August Commentary

AlphOmega has just released its version 5.7 for MetaStock® 9.0 and up. It will be available later for MetaStock® 8.0 and up. Please consult the new Manual where the changes are listed before the appendixes. This month we will discuss the trading conditions of a wave 1. A wave 1 by definition, has very little data to derive its price and time projections; it is also the label it gets when the pattern is unclear. The first thing we should do is to find the relative position within a larger cycle. To demonstrate how important it is, we will look at an example where it seemed that wave 1 was over and wave 2 was underway. Look at the chart below:

                                                                      

Click on the image to enlarge.

The system shows that an ABC pattern took place and it is waiting for a 21% retracement of the price to confirm end of wave 1 and start of wave 2. This would be a beautiful setup for buying low and sell at the end of wave 3 for the 21% sensitivity. Why the 21% sensitivity? Because the ABC pattern is at 13% the next lower sensitivity of the expert we use. What happened? Look at the next chart...

 The assumptions were definitely wrong! First although the 34% wave pattern is in a corrective, it should have yielded enough price appreciation for the trade. However the sheer size of that wave C (the red C at the beginning of June) combined with the size our wave i would have had, should have been enough to cause more investigation. The pattern failed when the price dropped below the blue line. The bearish momentum was too large to be overturned by our wave i of June 9th.