The number one flaw of fundamental analysis is its lack of account for human error. Think about it: If financial markets are well-oiled machines that react mechanically to outside events, it stands to reason -- If you master the system, there’s no way to fail.
In theory, all should go according to various plans. For market “x,” supply shortages and demand increases cause prices to rise. Trader goes long. For market “y,” favorable weather conditions and ample crops = a drop in prices. Trader goes short.
In actuality, the story is quite different. In the real world, markets constantly “turn a deaf ear,” “defy,” and/or “shrug off” their designated fundamentals, leaving the mainstream trader with no escape.
Take, for example, the recent action in Cocoa prices. According to the usual suspects, cocoa fills the opposite seat of a see-saw with the U.S. dollar: i.e. when the greenback rises, investors take their money out of high-risk commodities and put it into dollar-related assets. (See: May 28 headline, “Dollar strength takes wind out of cocoa market,” DJ Newswire.)
Here’s the problem: On May 29, the U.S. dollar continued to rise, soaring to its highest level in two weeks. At the same time, cocoa prices took a giant leap UP to their loftiest heights since May 13.
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Sweet Opportunity in Cocoa. Right now, the May 29
Daily Futures Junctures shows you 3 labeled price charts, a 4-minute video forecast, and objective insights into where cocoa prices may go in the days ahead.
Get the details.)
Let me make this perfectly clear: The Elliott Wave Principle is not flawed. But the human beings interpreting it know that sometimes, they are. For this reason, EWI’s commodity specialist Jeffrey Kennedy always equips his Futures Junctures Service analysis with a wide array of safety nets: namely, clearly defined support and resistance prices levels to help his subscribers manage the risk.
Case in point: In the May 21 Daily Futures Junctures, Jeffrey Kennedy went on high alert to the possibility that his Cocoa analysis was incorrect. In Jeffrey’s own words:
“We are not out of the woods yet. Prices action has yet to confirm our wave count. Moreover, the lower boundary of our base channel remains solidly intact. With cocoa inconclusive, we continue to keep a close on what I would call critical resistance. A move beyond this region is where the bearish labeling loses credibility.”
With recent gains, cocoa prices violated Jeffrey’s resistance levels. And now, in the May 29 Daily Futures Junctures, he revisits the softs market to reveal his “newly adopted” outlook.
When it comes to Elliott Wave analysis, room for error is also room for opportunity. Find out how sweet Cocoa prices could become in the days ahead.
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