ADDED – Second post on the topic is here: More Elliot Wave technical analysis and charts (AUD, SGD, CAD, Gold)

I’ll have to admit to not being much of a fan of Elliot Wave … but, hey, live and let live!

This is from the technical analysts at HSBC, its their “Trend -Wave Trading Signals” report.

This is the methodology:

Technical market analysis is, at its essence, a study of crowd behaviour and market psychology.

R.N.Elliott’s Wave Principle is based on his empirically derived discovery in the 1930s that market prices move in recognisable, repeating patterns and that these patterns reflect a basic natural harmony manifested in the inherent herding behaviour of crowds. Elliott discovered that these crowd behaviour cycles appeared at every time scale and whilst they were repetitive in structure they were not always repetitive in amplitude or the time taken to form. Robert Prechter Jnr has developed Elliott’s Wave Principle to uncover that a market driven by human decision makers is a robust fractal that may look chaotic but is actually following a structured formal progression. Essentially a detailed description of Dow Theory and the orthodox pattern recognition of Edwards & Magee, Elliott’s Wave Principle (being based on price and volume) is the purest form of technical analysis and is the foundation of our analysis process. Please see the HSBC Elliott Wave Principle Basic Guide for a fuller explanation.

We enhance this analysis by overlaying a large suite of indicators (Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), trend exhaustion etc), volatility and volume data to gauge sentiment and trend strength, looking for divergences and confirmation. It is vitally important in technical analysis to view indicators in relation to where the market is in its wave cycle. For instance, an oscillator showing that a market is overbought could be a confirmation of the start of an extended up trend if it appears in the wave one position of an impulse wave. Failure to combine a reading of indicators with where the market is in the wave structure results in a forced appreciation of the Keynesian paraphrase that the markets can remain overbought or oversold longer than you or I can remain solvent. Other sentiment indicators such as option pricing, put/call ratios, positioning data and surveys are also used in our methodology in order to gather as much evidence as possible in coming to our technical analysis conclusions.

With regards to translating these analysis conclusions into actual trading ideas and positions, we employ our Trend-Wave Trading methodology. Trend-Wave Trading is an investment process that combines the technical analysis of the Elliott Wave Principle with the objective discipline of Trend Following. A potential trade set-up is given by the wave structure and supporting technical analysis such as Japanese candlesticks, trend extension and exhaustion measures, momentum oscillators and sentiment. However, the trade is only executed when there is an objective movement of momentum in the direction the technical analysis suggests. Specifically, momentum is measured by the crossing of a short moving average (5 period) with a long average (40 period). If the market price is also above an up sloping 200 period average when a buy signal is given or below a down sloping 200 period average when a sell signal is given, more confidence and size is given to the trade. Initial trade entry and full trade exit is governed by the moving averages acting as both a trailing stop loss and take profit discipline. By overlaying a disciplined, proven investment strategy such as Trend Following on our technical analysis we seek to run winning trades and cut losing trades early.

OK, let’s take a look:

HSBC elliot wave 1 07 May 2014

The lead-off is on the UST (10-year note):

HSBC elliot wave 2 07 May 2014

On to some currencies

HSBC elliot wave 3 07 May 2014
HSBC elliot wave 4 07 May 2014