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Sugar's Early 2017 Sell-Off Surprised Us, Too... But Not for Long

See how Elliott wave support and resistance levels minimize the risk of "being wrong"

by Nico Isaac
Updated: November 17, 2017

If you’re thinking of trying your hand at investing or trading because you think it’s going to be a “risk-free” way to grow your income, we’ve got some bad news -- no matter how brilliant your analysis is, you will get it wrong some of the time.

The best thing you can hope for is a way to minimize any loss and reposition for the correct move. Think of skydiving: If the main parachute fails to open, you pull the reserve handle, deploy the back-up chute, and still float safely to the ground.

Elliott wave analysis is, in our experience, your best main and back-up parachute. Every single preferred Elliott wave forecast has a built-in alternate wave count – that “reserve” handle you pull in case the preferred interpretation of price action is wrong. One way an alternate scenario can get triggered is when the market breaks through a critical support or resistance price level --

  • Support levels are below the current price action (which signifies a bullish stance) -- so if prices drop below these levels, you know your bullish stance is not working out.
  • Resistance levels are above price action; they are “lines in the sand” whenever you have a bearish stance. If prices rally above these levels, again -- that's your "risk."

Let’s see how our own chief analyst and Commodity Junctures Service editor Jeffrey Kennedy used this very tool in his long-term outlook for sugar.

In his February 1 Daily Commodity Junctures, Jeffrey’s big-picture forecast for sugar called for a corrective rally in wave 2 before prices would take the downside in a 3rdwave sell-off. Jeffrey wrote:

“Look for a test of the 21.38 region to result in a decline to below 20.05. This move down…will encounter Fibonacci support at 19.61–19.19. Afterwards, one more push higher will complete the larger second wave in sugar that began in December 2016.”

On March 8, sugar prices indeed wretched downward.  In his March 8 Daily Commodity Junctures, Jeffrey identified the clear levels of critical resistance and support needed to keep his near-term bullish call on track. Jeffrey explained:

“In order to revive the idea that this market is headed back to 21.94, we would need to see price get through a band of critical resistance between 19.10-19.84... … our critical support level is 17.66. These are the levels that we need to focus on moving forward over the next, say, three to five trading days.”

Jeffrey also showed an alternate price chart detailing what would happen should critical support at 17.66 give way and said:

“We can [count wave 2] as having already been completed at the February high, and then we would simply move our wave ((3)) to the downside and go ahead and anticipate the decline underway... most likely pushing prices easily into the 14.00 area initially.”

Over the next few trading days, sugar prices indeed fell below the critical support level at 17.66. The bullish chute failed to open, and it was now time to pull the reserve (i.e.  alternate Elliott wave count) handle!

As you can see, sugar prices didn’t stop falling until hitting a 15-month low in June.

When it comes to the world of market forecasting, there’s no way of avoiding being wrong sometimes. With Elliott wave analysis, however, you can minimize that risk and start again with your parachute still on your back.

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