March Commentary

For those who like trend lines, here is a practical application. The security is AXP, American Express The trend line in blue is connecting two peaks from a very large pattern. A violation of this trend line is a major move as the chart demonstrates. What is interesting in this setup, is the various signsexhibited during this bullish move. The first one is a sign of consolidation where opposing first waves (in the ellipse) debase the wave count. When it happens, we can expect a new trend to emerge. The second sign is a consequence of the first, the waves being debased, the wave count expert displays a dot 21% wave ii. At the same time, the trend line has been acting as a resistance. It is tested a second time shortly after but this time the retracement is less than the previous trough (where the wave (2) displays). This later sign is indicative of an impulse beginning to deploy. The last sign is the penetration of the trend line. So far this trade up to the yellow rectangle would have been very profitable. Now we have in this yellow area, another bullish sign, the greyed out waves 3 and 4. This particular display informs the user about a possible extension of the pattern; the grey markings appear when wave 3 is shorter than wave 1. The user should watch closely the deployment of wave 5, if it is shorter than wave 3, then in all likeliness the pattern be followed by a correction. However, if it is longer than wave 3, we will have an extended wave 3 to be usually followed by a fifth wave.

Click on the image to enlarge.

The price continued its strong rally as expected since wave 3 in green was longer than the grey wave 3. The future will probably yield a correction in the form of a wave ii. Giving a final look at the graph, we can observe that the exponential moving averages confirmed this upward move as they became a support to the rally. Another characteristic of the EMA, is the distance between the 55 bars and the 144 bars EMA. The distance grew and was maintained for a long period thus providing a measure of the momentum behind this bullish rally. Many times I have said that the Elliott waves were very akin to a moving average system. The delay in the confirmation of a wave is very similar to waiting for a clear crossing of the EMAs .