maturity. Exhaustion gaps occur in the wave five of three position, as well as wave three of five or five of five."
Read Jeffrey Kennedy's complete explanation of gaps in Chapter 10 of his Trader's Classroom Collection eBook – you get it free with a risk-free subscription to Jeffrey's April 1 Daily Futures Junctures. (Which also gives you EWI's latest forecast for Orange Juice futures.) Please scroll below for details.
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The Elliott Wave Principle is a detailed description of how financial markets behave. The description reveals that mass psychology swings from pessimism to optimism and back in a natural sequence, creating specific Elliott wave patterns in price movements. Each pattern has implications regarding the position of the market within its overall progression, past, present and future. The purpose of Elliott Wave International’s market-oriented publications is to outline the progress of markets in terms of the Wave Principle and to educate interested parties in the successful application of the Wave Principle. While a course of conduct regarding investments can be formulated from such application of the Wave Principle, at no time will Elliott Wave International make specific recommendations for any specific person, and at no time may a reader, caller or viewer be justified in inferring that any such advice is intended. Investing carries risk of losses, and trading futures or options is especially risky because these instruments are highly leveraged, and traders can lose more than their initial margin funds. Information provided by Elliott Wave International is expressed in good faith, but it is not guaranteed. The market service that never makes mistakes does not exist. Long-term success trading or investing in the markets demands recognition of the fact that error and uncertainty are part of any effort to assess future probabilities. Please ask your broker or your advisor to explain all risks to you before making any trading and investing decisions.
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