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Picking Tops and Bottoms

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Risk is Small for Euro Bulls

Thu, Feb 14 2008, 05:56 GMT
by Jamie Saettele

DailyFX

We remain long AUDNZD from 1.1221 (Dec. 13 entry) and long GPBUSD from 1.9421 (Feb. 6 entry). We now wish to enter a long EURUSD position.

A triangle as a 4th wave may be complete at the 2/7 low of 1.4438. Expectations are for a bullish breakout that in the coming weeks that completes wave 5 within the 5 wave advance from 1.3261. Wave E of the triangle has taken the form of a zigzag. As long as price is above 1.4438, maintain a bullish stance. It looks as if the EURUSD could explode higher any moment now, given that the rally from 1.4438 may be a series of 1st and 2nd waves -- a common pattern that occurs before a big move.

Certain psychology attends different waves. This is an excerpt from the Elliott Wave Principle, Prechter and Frost’s classic on EW theory and application.

"E waves in triangles appear to most market observers to be the dramatic kickoff of a new downtrend after a top has been built...intensifies bearish conviction of market participants at precisely the time that they should be preparing for a substantial move in the opposite direction. Thus, E waves, being ending waves, are attended by a psychology as emotional as that of fifth waves"

This sounds like the current environment from a psychological standpoint.

Risk for bulls at this point is small. The most bullish count would treat the rally from 1.4438 as a series of 1st and 2nd waves 1-2-i of 3-ii of 3. This count remains intact as long as price is above 1.4431 but there are other bullish counts that are valid as long as price is above 1.4479. As such, risk should be kept to just below 1.4479.

Published on  Thu, Feb 14 2008, 07:04 GMT