Today (November 15) I sat 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 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 the diagonal triangle. First, tell us what the diagonal is.
Jeffrey Kennedy: The diagonal 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. Put simply: If you see a diagonal, you know the train of change is coming into the station.
NI: Well, in the November 14 Daily Futures Junctures (on-line now with a risk-free subscription) you do, in fact, identify a diagonal in the long-term price trend of Cocoa. There, you present the following close-up: (some Elliott labels have been removed for this publication)
JK: Yes. This is a classic ending diagonal. As you can see, prices completed the diagonal structure at the March 2011 peak, and in classic fashion, swiftly boarded the "train" of change in the dramatic downtrend that has developed since.
NI: Thank you so much for taking the time to explain the ins and outs of your favorite structure, the diagonal.
You can see how LOW cocoa's current decline may go in the full November 14 Daily Futures Junctures -- which also includes labeled price charts and detailed analysis of the near-term trend underway in orange juice, soybean oil, and lean hogs --
via a risk-free subscription. Click here to get started.