The Wolf likes to think individual traders have some great advantages. We can sit around in cash, only taking risk when it’s appropriate. I’ve heard trading described as fishing, a lot of time waiting around, and very little time spent reeling them in. Our focus tends to be laser-like when we see a clear opportunity. It can be seen in GBPUSD this week, as opposed to EURUSD where the count is less clear. Trading, for me, is about finding asymmetric outcomes, where the upside is multiples of the risk. If you are patient to wait for these opportunities, and then really drill down and press your bets when they arise, the vast majority of your monthly, and yearly, profits can be made from a few ideas (similar to USDTRY last year and earlier this year).
Right now, our focus in on GBPUSD, so let’s turn to the charts for our Elliott wave currency forecast. And, given our outlook there, it seems that the Fed may be pushing off any rate hike until Santa Claus comes around – or even off into 2016.
Here’s the roundup of the longer term bullish evidence. We have a five wave decline into the wave ((A)) low, an impulsive bounce for (A) that pushed above long term down trendline resistance and above wave (4) resistance. Prices have corrected lower in clear three wave moves for A, C and E of (B). Prices remain above the up trendlines off of the wave ((A)) and A lows, and right at former resistance, now support, from the wave (4) high. RSI has been flat near 50 after registering Sustainable Bull readings (upper blue zone) and bottoming above Sustainable Bear territory (lower grey zone). Add it all up, and we’re confident in a bullish outcome.
Here we see more detail of the corrective declines for A, C and E of (B). Now, we can’t say for sure that wave D and E are complete, per the top count, but it seems possible. Wave (i) isn’t a clear impulse, which means it’s either a leading diagonal, or it’s part of an ongoing wave D of a triangle for (B). If either of the top two counts are correct, it means that prices will rally above 1.6000 from above the wave C low at 1.5330. But, ideally, even if the triangle is ongoing, prices should remain above the red up trendline. We’re currently bullish given that the action down from the wave (i) high is corrective. Prices should remain above the wave (ii) low if the top count is correct. A drop below that would either mean a more complex wave (ii), or the triangle is still ongoing.
Prices actually closed Monday’s session above the down trendline. But, the breakout was not to be as prices fell back below, and also failed to close above it on Friday’s brief break. Daily RSI is back below 50, and although we are still maintaining our bullish outlook up towards 1.1400-1.1600, a break of the 1.0800 level would suggest the corrective bounce from the March low was corrective, and complete.
The most important feature on the intraday chart is the corrective decline from the high set on Monday – it’s a clear three wave move. The preceeding move that we’ve labeled (i) is a less clear five, so we do have an alternate listed that would explain the wave (i) move as an (x) (with a running flat as b of (x)), which doesn’t undo a bullish outcome after another test of the 1.0800 level. the trouble with the immediately bullish view is that the action up from the wave (ii) low isn’t a clear five either. So, we’re going to want to wait for a push back above the down trendline prior to getting overly excited about bullish prospects. There’s plenty of room to the upside to wait clarification.
Once again, we’re not going to alter our top count here, as it’s been playing out just fine. We did see some new lows this week, although Friday’s occurred on a slight bullish divergence. Until prices are able to close above the down trendline drawn off of the wave B high, there’s little reason to believe in a bullish outcome that won’t be fully retraced.
Here the bullish divergence into Friday’s low is a bit more pronounced, but the count doesn’t appear to be complete, yet. It’s always painful to be waiting for that “one more new low” that never comes, but bulls will have to show a push above the down trendline and the .7600 area before we’re willing to change our count here.
We’re anticipating one more new low here too, but there’s reason to be a bit wary of its extent. First, prices dropped slightly below the 100% expansion target from the wave B correction, so prices are at a natural place for a bounce. The commodity rout continues, though, and the action up from the wave (iii) appears to be corrective and complete. One more diverging new low would be ideal for our count.
The key feature on this chart is the sharp decline once prices pushed above .6695. Notice that the wave (iv) high is near former fourth wave resistance (wave .iv of v of (iii)), and the decline from (iv) appears to be a five wave move. So, we can hold bearish ideas as long as prices remain beneath .6740, looking for a new low. We won’t overstay our welcome as bears though, and will be quick to take profits into a new low.
Prices fell to start the week as expected, but an interesting thing happened once prices traced out five waves down from the high – a dramatic reversal. Daily RSI remains in Sustainable Bull territory, which keeps the idea alive that any decline will be a correction.
Here you can see the very clear five wave decline for wave .c of iv. You can see the power of the trendline, which is really just a representation of the “herd’s trend.” In this case, the herd is clearly in favor of higher prices. We’re looking higher still into a top, although we won’t be surprised to see the red trendline broken during the flat wave 4 correction we’re anticipating. Keep in mind that the wave 2 correction retraced 61.8% of the wave 1 rally, so a triangle or other flattish correction should appear per the guideline of alternation.
So, both counts point higher from the wave 4 or (A) low into a wave (iii) of C of (B) high. The trouble is that wave (ii)/B was awfully shallow, and there’s only three waves up from that low right now.
If the larger count is still pointed higher in wave 5, it seems that wave (iii) would just take over right now to push prices higher, but that’s not a given. We’re going to wait for further development before we’re able to get clarity here. A deeper correction in (ii) or (c) of B would be a very nice opportunity since both point towards the 125.50 area. Alternatively, buying a breakout above 124.58 against this week’s low would provide a nice scalping opportunity.
Rather than commenting on the rather untradeable USDCHF, I’ll pose the dilemma below instead.
Coming into 2015, we were berating the Swiss National Bank (SNB) for its idiotic euro peg. We thought it would continue with the peg since the SNB actually wanted a weaker franc. As a result, it electronically printed francs to buy euros, which were falling in value. Then in January the SNB changed its tack. Instead of buying a falling euro, it chose to buy stocks instead. Now, given 21 years in various facets of the investment world, I consider myself a savvy veteran of this world. But, I can’t for the life of me figure out why any citizen of Switzerland, or any other country, would want its central bank to buy stocks.
If the SNB wants a weaker franc, should it be buying assets that go up in value or down in value? And, wouldn’t it make sense to leave the stock buying game to professionals in that area? Do you really want Janet Yellen in charge of a mutual fund, or ensuring that banks have adequate capital reserves. It’s just another example of why countries should restrain government (and quasi government) officials – otherwise, there will inevitably be mission creep.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.