EWT and Fibs

Hi Wreckless Eric and thanks for your kind words.

Like diver, I'm not exactly sure what you're asking, but here's a possible wave count for the entire correction from the Feb 2011 high, culminating with the 61.8% Fib as diver pointed out:



dl.dropbox.com/u/20815047/BGweeklywavecount19_11_12.gif

Here's a follow-up to the earlier piece on the USDJPY live example for the EWT/Fib theory.

Remember, we were looking at a 161.8% Fib extension target for wave 3 up at 80.85 but we knew there was firm resistance at 80.62 which would probably come into play. We were then looking at a possible retrace to the wave 1 high at 79.22 for the wave 4 retrace before continuing up to test the 81.78 reistance for wave 5. Here's what happened:



dl.dropbox.com/u/20815047/USDJPYdaily19_11_12a.gif

As we can see, that resistance came into play perfectly with a bearish RSI divergence too so this was a good place to go short. The wave 4 down turned out to be slightly anomalous though:



dl.dropbox.com/u/20815047/USDJPYdaily19_11_12b.gif

We were looking to the 38.2% Fib or the top of wave 1 to act as support. In fact it retraced to precisely the 50% Fib which entered wave 1 territory. We'll return to this apparent break of EWT rules later. Having bounced off the 50% retracement of wave 3, it began a very swift wave 5 up. Our target for this was between the wave 5 = wave 1 level of 81.157 and the natural resistance at 81.78 and that's what happened:


dl.dropbox.com/u/20815047/USDJPYdaily19_11_12.gif

It's a little dangerous to assume that the top has formed here as it's too early to tell but the current peak does fit well with theory. There also appears to be another bearish RSI divergence forming between the wave 3 and 5 peaks, just as we'd expect (the earlier bearish RSI divergence at 80.62 often occurs between the 3rd and 5th subwaves of wave 3). However, we still have the unresolved matter of the wave 1/4 overlap to consider...



dl.dropbox.com/u/20815047/USDJPYdaily19_11_12c.gif

In fact, EWT does allow for a wave 1/4 overlap in the event of a diagonal triangle. These can be either a leading diagonal wave 1 (as this would be) or an ending diagonal wave 5. In both cases they represent weak impulse waves and are usually followed by strong retraces to at least the 61.8% level and sometimes a full retrace.

As we can see from the above chart, it's possible that USDJPY has formed a leading diagonal triangle with an overshoot for the 5th subwave of it. Elliott did note that the 5th subwave of all triangle formations can often overshoot and extend beyond the triangle boundary so the fact the this happened here does not rule out the leading diagonal possibility. Further, the bearish nature of both the wave 2 and wave 4 retraces suggest that the whole move has a bearish quality about it so perhaps this is not a surprise.

The other possibility, of course, is that the wave count here is wrong and that an alternative may need to play out. Time will tell, but for now this live example has apparently conformed quite well to EWT and Fib theory. From a practical point of view, when the theory has been adjusted to account for nearby natural supports and resistances it's provided a very good trading opportunity and, let's face it, that's really our primary concern here and we will continue to monitor this FX pair as it plays out.

screencast.com/t/7jeFHq7sM1LY



I'm not at all sure what it is you're asking here but the above chart and link should adequately demonstrate the liking this share has for the 61fib. An turn around is imminent IMHO.

As far as the EW count is concerned we may well be in a wave 3; possibly at the end of (ii) of 3: time will tell.

That's just my interpretation and I could well be very wrong so probably best wait for Jackozy

Very interesting discussion/thread.

I have a question for Jackozy/anyone, presumably a topping out formation can interfere with a EWT descending count? Should the wave count start after the completion of the topping out (end of sideways or non-trending move), and should the Fib calcs be from the first top or second top?

Really sorry, but no chart today (never very accurate/accessible anyway), but looking at BG, monthly chart there is a strong long-term 5 wave count from January 2003 (234p) to March 2011 (1551p) and what appears to be a slanting double top February 2012 (1517p) before the current decline to (1000p).

With another -14% odd to meet the upward trend on Friday (854p - rising daily), a bit further to fall maybe to meet the 50% retrace of the rise to 1551p (893p), a 61.8% retrace of the rise to 1551p would be 737p odd.

Perhaps on a more accurate chart than I could draw could someone show Fibs from 1551p and 1517p.

Also wave count down ABC or inverted 1-5? and how can one tell which one could occur?
What would be you correction wave count for BG?

Thankyou for the posts here, excellent.

(BG on my watchlist)

Wow, Jackozy that was about as text book as it gets so far. Great explanation of a tricky subject. I will continue to observe in anticipation of the next move

Here we're going to look at a live example of this theory in action. Prices almost never perform precisely to TA theory so please view this post as educational rather than a trading tip.

USDJPY had been in a downtrend which ended at a known uptrend support with a bullish RSI divergence. We've seen an initial rise and retrace so we can see how the theory matched up:




dl.dropbox.com/u/20815047/USDJPYexample1.gif

We can see it dropped to the 78.6% Fib so we plot the Fib extensions from there to give us resistances on the way up to a wave 3 target:




dl.dropbox.com/u/20815047/USDJPYexample2.gif

We have not (so far) reached that target so the rest is theoretical. The wave 3 target from the Fib extensions comes in very close to a known, strong resistance level so it seems a good place to trade from. We can then theorise as to how the rest of the waves could look:




dl.dropbox.com/u/20815047/USDJPYexample3.gif

And then on to a possible 5th wave move:




dl.dropbox.com/u/20815047/USDJPYexample4.gif

Note again how a wave 5 equal to wave 1 target coincides with a natural, known resistance. We can even look at the subwaves of wave 3 we we appear to still be in:




dl.dropbox.com/u/20815047/USDJPYexample5.gif

We can see that so far it's performing very nicely according to theory but we should never assume that this will continue.

Good luck!