A Recent Energy Call Exemplifies the Benefits of Elliott Wave Analysis for Risk Management

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A Recent Energy Call Exemplifies the Benefits of Elliott Wave Analysis for Risk Management
EWI's latest Energy Specialty Service forecasts use critical price resistence levels to stay on the near-term course and help you manage risk

By Nico Isaac
Wed, 03 Aug 2011 13:15:00 ET

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On July 28, I sat down with EWI's Energy Specialty Service editor Steven Craig to discuss the powerful near-term implications of the following Elliott wave count for a major energy market:

At the time, Steve had labeled wave (ii) complete and felt that a smaller degree wave ii (in red) was nearing its end. If correct, the next move for the market would be third-of-a-third rally. In Elliott terms, this is the most powerful part of an impulse wave, one of 13 known Elliott wave patterns.

I asked Steve what sort of Elliott-wave development would put his immediately bullish forecast in jeopardy. His answer was:

"My wave count will remain viable as long as prices stay above the first line on the chart (marked 'key' support). This level is drawn out from the origin of the same degree wave i (in red). One of the three cardinal rules of Elliott states that wave 2 can never retrace more than 100% of wave 1."

On August 1, Steve alerted his Energy Specialty Service intraday subscribers that “trade below the wave ii low would cloud things up.” The market did break that level and later that day fell below the first "key" level on the chart above. The implication was that the larger degree wave (ii) was still unfolding. Without haste, Steve revised his market outlook and presented a newly-updated chart, below (some labels have been added for emphasis):

This morning (August 4), prices fell below the second "key" line of resistence, signaling once and for all that the bullish call was premature, at best. This experience is a perfect example of how Elliott wave analysis stands above other forms of technical studies. So often, traditional technical indicators lead you into a market, without giving you as much as a clue as to where your foreacst is wrong. The rules and guidelines of Elliott, on the other hand, give you specific price points that invalidate or confirm your analysis, helping you manage risk better.

Get instant access to Steven Craig's up-to-the-hour analysis, alongside his clearly-labeled price charts, with an Energy Specialty Service subscription today. Time is of the essence.

Tags: Elliott wave, Elliott Wave trading, futures trading, technical analysis, technical indicators

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