One of the biggest glitches in fundamental market analysis is that it pins future price action on a series of unknown variables. Such as, commodity market "X" moves higher on the "anticipation of" damaging thunderstorms; and, market "Y" falls on "expectations" that Chinese demand will fall.
The room for error is gapingly huge. Climate changes are fickle. Anticipated events often do not come to pass. Even more importantly, all too often, when a supposedly "bearish" or "bullish" event does occur, prices move in the opposite direction as expected.
Elliott wave analysis helps you reduce these risks by examining objective market price data that is unfolding in real time in charts. Plus, you can always add other technical indicators to your Elliott wave analysis to see if that makes your forecast stronger.
Take the recent history in cocoa. Back in late August, the usual suspects revealed a slew of solidly "bullish" factors in cocoa's fundamental backdrop. One August 23 Reuters set the upbeat tone with this headline:
"Cocoa prices are swept higher. Dealers said the market was focused on the prospect of a deficit in 2011/12."
And this same day Bloomberg message:
"Cocoa rose for the seventh time in eight sessions on concern that cold, dry weather may reduce harvest in parts of the Ivory Coast."
YET, despite having the fundamental wind at its back, cocoa's bullish ship took on water on August 24 and began sinking in a precipitous decline to the two-year low we see today.
"Prices likely headed considerably lower. A second wave from [August 11] low now a visible [corrective] movement that could complete at any time and be followed by a renewed decline in a third wave."
Now, on October 17,
Commodity Specialty Service editor Peter DeSario revisits the cocoa market to show how prices fulfilled the Elliott wave script. In Peter's daily cocoa update, he captures the extent of the market's decline from August 24 with this chart:
The question now is: When and where will cocoa's downtrend end?