May Commentary

Where is the Canadian dollar going? The last time we discussed this issue was in October 2005 and at that time, the Canadian Dollar was in a wave 3 at the 3% sensitivity and wave iii at the 5%. The lesser wave 3 pattern has ended and wave 5 is now deploying. Remember that we are still in a larger wave iii pattern that has not yet finished. This chart shows the tremendous potential that Elliott Waves offer to the technical analyst. While it is not a crystal ball, it offers an ordered visualization of price behaviour. It is not an exotic technique based on esoteric concepts, it is based on observation and probabilities. It is very much like moving averages but with the added possibility to compute a target price. It integrates very well with the traditional indicators. If we chose to trade in October 2005, there has been beautiful patterns to choose from. If we did not? The nice thing about a market is that it is never too late, there is always an opportunity. The analysts believe the Canadian Dollar will reach parity with the US Dollar around 2007.

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If we rush in a trade with our eyes closed, we will surely fail because it is like a dance where timing is of the essence. However, waves are about timing and pricing. The next step is to assess the present status: will it continue upwards without pause or will there be an opportunity to get in at a better price? We should look first at the possible target prices for the completion of wave 5 or wave iii, then the resistance level and the support from which we could get in. There are several and we must choose the strongest possibilities while keeping in mind that the others will also be tested. Our follow-up is key to successful trading since it enables us to act if things run differently than our anticipated action plan.

Note that in a commentary like this, it is not allowed to make forecast or entice investors to act one way or another. It makes perfect sense since the object is not to influence market but to read it for education purpose. The accepted methodology in Elliott Waves to make a forecast or establish a target price is to use the Fibonacci ratios and apply them to the observed patterns. This work in both direction, up and down but with different rules for retracements and impulses. Many sites offer the knowledge and it is up to us to sort out the information. As a help, AlphOmega offers its manual to all, keeping in mind that it is for educational purpose and addresses the software distributed by the company.