Last push short

I think price will trace up to about 1.5510 and then below 1.5351 and perhaps as low as 1.5260. That is my trade for the night

Currently in correction

The Sterling is currently in a corrective pattern that will most likely be a flat or combination three. It looks like the  a wave is complete or just about. Since a wave looks to be a three wave affair I expect the b wave to trace short to at least 1.5365 and perhaps as far as 1.5300 before turning long to make the c wave leg of the flat. The zone is indicated by the lines on the graph. I won't try to predict the end of c wave. Normally it would come back to about the terminus of a wave but we will just have to see if that plays out. Once that is over the short trend should resume (assuming it does not become a double corrective pattern) and a good target for the near term short to end would be about  1.5220 to 1.5180. After that zone is achieved, the Pound will go into a larger degree fourth wave corrective pattern. We will analyze that in detail once it has begun.  The longer term trend remains predominatly short.

The "Prechter Point"

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A little more short

I am expecting one more small push short before we go into the larger (iv) wave correction of wave .iii. Since wave (iii) is shorter than wave (i), wave (v) will be shorter than (iii). If this assesment is correct price will not go below 1.52??. I will update that number when I think wave (iv) is over. then the larger wave .iv correction will begin. More on that when we are there.

Bob Prechter Points Out The Many Signs Of Deflation

Yes, You Heard Us Right

February 18, 2010

By Nico Isaac

Everywhere you look, the mainstream financial experts are pinning on their "WIN 2" buttons in a show of solidarity against what they see as the number one threat to the U.S. economy: Whip Inflation Now.

There's just one problem: They're primed to fight the wrong enemy. Fact is, despite ten rate cuts by the Federal Reserve Board to record low levels plus $13 trillion (and counting) in government bailout money over the past three years -- the Demand For and Availability Of credit is plunging. Without a borrower or lender, the massive supply of debt LOSES value, bringing down every exposed investment like one long, toppling row of dominoes.

This is the condition known as Deflation.

And, in a special, expanded November 19, 2009 Elliott Wave Theorist, Bob Prechter uncovered more than a dozen "value depreciating" developments underway in the U.S. economy as the two main engines of credit expansion sputter: Banks and Consumers. Off the top of the Theorist's watch list are these "Continuing and Looming Deflationary Forces":

A riveting chart of Treasury Holdings as a Percentage of US Chartered Bank Assets since 1952 shows how "safe" bank deposits really are. In short: today's banks are about 95% invested in mortgages via the purchase of federal agency securities. Unlike Treasuries, IOU's with homes as collateral have "tremendous potential" to fall in dollar value.

Loan Availability to Small Businesses has fallen to the lowest level since the interest rate crises of 1980. In Bob Prechter's own words: "The means of debt repayment [via business growth] are evaporating, which implies further deflationary pressure within the banking system."

An all-inclusive close-up of the Number Of Banks Tightening Their Lending Standards since 1997 has this message to impart: Since peaking in October 2008, lending restrictions have soared, thereby significantly reducing the overall credit supply.

Both residential and commercial mortgages are plummeting as home/business owners walk away from their leases at an increasing rate.

The major sources of bank revenue -- consumer credit and state taxes -- are plunging as more people opt to pay DOWN their debt. Also, a compelling chart of leveraged buyouts since 1995 shows a third catalyst for the credit binge -- private equity -- on the decline.

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More short

The correction is over and the v wave of the (iii) wave has begun. Looks like the first two waves are already complete and we should get two progressively shorter pushes short (if it is an ending diaganol). I am thinking the entire short move will end at 1.5411or just past that point. Once that is complete, I expect a larger (iv) wave correction. When over, there will be even more downside potential. Here is the currentl labeling of the short move. Keep in mind that price might make one more push long to just above 1.5674. If so that will end wave (ii) and the short will resume from there. Either way it should ultimately keep trending short.

Still Correcting !!!!!!

Wow! This correction is taking forever. Even though it did what I said it would do in my last post, I believe the GBP will make one more push long above 1.5814 before resuming the short. I have slightly modified the labeling from my last post. I believe the final component of the correction is an ending diagonal now. The push long should stop just short of the trend line and then resume the short. A break of 1.5626 to the short side before making the above new high would negate the current labeling. Either way the trend should move further short below 1.5533 eventually.

Potential labeling for Correction

Below is a potential labeling for the current corrective move. If this labeling turns out to be correct, I would expect to see one more push long before the short resumes.

