Back
14 Aug 2013
Are Elliott Wavers’ findings lining up with working macro themes?
FXstreet.com (Barcelona) - The battle between fundamental and technical analysts has been raging since the two disciplines have coexisted. Now, however, a sub-set of the technical crowd is followed for their sometimes very divergent outlooks.
Fundamental themes that are in play right now
Analysts, traders and investors seem to be working off of a set of macro themes that looks something like this:
• US continues down the path of slow growth simultaneously boosted by the FOMC’s QE efforts and weighted down by historically high levels of fiscal / governmental uncertainty.
• Europe is showing signs of life off of a low / depressed base
• China is teetering between high growth and a serious slowdown – depending on who you believe (China and the global-macro bull cheerleaders or the growing cabal of skeptics on China’s data and the lack of economic growth that the allegedly-false data is hiding).
EW findings – do they mesh with the fundamental themes
• United States – Elliott Wave Theoricians view the DXY as being on the verge of a move higher – perhaps up to 85 in the short to intermediate-term. This outlook is echoed by the very bullish chart of the Yield on the 10-Year Treasury Note. This fits right in with the FOMC beginning its tapering program as a result of the low, but consistent growth mentioned above and the potentially decreasing marginal returns of the QE program continuing (from an economic perspective).
• Europe – The EW crowd views Europe as improving, but not completely out of the woods. Systemic risk may have temporarily been eliminated or minimalized by the ECB’s Paulsonian “Bazooka”, but real, organic economic growth may be hard to come by once this first year of easy comparisons comes and goes. This outlook is reflected in their outlook for the euro futures contract – which they feel will drop from about 1.3259 to the 1.2400 – 1.2500 range in the short to intermediate-term with lower targets over the long-term. It is those lower long-term targets that have these Ew’ers thinking that systemic risk in Europe is not completely off the table for the long run.
• China’s hyper-growth / low-growth tug-of-war – Elliott Wavers have to refer to the Chinese equity markets as well as the currency and equity markets from neighboring countries to formulate their opinions on China. The iShares China ETF (FXI) is on a torrid upside run currently, but unless it can take out 37.47 – preferably on a weekly or monthly closing basis – this may be nothing more than a sharp bear market rally. The “more honest” currency markets are only partially echoing the FXI’s bullishness – the Aussie Dollar has rallied as well, but its wave count indicates that this upside is only part of a correction. The Canadian Dollar also looks like more downside should still be ahead – based purely on wave counts. Copper futures meanwhile are right on the verge of breaking free of the key “correction resistance” area around $3.30 - $3.31. Technicians across the board are wanting to see a clean and convincing break above this range on a weekly and monthly basis. Until that occurs, some doubt as to the legitimacy of this rally will remain.
So, overall, we can say that the Elliott Wavers we talk to and follow are on board fully with the macro US theme, partially / possibly on board with the China theme and not quite “on board” with the long-term recovery / growth theme for Europe – yet.
Fundamental themes that are in play right now
Analysts, traders and investors seem to be working off of a set of macro themes that looks something like this:
• US continues down the path of slow growth simultaneously boosted by the FOMC’s QE efforts and weighted down by historically high levels of fiscal / governmental uncertainty.
• Europe is showing signs of life off of a low / depressed base
• China is teetering between high growth and a serious slowdown – depending on who you believe (China and the global-macro bull cheerleaders or the growing cabal of skeptics on China’s data and the lack of economic growth that the allegedly-false data is hiding).
EW findings – do they mesh with the fundamental themes
• United States – Elliott Wave Theoricians view the DXY as being on the verge of a move higher – perhaps up to 85 in the short to intermediate-term. This outlook is echoed by the very bullish chart of the Yield on the 10-Year Treasury Note. This fits right in with the FOMC beginning its tapering program as a result of the low, but consistent growth mentioned above and the potentially decreasing marginal returns of the QE program continuing (from an economic perspective).
• Europe – The EW crowd views Europe as improving, but not completely out of the woods. Systemic risk may have temporarily been eliminated or minimalized by the ECB’s Paulsonian “Bazooka”, but real, organic economic growth may be hard to come by once this first year of easy comparisons comes and goes. This outlook is reflected in their outlook for the euro futures contract – which they feel will drop from about 1.3259 to the 1.2400 – 1.2500 range in the short to intermediate-term with lower targets over the long-term. It is those lower long-term targets that have these Ew’ers thinking that systemic risk in Europe is not completely off the table for the long run.
• China’s hyper-growth / low-growth tug-of-war – Elliott Wavers have to refer to the Chinese equity markets as well as the currency and equity markets from neighboring countries to formulate their opinions on China. The iShares China ETF (FXI) is on a torrid upside run currently, but unless it can take out 37.47 – preferably on a weekly or monthly closing basis – this may be nothing more than a sharp bear market rally. The “more honest” currency markets are only partially echoing the FXI’s bullishness – the Aussie Dollar has rallied as well, but its wave count indicates that this upside is only part of a correction. The Canadian Dollar also looks like more downside should still be ahead – based purely on wave counts. Copper futures meanwhile are right on the verge of breaking free of the key “correction resistance” area around $3.30 - $3.31. Technicians across the board are wanting to see a clean and convincing break above this range on a weekly and monthly basis. Until that occurs, some doubt as to the legitimacy of this rally will remain.
So, overall, we can say that the Elliott Wavers we talk to and follow are on board fully with the macro US theme, partially / possibly on board with the China theme and not quite “on board” with the long-term recovery / growth theme for Europe – yet.