August Commentary

To continue our previous commentary, the TSX has tested the 10700 level where our 161.8% projection sits. The testing has gone on for 4 bars and although it is now at 10701, we need a better penetration to claim that the resistance will become a support. If the ascent continues, we can assume the TSX is going towards the next projection, 11000 to 11200, quite a robust drive. Such drive is often followed by a sharp correction. This means that once a profit target is reached, we should be ready to exit our trade and even take an opposite position. Hanging on to a position can be very costly, particularly when a sharp correction is expected. It is better to leave profit and be satisfied with a well managed position. Looking at the chart, we will define what limits to set to manage the position.

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We first establish what retracement is acceptable before we liquidate the position. Indices are no different from securities, so an 3% or 5% retracement, although large in absolute value, is acceptable from an Elliott perspective. The type of wave we currently trade requires a 5% retracement to confirm a change in direction. There is another important factor is selecting our retracement limit, the accumulated gain! If our position is profitable by say 15%, a 5% retracement is not acceptable. Furthermore, if our targeted profit is 15%, then 0 retracement is needed, we should exit the position immediately. As we are Elliottists, we entered the position at 9709 and our accumulated gain is 10% in 4 months. Our target selling price could be 11100, a 14% profit. All those numbers are without leverage. So our retracement level can be between 1% and 3%, the first if we are not confident to reach 11100, the later for die-hard traders.