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Commodities: Look for "Wave Personality"
How can you tell an Elliott wave impulse from a correction at a glance?
I continue my conversations with Jeffrey Kennedy, editor of Elliott Wave International's Futures Junctures Service, which brings subscribers daily and longer-term opportunities in commodities.
Vadim Pokhlebkin: Jeffrey, in our recent interviews we talked about the basic Elliott wave structure: five-wave impulses followed by three-wave corrections. It's simple enough, but do you ever find it difficult to look at a chart and understand instantly whether you are looking at a five-wave or a three-wave move?
Jeffrey Kennedy: Of course. Elliott wave patterns are present in all freely traded, liquid market with sufficient investor participation, but sometimes you will find charts hard to read. In such cases, one thing you could do is look for wave personality.
VP: "Wave personality"?
JK: I explain more in tonight's issue of my DFJ (Daily Futures Junctures; Feb. 2; online now. – Ed.), but basically, you should expect impulses to be fast and strong and corrections – slow and choppy. In other words, if you see a slow-moving market, you could go ahead and label it A-B-C (or A-B-C-X-A-B-C) – a single (or a double) zigzag, a correction. Conversely, if prices travel fast and far, it's most likely an impulse wave, whose proper labeling would be 1-2-3-4-5. And remember, it's the impulses that indicate the direction of the larger trend.
VP: Any recent examples in commodities that come to mind?
JK: Sure. Last Wednesday (Jan. 28 – Ed.) I showed my DFJ subscribers four charts of Live Cattle and Feeder Cattle. Both markets had rallied in five waves and declined in three off their December 2008 lows. Here's one of the charts I showed last week (some labels have been erased for this publication – Ed.):
You see how the move up off December lows is fast and strong while the move down off the January high is slow and choppy, especially towards the end? That's wave personality in action. Based on that and other indicators, I told my subscribers last week that a tradable low was likely forming in both markets.
VP: And what happened?
JK: Well, today both Live Cattle and Feeders gapped up on the open, which is exactly the kind of price action you want to see at this stage of the game. I explain more in tonight's DFJ.
VP: Thanks, Jeffrey!
JK: My pleasure.
Live Cattle & Feeder Cattle are the focus of the latest, February 2Daily Futures Junctures. What commodities will tomorrow's issue forecast? Find out now, risk-free for 30 days. Details.