Not a Triangle

Price broke out of a level that would have allowed for a triangle pattern. It is obviously a complex correction. At this time, the most likely scenario is a double three that will turn out as a Flat to a zigzag. We won't be able to know till it is over but the overriding trend is still short. Please keep in mind there is an Alt scenario that has bullish potential. I am keeping this as a lesser likely hood due to the dollar strength and weakness of the other dollar crossed pairs.

Nothing New

Market keeps going sideways. I will post the labeling when it is done. There will be one more push short before it moves into an even larger correction. I think the larger iv wave correction will likely be a deeper retrace that is quicker than this one.

Still correcting but is it a triangle now?

Well, I keep trying to call the correction over but the market keeps right on doing its own bidding. Neverless the movement seems to be developing into a triangle. If that turns out to be correct, there will only be one more 5 wave leg short before begining a larger degree iv wave correction. I think a likely stopping point for the final thrust out of the triangle will be 1.5453. If it breaks that point in a strong way then the short could continue down till meeting the trend line on the left. I will update the end point of wave .5 (currently 1.5453) depending on where wave (e) of the triangle actually ends up finishing.

Robert Prechter on Herding and Markets' "Irony and Paradox"

To anyone new to socionomics, the stock market is saturated with paradox.

February 11, 2010

By Editorial Staff

The following is an excerpt from a classic issue of Robert Prechter's Elliott Wave Theorist. For a limited time, you can visit Elliott Wave International to download the rest of the 10-page issue free.



Market Herding

Have you ever watched a dog interact with its owner? The dog repeatedly looks at the owner, taking cues constantly. The owner is the leader, and the dog is a pack animal alert for every cue of what the owner wants it to do. Participants in the stock market are doing something similar. They constantly watch their fellows, alert for every clue of what they will do next. The difference is that there is no leader. The crowd is the perceived leader, but it comprises nothing but followers. When there is no leader to set the course, the herd cues only off itself, making the mood of the herd the only factor directing its actions.



Irony and Paradox

To anyone not versed in socionomics, everything the stock market does is saturated with paradox.



— When T-bills sported double-digit interest rates in 1979-1984, investors saw no reason to abandon their T-bills for stocks; when T-bill rates were low in the 2000s, investors saw no reason to put up with the “low yield” of T-bills and sought capital gains in stocks. The first period was the greatest stock-buying opportunity in two generations, and the second period was the greatest stock-selling opportunity ever.



— When long-term bonds yielded 15 percent in 1981, investors were afraid of Treasury bonds even though they were about to embark on the greatest bull market ever; in December 2008, when the Fed pledged to buy T-bonds, rising prices appeared so strongly guaranteed that the Daily Sentiment Index indicated a record 99 percent bulls, just before prices started to fall.



— When oil was $10.35 a barrel in 1998, no one made a case that the world was running out of black gold; but when it was 7-8 times more expensive, some three dozen books came out arguing that global oil production had peaked, a theme that convinced investors to begin buying oil futures…about a year before the price collapsed 78 percent.



— In the second half of the 1990s, the idea that stocks would always be the best investment “in the long run” became popular just as a long period of superior returns was coming to an ignoble end. A new study... shows that as of today the S&P has underperformed safe, boring Treasury bonds for the past 40 years, since 1969.



— Just when nearly everyone -- including world-famous investors -- finally panicked and conceded in February-March 2009 that the financial and economic worlds were in dire shape, the market turned around and shot upward in its fastest rally in 76 years.



And so on. The exogenous-cause model fools investors exquisitely. One reason is that rationalization follows upon mood change. Mood change comes first, and attempts at reasoning come afterward. Socionomists recognize that social mood is primary and has consequences in social action, so we never have to wrestle with paradox. This orientation does not mean that we are always right. It means only that we are not doomed to be chronically wrong.



To succeed in the market, you must learn initially to embrace irony and paradox, at least as humans are unconsciously wired to interpret things. Once you get used to the world of socionomic causality, the irony and paradox melt away, and everything makes perfect sense...





--------------------------------------------------------------------------------



Read the rest of this classic Elliott Wave Theorist issue now, free! You’ll get 10 pages of Bob Prechter's unique insights on:



Why Finance and Macroeconomics Are Not Subsets of Economics

How Correct Are Economists Who Forecast Macroeconomic Trends?

