Here is an interesting challenge presenting from recent price action in $USDJPY , where price appears "to have been going nowhere". However, a methodical approach through counts might simplify the field in terms of geometric options and probable direction.
DECIPHERING THE WAVES:
The recent price action in $USDJPY may have left some traders wondering what direction might the market take especially as we face the following blank price field and contemplate recent price gyrations:
First, let's untangle the recent price action by simply recognizing simple a-b-c features of zig-zags with 5-3-5 internal wave construction:
Next, let's acknowledge that the recent swift down move has all of the respectful characteristics of a motive wave, defined by intermediate waves (1), (2), (3), (4) and(5).
Let's also situate ourselves in relation to the current price action and wave count, by assuming that Intermediate wave-(4) has completed with 5-3-5 internals of a , and that we are currently in the development of an Intermediate wave-(5):
It is also well worth noting that Wave's Rule of Alternation appears to apply here, as this Intermediate wave-(4) took on a simpler a-b-c internal structure of minute degree expressed across a larger amplitude compared to Intermediate wave-(2), which displays a more complex internal structure across a much flatter amplitude.
Now, turning to Intermediate Wave-(5), perhaps it has become apparent that the dominant geometry expressed by points 1-2-3-4-5 in the field appears as an , which characteristically appears in 5th wave of impulses (as well as wave-c of flats and corrections), thus ending the entire impulse at minor degree wave-5.
As an aside, please also note that the recent upswing in price may have been caused by this internal Contracting Triangle ("CT"), expressed in blue capital letters A-B-C-D-E , whereby price rallied following this geometry's signature "under-throw":
Price is expected to rally and validate the 2-4 Line of the dominant , assuming that this is the most probable developing geometry that would offer the mechanism of next price action.
However, the interim move will require some patience, as I would expect points 3 and 4 of said geometry to develop in a pattern, validating internal geometric lines as shown in following chart - Note how a 0.618 level aligns with the internal CT's lower border projection and highlighted R/S level (large arrows across band):
Ultimately, I would expect the entire Intermediate impulse to end in a truncation, as shown below:
Above program would become invalidated if price where to rally in the following fashion. For this contrarian inquiry, I have forced the Predictive/Forecasting Model to define a probable target, as shown in the chart, and added a possible to support this alternate plan:
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Expecting price to meet resistance at defined 120.069 level - RSI's correlating pattern with price is worth heeding, as well:
Price ignored the speculative zig-zag I had anticipated prior to validating the upper border of the channel, and instead went right for it:
In Fibonacci terms, taking point measurements from Intermediate (4) to Minor-4, this retracement is currently resting at 0.750 (a great preparatory signal level), and is expected to remains subdued to the 0.786 handle.
Worth keeping under close watch - I decided to get out of my position from Minor wave-3, expecting a near-completion of current Minor wave-4, and thus a probable decent to 116.707, which is likely to act as a temporizing R/S level (i.e.: expect a reaction to be capped by the under-belly of the 1-3 Line (BLACK) equivalent to an aggressive counter-trend of 0.214-FIB (AFT Method), although if this level of resistance failed, then the A-C Line (BLUE) would present as a next-probable contender, in which case, a significant 0.385-FIB would occur.)
This is all speculative, but a game plan based on objective data (Fibonacci levels, structural levels and R/S lines) can offer a probable plan of anticipation, sort of a structural game theory.
BOJ decision remains pending - Price continues to move as forecast:
TG-1 = 121.645 remains a "make-or-break" level, likely to INVALIDATE the bearish target defined in the original analysis.
Price mulls higher-highs:
Price continues to rally. TG-1 remains in sight. As you may recall, TG-1 is a quantitative target ("Quant-Target"), which tend to define future R/S level if entering into new territories, or confirm prior R/S levels when moving into prior levels.
Quant-targets will also react in a limited fashion, retracing in the Fibonacci order of 0.386 to 0.618, in contrast to Qual-Targets, which tend to define reversals.
Thus, expect a limited retracement upon validation of TG-1.
Price continues to strictly adhere to the bullish forecast, with TG-1 = 121.645 - 20 OCT 2015 knocked out of the way without any interim due retracement (as the nature of these Quant-Target typically call for).
Instead, price continues to rise to the Qual-Target: TG-Hi = 125.225 - 23 OCT 2015. As mentioned in analyses done in minor and mojor $USD crosses, as well as #gold and #euro, there is a unanimous voice calling for a significant decline in the $USD.
Let's keep this Qual-Target in mind:
Watch for this potential retracement risk ... Geo's Off-Set Rule #2 would offer support as shown:
Adding a SL against the proposed retracement. Issue here is potential geometry pointing down for retracement (not reversal) versus Predictive/Forecasting Model dangling unanswered target above.
As mentioned before, Geo is best to define a probable trajectory, whereas Model is best to define end-point.
Price continues to carve lower-lows and lower-highs. A mechanism of ascent back to TG-Hi = 125.225 remains the object of this smaller timeframe analysis. Geo's Off-Set Rule #2 remains the highest probable mechanism to do so.
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I mention these simply because quantitative targets (TG-1, TG-2, ... etc) will often revisit the level of the target that was hit - In this case, the TG-1 stands a good chance for this to occur, although this is by no means a consistent feature of these Quant-Targets.
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