Breakthrough Strategies for Predicting Any Market: Charting Elliott Wave, Lucas, Fibonacci and Time for Profit by Jeff Greenblatt & Dawn Bolton-Smith

Author:Jeff Greenblatt & Dawn Bolton-Smith
Language: eng
Format: mobi
ISBN: 9781592802685
Publisher: Wiley
Published: 2007-07-17T00:00:00+00:00

Keep in mind how sentiment affects our thinking around any bottom. Gold and gold stocks were so hated and trashed that nobody believed in their ability to go anywhere but down, let alone the moon. In Figure 7.3, we are looking at a weekly chart showing only the first wave up. Notice how the rise of the first wave from the 40s into the high 60s tops in 29 weeks. The dark cloud cover in week 30 suggests we are going to have a pullback. Try to remember, at that time we don’t know whether the leg down is going to create a new low.

The first thing you want to do is draw Fibonacci retracement lines for the entire leg up. The second thing you want to do is find a support area somewhere in that first wave up and draw the Fibonacci retracement lines. We don’t know if this is going to be a retracement leg or a continuation of the long bear market for gold stocks, do we? The only real way to know is through a process of elimination. If the entire wave were to have a meaningful retracement through the 61 percent level, odds are it is either going all the way to retest the low or will continue on with a fresh low. Until that happens, we really don’t know.

If we draw retracement levels in at least two degrees of trend (like we’ve done on this chart), we have some kind of idea of where the important violations would occur. Look at where the blue and red lines cluster. There is a blue 50 percent, red 38 percent, blue 61 percent, red 50 percent, and blue 78 percent, red 61 percent. These are the three main clusters of where this leg can end. Only at the point in time when all of these clusters are violated do we seriously consider that this leg is going back to retest the low.

The purpose of this exercise is to develop discipline to avoid looking too far down the road. If you listen to the television too much, you will tend to get caught up in the emotion of far-reaching predictions. Looking at the situation at the dark cloud cover in week 30, do we really have any idea what this wave is going to do? Remember what we discussed way back in Chapter 1. Sentiment in wave 2 tends to repeat the sentiment of the overall prior trend. In this case, it’s “here we go again.” The only way you can stay in control of your emotions and separate yourself from the crowd is to follow this discipline; keep your head in the chart and block the emotions of the crowd.

Figure 7.3 throws us several curve balls. First of all, the first leg down retraces 61 percent of the move up. The fact that it turns back up right there may induce some players to conclude the correction is over. Financial markets are tough. This isn’t the tooth fairy, and things don’t always go as planned.

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