پرسش و پاسخ با گلن نیلی-167

(167) New Tips & Hints

If an expanding Triangle is forming, what is the probability wave-e will terminate above the bottom of wave-c?

ANSWER:

First and foremost, to create an expanding Triangle, wave-e MUST be longer than wave-c. Therefore, the ONLY way that wave-e can terminate above the low of wave-c is if wave-d is longer than wave-c in price. For that reason, it is not a matter of probability, but a question of the Triangle’s internal design that decides whether wave-e will “fail” or not. 

If you see what you suspect is an expanding Triangle, and wave-d is longer than wave-c, the potential for an e-wave “failure” exists. That potential increases if the channeling of the Triangle slants upward. Why, that allows the “panic phase” of the Triangle (i.e., wave-e’s break of the a-c channel) to occur without the need to break the low of wave-c. Keep in mind, to qualify as an expanding Triangle, wave-e MUST still be longer than wave-c in price; if not, something other than an expanding Triangle is forming.

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پرسش و پاسخ با گلن نیلی-166

(166) New Tips & Hints

With all, major world markets open around the clock, could you please explain why it is so important to use “cash data only” for wave analysis?

ANSWER:

Whether a futures market is traded “around the clock,” or just 5-6 hours per day, nearly all suffer from the same problem – premium decay. That decay is the result of storage costs or interest rates or the effect of time on value. Consequently, most futures markets experience continuous value deterioration. If memory serves correct, in the Gold market, that deterioration amounts to about $1 per month of lost value for those who hold Long (that’s $12 per year or $1,200 per contract per year). Such value decay creates distortion in price structure over time, which causes patterns to break rules and makes long-term, accurate wave analysis difficult, if not impossible. 

When you focus solely on cash charts, you avoid premium decay, which means you have a chart that never has to be redrawn (futures charts must constantly be redrawn as each contract expires). When using cash charts you’ll find your wave counts are more likely to be accurate from the start and less likely to change with time, avoiding the need to restructure past patterns (a phenomenon many wave analysts deal with regularly because they insist on using easier-to-obtain, deteriorating futures data).

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پرسش و پاسخ با گلن نیلی-165

(165) New Tips & Hints

The Fed keeps printing money, Gold keeps going up and everyone is worried about inflation. How can you be predicting deflation in the future?

ANSWER:

First, whatever the public is concerned about (or whatever they spend a great deal of time discussing) is usually an issue that has reached its zenith or moved beyond its nadir. Since “inflation” is an important issue of discussion on major news networks, the odds are high the current inflation rate is about as bad as it’s going to get. 

Second, U.S. banks operates under a fractional reserve money system. Under such a system, when money is borrowed from a bank, it is created out of nothing (causing an increase in the money supply or “inflation” of the money supply); when it is paid back, it disappears into nothing (causing a decrease in the money supply or “deflation” of the money supply). 

The U.S. recently ended a multi-decade credit expansion (i.e., a period of inflation). Since all financial trends run in cycles, what follows a credit expansion (inflation) is a credit contraction (i.e., a period of deflation). The most recent credit contraction began with the stock market decline of 2008 and should last at least 1/4 the time of the expansion period (i.e., 7.5 years). 

During credit contractions, debt is paid off (which removes money from circulation), less borrowing occurs (which prevents more money from being put into circulation) and some debts are simply written off (which means the money disappears as if it never existed, creating a decrease in the money supply). As economics 101 teaches us, the more of something you have, the less it is worth. An increasing money supply reduces the value of each dollar in circulation, so it takes more dollars now than in the past to buy the same item. When it takes more dollars to buy something, we say the price has gone up or that inflation has occurred. When the money supply decreases during a credit contraction, each dollar in circulation is worth more. When it takes fewer dollars now than in the past to buy something, we say the price has gone down or that deflation has occurred. 

In conclusion, the public’s heightened concern over inflation is probably marking the end of this “inflationary” period. In addition, the credit contraction, starting in 2008, will cause a decrease in the money supply for at least 7.5 years. Those two observations combined suggest the decade from 2011 to 2020 will be characterized by historians as a deflationary period.

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پرسش و پاسخ با گلن نیلی-164

(164) New Tips & Hints

In the past, you’ve warned that markets are difficult to predict when wave structure is in its “middle phase” of development. What techniques should one use to trade such periods?

