Yesterday, while carpooling home from the office, I looked up in the sky and imagined a very strange shape in the puffy clouds; namely: A roast pig with an apple in its mouth.
My coworker's immediate response to this was: "Did you eat lunch?"
Fact is, what we "see" in the various cloud formations is usually an influence of subjective thoughts, feelings, instincts, and in this case, extreme hunger. It's different for everyone; I saw a flying pig, where my friend saw -- well -- Elvis Presley!
In the world of Elliott wave analysis, however, there's little subjectivity about the process of "pattern" gazing in the financial market "skies." According to the Wave Principle, a total of 13 clear and recognizable wave patterns exist. These shapes materialize in a market's price chart in a purely mathematical manner. Each pattern abides by its own set of rules and guidelines that signal how far and fast the pattern will unfold. If you can identify these shapes early on in their developement, you can then anticipate how the latter stages will impact prices.
Now, let's see how it all works in real time. Below is a price chart of Wheat since the start of 2009.
It's plain to see that Wheat has experienced two major trend changes over the past six months: A soaring rally from the March low; and, a powerful selloff to multi-year lows from the June peak.
Now let's look over the second chart. This is the same picture as before, only now it includes the appropriate Elliott wave labels. The dominant pattern at hand is a Zigzag, a simple three-wave move labeled A-B-C, in which wave B is noticeably lower than the start of wave A.
It stands to reason that if one was able to recognize this zigzag early on in its progress; one could've anticipated BOTH of these major turns before they took place. And, that's exactly what Elliott Wave International's chief commodity expert and Futures Junctures Service editor Jeffrey Kennedy did.
Here, Jeffrey's analysis from previous Monthly Futures Junctures "Featured" market segments steps in:
March 2009 MFJ:
"The most common relationship between waves C and A of zigzags is that of equality. We can expect the [decline from the January peak] to be more than fully retraced in the weeks ahead."
June 2009 MFJ:
"What has finished a three-wave corrective advance at the recent June peak. We can now look for wheat to more than completely retrace the December 2008 corrective advance."
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