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Coffee Falls: The End, Or Start Of A Trend?
What to make of coffee's dramatic price reversal?
When it comes to human beings, what’s on the outside is very often an indication of whether the person “inside” wants to be part of the larger majority. The “in crowd” tends to wear the latest name brands and stick to up-to-the-minute fashion styles. The “counterculture,” however, may appear quite different, sporting body piercings, brightly colored tattoos, and self-designed clothing.
Similarly enough, in the world of Elliott wave analysis, there are equally distinctive outside characteristics that reveal whether a market’s prices are going WITH or AGAINST the larger trend.
First, let’s begin with “WITH”: Motive (or impulse) waves move in the same direction of the trend of one larger degree. They powerfully impel the market. They have a five-wave structure and abide by THREE main rules: Wave 2 never moves beyond the start of wave 1; wave 3 is never the shortest; and wave 4 does not end in the price territory of wave 1.
Now for the “AGAINST”: Corrective waves move countertrend to the larger pattern. They have a three-wave structure (ABC), and they are easily identified by three main traits --
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A .382 multiple is the most common Fibonacci retracement for fourth waves.
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Equality is the most common relationship between waves C and A
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Price action is often contained by parallel lines called corrective price channels.
With this basic understanding of the two forms of Elliott wave progress, one thing becomes clear: EXTERNAL events do not define a market’s trend.
Take, for example, the April 10 news story regarding COFFEE futures. That day, coffee prices stunned analysts with a sharp and sudden 500-point slide from two-week highs. “The abrupt reversal… puts most traders on the sidelines,” began one Dow Jones Newswire. “The dollar firmed after being lower this morning and that didn’t help.”
One question: IF a rising U.S. dollar causes coffee prices to fall, then how do you explain the first two weeks of March 2008? Check the charts: Coffee spent the entire month of March sliding south to its lowest level in five months, while the U.S. Dollar rode DOWN and UP, down and up.
RIGHT NOW, in the April 10 Daily Futures Junctures, editor Jeffrey Kennedy puts the sell-off in coffee to the time-honored test of MOTIVE versus CORRECTIVE wave. With all the key features of one kind of move in place, Jeffrey’s confidence is in ONE trend, and one trend only.
And, to reinforce his written analysis, Jeffrey includes live video forecast in the April 10 DFJ, where he talks and walks viewers through the entire analytical process.
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