ANSWER:

The “middle phase” of a Flat or Zigzag is wave-B. The “middle phase” of a Triangle is wave-C; in a complex correction, it is wave-X and in a NEoWave Diametric it is wave-D. The larger a correction, the longer its “middle phase” will last. If a pattern spans years or decades, its “middle phase” will last months or years (respectively). During such periods, wave structure uncertainty can be so high that trading is all-but-impossible. To successfully navigate the “middle phase” of any correction (on any time frame), Tier 2 market analysis techniques are necessary (Tier 2 refers to mathematical manipulations of price data that suggest market turns as opposed to direct analysis of price action, such as wave theory. that can be used to “confirm” and anticipate market turns). 

During large, complex corrective patterns (like the 20-30 year S&P consolidation beginning September 5, 2000), overbought/oversold indicators (i.e., Tier 2) can be used to assist with market entry and exit. Some of the more popular might be RSI (relative strength index), MACD (Moving Average Crossover Divergence) and Bolliinger Bands. I’ve developed my own, which I call the MOAT index. The problem with overbought/oversold indicators is they can stay overbought or oversold for very long periods, causing huge, potential losses if stops are not employed wisely. A methodology should be used to reduce risk and increase the odds of success. I’m not an expert on publicly available, overbought/oversold indicators, but if I were using one of them and knew a market was near the middle of its pattern development, I’d employ it this way. 

TO GO LONG: If my indicator showed the market oversold, I’d find a prior, identifiable low to use as a sell-stop to limit losses in case the downtrend resumed. In other words, I’d buy into an oversold decline that occurred AFTER a major low and use that major low (minus 1-tick) as my stop. 

TO EXIT LONGS or GO SHORT: If my indicator flashed an overbought condition, I’d exit my Long when market strength is present, or a level of price “excitement” is evident OR upside acceleration occurred along with excess media coverage. If I’m out of a market, and the indicator is overbought, I’d wait for a larger-than-normal decline off a major high, then look to Short on a 50% retracement (or more) of that initial drop off the major high. Under this approach, the major high (plus 1-tick) would be used as a buy-stop to limit losses in case the uptrend resumed.

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پرسش و پاسخ با گلن نیلی-163

(163) New Tips & Hints

How much can wave-2 retrace of wave-1? Most orthodox EW analysts allow 99%, but it appears NEoWave only allows about 61.8%.

ANSWER:

The amount wave-2 is allowed to retrace of wave-1 depends on two, important questions. Is the larger impulsion Trending or Terminal and is wave-2 a monowave or does it subdivide into an a-b-c?

Let’s address each variable one-by-one. 

In TRENDING Impulsions (this is where waves-2 and 4 CANNOT share any of the same price territory)

1. If wave-2 is a monowave, it should NOT retrace more than 61.8% of wave-1

2. If wave-2 subdivides into an a-b-c, on rare occasions, wave-a might retrace more than 61.8% of wave-1, but wave-c (of wave-2) must conclude at 61.8% or less of wave-1.

In TERMINAL Impulsions (this is where waves-2 and 4 MUST share some of the same price territory)

1. If wave-2 is a monowave, it CAN retrace more than 61.8% of wave-1

2. If wave-2 subdivides into an a-b-c, BOTH waves-a and c (though not required) can conclude beyond a 61.8% retracement of wave-1. 

It is during Terminal patterns that wave-2 is allowed to retrace as much as 99% of wave-1, but never 100% or more.

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پرسش و پاسخ با گلن نیلی-162

(162) New Tips & Hints

Can wave counts, and their implications, differ from one time frame to the next for the same market? If so, what does it mean?

ANSWER:

In general, a chart’s wave count should be based on behavior present on that time frame. For example, daily wave structure should be based on daily price action. If a daily chart is difficult to decipher, a weekly chart might be useful in clearing up confusion. Of course, if your daily count implies something diametrically opposed to the weekly time frame, the count on at least one of those time frames is likely to be wrong (unfortunately, you may not know which for a while). 

When counts on different time frames fail to “sync,” it indicates that market is not near an important pattern conclusion, but is instead near the middle of a formation (a time when price action tends to be muted or, overall, goes nowhere). As structure clears, and just one wave count scenario emerges, that is when important tops and bottoms occur.

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