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 go wrong.
In theory, all should go according to various plans. For market “x,” supply shortages and demand increases cause prices to rise. Go Long. For market “y,” favorable weather conditions and ample crops = a drop in prices. Go 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 seesaw with the U.S. dollar: i.e. when the greenback falls, investors take their money out of dollar-related assets and go for high-yield markets. See: August 19 news story: “Cocoa climbs As Dollar Eases. We don’t see continuation of the dollar’s strength… that’s helping commodities.” (AP)
No problem there, but what about the day before? To wit: On Monday, August 18, the U.S. dollar skyrocketed to a six-month high against the euro, all the while, cocoa prices resumed their slow march UP from an August 15 bottom.
(Also note: From late March to early July, cocoa prices soared to a fresh contract high even as the dollar trended sideways off its mid-March bottom.)
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 levels to help his subscribers manage the risk.
Not to mention Jeffrey’s Number One Rule of all time: No matter how confident his outlook may seem, only price action -- AND price action alone -- can confirm his wave count.
Case in point: In the August 21 Daily Futures Junctures, Jeffrey revisits his earlier close-up of cocoa from the August 18 “Weekly Wrap-up.” On that chart, prices stood smack dab in the middle of an upper boundary line and a lower boundary line. According to Jeffrey’s Elliott wave labeling, a decisive break of the lower line would confirm a bearish wave count. Less expected was a bullish break of the upper line. (The latter scenario won out in the end)
Looking forward, the August 21 Daily Futures Junctures presents two updated charts of Cocoa that employ a new labeling of near-term price action. And, according to Jeffrey’s analysis, the coming move in this softs market may set the “stage” for the most powerful wave pattern of all.
So, what are you waiting for? Get instant access to the complete story -- ALONG with breaking insight into COTTON’S near-term trend – via a risk-free subscripton. Click here to get started.