Saturday, June 17, 2017

The U.S. Dollar Index

I wanted to take a few moments to review the Elliott Wave count on the U.S. Dollar Index, and, using The Eight Fold Path methodology show you where there may be a 'trap' that others may not suspect. First, I want to show you what 'timing' says might not be a correct count. What Elliottician shows you incorrect counts?!! Then, we'll review with you the why's and wherefore's.

Monthly U.S. Dollar Index Futures

Yes, like many Elliott analysts you will note that prices are in a channel, and the latest large upward wave numbered 1 - through - 5 has stopped precisely at the 1.618 Fibonacci level. But, if your Elliott analyst has labeled the U.S. Dollar Index in this way, there are a few things they may be missing.

First, notice that there are only 110 candles in this entire up wave. Next, notice that the Elliott Wave Oscillator is not yet even within +10% of the zero line - where it might be for a fourth wave. It's getting there, but it is not there yet. Now notice that the movement from 5, at the top, is still quite choppy. If wave 5 were the Intermediate (C) wave of an up movement that is now completed, shouldn't dollar prices be absolutely crashing quickly? But, in the choppiness, they haven't even gotten below minor 4, yet, in the span of several months.

Now here is a first critical point. Do you notice that wave 2 is a FLAT wave, with a higher ((b)) wave, and, as shown, this wave, wave 4 would also be a FLAT, because the first wave down is a three-wave sequence, and then there is at least a 90% retrace on the downward wave. There is no alternation in this impulse wave, as this wave is constructed.

Then, here is a second critical point. How long in time is wave 4 compared to wave 2? Why, it is shorter isn't it? Is that the usual situation in Elliott Wave work? No, usually, most-often, wave 4's are longer in time than their wave 2's. One of the biggest errors many beginning wave analysts make is not giving their wave four's enough time to complete.

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So, we don't know for sure, but what if wave 4 is just taking more time. Since, there hasn't been a complete crash of  the U.S. Dollar, yet, could the pundits calling for that crash be incorrect? Here is a chart, with wave 1 they way we called it for you on YouTube, as a leading contracting diagonal, and this makes even a longer wave 2, in time! Yikes!

Monthly U.S. Dollar Index with Better Alternation in the Impulse

At this point, a running triangle is the only way I could see to provide alternation for the flat second wave. A triangle in wave 4 always provides alternation for any wave 2 structure (and that's why wave 2 can never be a triangle in it's entirety). And, a triangle is the only way I can see to make wave 4 longer in time than wave 2. This might also provide the opportunity for the Elliott Wave Oscillator to bob and weave around the zero line a bit.

Of course, the larger significance of this is, if wave 5 is effectively able to break the 1.618 Fib ratio, then a full-on upward impulse in the Dollar might be possible. People opposed to this line of logic can have a point. There could just be from 2008, an (A), (B), (C) upward wave in which the (C) wave doesn't follow The Eight Fold Path Methodology - because, well, it is part of a corrective wave, and not part of an impulse wave.

To that line of thinking I would just add one item, although there are ways in the first chart to force a five count up for wave 5 - it does have a very "three-wave" look to it, and might still be part of a triangle. In any event, there still has been no downward overlap on the upward wave in 2009, and so we must be patient until the situation clarifies a bit. And clearly, this being a monthly chart, it could indeed take months.

But, along the same line, if the dollar bears don't quickly begin to see the downside they are expecting, they might just like to consider the line of reasoning above. Clearly, the Dollar had the ability to make big impulsive bars upward in 2008. Why not (so far) impulse downward in 2017?

And, we too, will also consider that any downward overlap for the U.S. Dollar Index on the 2009 levels would likely spell the end of the dollar boom.

Have a good weekend.
TraderJoe

5 comments:

  1. Hi,
    Thank you for this interesting analysis. I was wondering if an expanding triangle with leg E down underway is a possibility or an expanded flat similar to the SM structure with wave C perhaps underway ?

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    Replies
    1. Welcome, but I think you missed the point of the article. The point of the article is that an expanded flat does not provide alternation.

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