The “Beat the Market” Fallacy

Stock-Picking Geniuses or Just a Bull Market?

Index Funds and Diversification

Market Confidence vs. Certainty

Observations on Corporate Earnings

Why Being a Bear Doesn't Equal "Doom & Gloom"

More

Visit Elliott Wave International to download your free 10-page issue.

Still Correcting

In my last post I thought the correction was over. It clearly is not. Looks like the structure is morphing into a double flat. I fully expect the drop to achieve the 1.5380 level. The question is when will the drop begin. From the below chart you can see that we likely need another down up before we can call the five ways long complete to finish wave .4  . Wave .1 was 426 pips so I expect wave .5 to be close to the same. I believe the long retrace should end near 1.5800 and then drop to near 1.5380

3rd of the 5th

I am looking for the GBP to hit 1.5670 and then take off short to 1.5485. Book it.

Zigzag to Flat

That is what this corrective structure looks like. It began on 02/05/10 at 11:32 am and will probably finish tonight. I expect one more move long to the 1.5780 to 1.5820 zone. From there I expect it to move short to 1.5380. Once that zone is achieved, it is quite possible the movement could come all the way back to 1.5800. Only time will tell but I still very much favor short movements. Look to sell tops.

ALT Count

There is also a possibilty that the entire corrective movement is a double zigzag and now complete either way the trend is still short. A break of 1.5548 should confirm the correction is over

Long correction nearing an end?

The movement from Friday till now looks quite corrective. I think the probability that it is in the last bit of the (c) wave correction is likely. A stopping zone for the Sterling is 1.5659 to 1.5700. Once this is achieved, as long as it does not become more complex, the short should resume with a likely target at 1.5380

Trade the short

The trend should remain short. With the strength the Dollar is showing, I think it would be foolish to try and call bottoms or to look for what would be normal retracment zones. Retracements are likely to be shallower than normal. I would look to sell tops. Once the GBP breaks through 1.5415 we should see even more strength to the short side.

Forget the Daily Triangle

Well, the evidence is becoming overwhelming that the triangle formation, on the daily chart from Aug., I have been holding on to is not going to play out. It is better to admit an error than to continue to hold on to it. In that light, I believe the markings on the below chart are most likely accurate. I think we are completing a minute degree first wave. This means there is likely to be a retrace. With the strength that the dollar is displaying it is possible that the retrace won't be that deep perhaps only 38.2% of the move down from Nov 09. That point would be 1.6166. I really don't think it will be any deeper than 1.6437 which is a 61.8% retrace. At this point, I would fear long trades and only be looking for bottoms to take profit and retraces to get back in short. Once 1.5706 is breached there is not doubt that the short is on like Donkey Kong. Going forward over the next many months I would expect the GBP to approach Par.

Short Over?

I think the Sterling won't make it to the short side daily trend line. Between 1.5865 and 1.5880 will probably be the limit on the short before it moves long. Now, I expect it to trend long to the upper trend line on the daily chart which is currently at 1.6754. It may fall a bit short of that but will make that call when we get there.

One more short at least

Here is the scenario. If price breaks 1.5951 before it breaks 1.60064 it should trend short to at least 1.58640. Once again, for the daily chart triangle scenario to remain in tact price can not break 1.5706 to the short side. If price then moves decisively long after touching the trend line at 1.5855 to 1.5864. That will most likely signal the end of the c (circle) wave of the daily chart triangle. Price should then trend long to above 1.6600 to make the d (circle) wave. The d (circle) wave should take many days.

One more push short?

Well the pound hit my zone and then pushed long but it was a weak movement. The total long move looks corrective. This leads me to believe that it is going to push short one more time below 1.5849. As long as it stays above 1.57063 the triangle scenario will reman intact. A break of that point means the short is in force as a major trend. At this point we will just have to wait and see.

Quick Update

Based on the current movement, don't be surprised if the retrace is much shallower than I previously stated. Perhaps the max retrace point will be 1.5920. Either way I think the trend is long.

Triangle still working

Last night met my minimum expectation by hitting the trend line at 1.5884. The low did not violate the overall triangle hypothesis failure point. So we should now be working leg d (circle) of the triangle. The first 5 wave move long will be three connected zigzags labeled w, x, y, x, z that will complete (a). the first x wave is now moving short and might end somewhere near 1.5895 to 1.5880. Once that move is over I would expect it to move at least another 120 pips long to make the next leg labled y wave.