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TRADER’S CLASSROOM

By Jeffrey Kennedy, Editor of Elliott Wave International's Futures Junctures

WHEN DOES SEVEN EQUAL THREE?
According to the Wave Principle, prices move in fives and threes. Regardless of the variation, the message of each is the same: impulse moves define the trend and corrections correct it. A variation of the three-wave correction is a double zigzag.
Chart 1 illustrates a double zigzag correction (A-B-C-X-A-B-C). What’s important is how this pattern subdivides - seven waves or swings (chart 2).

Charts 1 and 2

Live Cattle

3, 7 and 11 swings are significant because they represent zigzags, double zigzags and triple zigzags. Even when the subdivisions of a structure are unclear, by focusing simply on the number of major moves it is possible to identify the pattern as corrective (against the trend) or impulsive (with the trend). Now examine Live Cattle (chart 3) and you’ll see why I bring this up: the advance from 72.65 into this year’s high subdivides into seven distinct swings or waves. This implies that Live Cattle is about to tip over.

If this view is correct, the high of the year is most likely in place basis the weekly chart and prices will continue to decline steadily lower while holding below the weekly June highs of 88.25-90.20. At the very least, I expect a test of Fibonacci support at 80.30-76.95, the .618 and .786 retracements of this advance.

For more examples of this seven-wave swing count and its result, look at Coffee (chart 4), Lean Hogs (chart 5) and Sugar (chart 6). In each instance, sizable moves in the opposite direction occurred as a result of the seven-wave pattern. Coffee and Lean Hogs more than completely retraced these moves. In Sugar, the result was a trend defining five-wave move to the .618 retracement of the selloff.

Coffee Lean Hogs
Sugar  

 

Jeffrey KenndeyEWI's futures analyst Jeffrey Kennedy watches all the major commodity and currency markets throughout each day's trading session. Then, at the end of the day, he reveals the market(s) with the most promising set up in Daily Futures Junctures. Each month in Monthly Futures Junctures, he also posts his picks for the 6-8 longer-term opportunities. Jeffrey always explains his analysis to make sure that you learn and understand how the markets move.

Try Jeffrey Kennedy's Futures Junctures Now. It's 100% Risk-Free.


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