Many traders make use of Elliott wave analysis because of its ability to forecast turns and reversals in a market. However its other greatest strength is often overlooked – its ability to alert a trader quickly when a forecast turns out to be wrong. That was the case with our post in July that charted the Currency Shares British Pound Sterling Trust (NYSEARCA:FXB).
During the summer, price failed to react strongly to the support level we had identified near 123.80. The absence of a reaction was the first warning sign that the downward wave might not be finished. Finally, price fell through support in October, making it clear that the downward wave was extending.
Now the British Pound ETF (FXB) is approaching the next Fibonacci support target, which also coincides approximately with channel support on a monthly chart. This makes it a likely place for anyone already in a short position to consider taking profits, and more aggressive traders might consider shopping for long positions.
British Pound ETF (FXB) Monthly Bar Chart
If an upward wave [iv] forms as we expect, then 127.10 represents the first target area for the retracement. The higher resistance near 132.50 also is valid, and it might correspond better with the channel harmonic shown above.
On a weekly chart for the British Pound ETF, the declining wave [iii] can be counted as having five sub-waves, so it may be complete or nearly so. As confirmation of the bounce scenario, we would like to see the area around 118.40 hold, although we could allow for a small poke farther downward to test channel support. If the channel is tested, then we would want to see 118.40 recovered quickly.
British Pound ETF (FXB) Weekly Bar Chart
A fourth-wave bounce from here could take price generally upward for a year or longer, but the path may be choppy. Any upward trade will require patience.
Further Reading: Â Oil ETF ($USO) May Be Headed Lower Soon
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No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
