Today (Thursday, March 10) I sit down with Elliott Wave International's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy to discuss his favorite wave pattern of all: the ending diagonal triangle.
Nico Isaac: You say if you had to pick just ONE of all 13 known Elliott wave structures to spend the rest of your technical trading life with, it would be diagonal triangle. First, tell us what the diagonal is.
Jeffrey Kennedy: The ending diagonal triangle is a five-wave pattern labeled 1 through 5, in which each leg subdivides into three smaller waves: 3-3-3-3-3. Unlike motive waves, however, diagonals are the only five-wave structures in the direction of the main trend in which wave 4 almost always moves into the price territory of wave 1. This diagram shows a diagonal in both bull and bear markets:
NI: So, what makes this pattern so darn special?
JK: As you can see in the above charts, the diagonal is a terminating pattern. They can only occur in waves 5 of impulses or C-waves of corrections. This is why they're so exciting. Diagonals precede a dramatic change in trend. And, when they end, prices tend to retrace the entire pattern, or more, and fast -- in 1/3 to 1/2 the time it took the pattern to form.
Put simply: If you see a diagonal, you know the train of change is coming into the station.
NI: Well, in the March 9 Daily Futures Junctures (on-line now with a risk-free subscription -- Ed.)you do, in fact, show a diagonal underway in the recent price action of Cocoa. There, you present the following close-up:
JK: Yes. This is a classic ending "wedge" (diagonal) shape unfolding in the final wave of the larger trend of Primary degree. As you can see, prices are progressing in wave 5 (circled, not shown) to complete the diagonal structure. And, if my wave count is correct, it means Cocoa prices are about to board the "Exciting Turn" Railway.
NI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the ending diagonal triangle. And also, for alerting readers to the possible drama in store for Cocoa thanks to this very pattern.
You can see the full March 8 Daily Futures Junctures -- which also gives you Elliott wave-labeled price charts for orange juice, soybean meal, and feeder cattle --in its entirety via a risk-free online subscription. Click here to get started now.