Written by William Kurtz
On September 6, I sent a short note about prospects for the Euro. The note was accompanied by a chart, which I've repeated below, without change, except that the price has been updated by my data service through a few minutes ago (Wednesday afternoon 11 September 2013). I've also included my September 6 note below, as well, so that you can refer back to it if you wish.
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The long and short of it is that on September 6 we could count five waves down from the High of August 20. A count of "five waves down" indicates the direction of the operative trend. The five waves down completed the construction of the wave of the one next larger "degree" of trend.
I had written that we should now expect a partial upside correction of that initial downwave. I named that upside correction wave "ii," and wrote that "a 61.8% retracement of the decline would put the Euro back at $1.3318. So based on what we know now, a logical ending point for wave 'ii' is $1.3318."
Now please look at the second chart below - the 30-minute chart of the Euro. It was taken off the screen a few minutes ago. You can see that the price of the Euro advanced to $1.3318, moved slightly past it, could not hold on, and appears to be declining now.
This is not to say that the Euro cannot move higher now. It could. I just wanted to point out that it hit my target, and that its upward progress has at least been interrupted right at my pre-established target, and may have been stopped in its tracks right there.
Sent September 6:
I'd like to show you a Daily chart of the Euro. This little demonstration just happens to be in the Euro, but it applies equally to all charted financial vehicles in all time frames. The Candlesticks and the Wave patterns operate universally. Their individual implications are the same, everywhere.
Here, we see that the Euro posted a major High on August 20, and a Reversal of Trend from Up to Down followed immediately thereafter. We know that because we can count Five Waves Down from August 20. That's a powerful clue, because a series of five waves indicates the direction of a trend. "Five is all you get; there ain't no more." When you see a "five," you know that a sequence has ended and that a new first wave of one higher "degree" than that of the five waves of which it is composed has now ended, too. It marks the start of a whole new cycle.
So, in this example we can count five waves Down from the major High of August 20. I've marked them within blue boxes. I also show you the birth of the new wave, which is wave "i" (pronounced "one," not "eye"), in a tan box. It is possible that little wave 5 (in blue) and the birth of the new wave "i" aren't quite finished yet, because that little wave 5 looks too short, to my eye. Therefore, it may be that, on Monday, little wave 5 may extend lower before it's a finished product.
No matter. Five is five, and that's all you get. Now what?
Since five is all you get, there has to be a partial retracement of the five - a countertrend partial retracement; a "bounce." It will occur in three waves, not five. Countertrend moves always occur in three waves. Moves in the direction of the next-larger degree of trend always occur in five waves. You see it happening in the Euro: "Five make One."
So, now we'll be looking ahead to the development of wave "ii," which in turn will be composed of three subwaves - A, B, and C. How high can this wave "ii" take prices? Well, it probably will retrace 50%, perhaps 61.8%, of the total decline which was effected by the five little waves in blue. Let's figure 61.8%, and see what we get for the possible limit of wave "ii:"
The August 20 top was $1.3452. The bottom of little blue wave 5 (which is also the bottom of newborn wave "ii") was $1.3104. The second chart shows us that a 61.8% retracement of the decline would put the Euro back at $1.3318. So based on what we know now, a logical ending point for wave "ii" is $1.3318. A 50% retracement would put the Euro at $1.3276.
Then what? Wave "ii" will end, the trend will turn Down, and wave "iii" Down will be born and in motion. (When waves are born, they don't just sit there; they get to work right away). That "wave iii Down" will end up way below the bottom end of wave "i." It will be a "third wave," obviously; and we know that "third waves Down" are very destructive. Furthermore, it will have an unseen companion - another "third wave," this one being one degree higher in trend. How can that be, and where is it? Look at the notation at the top of the chart. That was the top of a wave "2," obviously an important wave. It is of a higher "degree" than any of the ones we've been looking at. But since it ended on August 20, and since we know that the trend of that degree changed from Up to Down the next day, we know that "wave 3 Down" of THAT degree of trend is in motion, too! - and has been, ever since August 21. Trends of ALL degrees are in motion all the time. The net present result of all of that tugging and hauling in conflicting directions is the price which is on display at the moment.
In the Euro, the upshot is that there will be "waves 3 Down" of at least two degrees of trend in operation when wave "ii" peaks and a turn occurs.
That can be a "double whammy." One "third wave Down" is bad enough; but when they gang up in multiples, they can be like a bull in a China shop.
Over the next months, I think we can expect to see a "sawtooth" - shaped decline in the Euro, to $1.2750 or thereabouts, before these "waves 3 Down" come to an end.