The bear-market sell-off in sugar and the August surge in soybean oil — both are examples of the mighty power of third waves
by Nico Isaac
Updated: August 25, 2017
When you look at any financial market price chart, all you might see at first is a bunch of squiggly lines.
Well, the Elliott Wave Principle helps you make sense of this seeming mess by dividing price action into two wave categories:
- Impulsive price patterns: Prices move in the same direction as the larger trend. These patterns develop in five waves, labeled 1-2-3-4-5.
- Corrective price patterns: Prices move against the direction of the larger trend. These patterns usually develop in three waves, labeled A-B-C.
Most Elliotticians thank their stars when they see an impulse — versus a corrective pattern — unfolding on a price chart. That’s because impulse patterns have the wind of the trend at their back. For this reason, they are often smooth, strong and easy to identify.
Corrections, on the other hand, go against the grain; therefore, they are often time-consuming, choppy and complex.
Within an impulse, there’s one crowd favorite that truly gets the heart racing; the one Ralph Nelson Elliott himself called “wonders to behold.” That pattern is the third wave.
Think of every other impulse wave as a cute chimpanzee. Third waves are King Kong in comparison as far as the size and magnitude of the moves they produce.
Take, for example, two real-world examples of third-wave price action in the popular commodity markets, sugar and soybean oil.
Earlier this year, in the March 2017 Monthly Commodity Junctures, our chief commodities analyst Jeffrey Kennedy explained how sugar prices had taken the first “step” in confirming a renewed downtrend; i.e. they had penetrated the lower boundary line of the corrective price channel, and were about to embark on a third wave decline. Jeffrey affirmed:
“Everything seems to be on track for lower prices.
“The attention is now focused to the downside. The objective I offered to at least below 12.61. Nothing has changed and that idea is still very much intact.”
From there, sugar prices plummeted another 20% to their lowest level in 19 months in late June before a brief rebound. The next chart captures the market’s precipitous drop in full detail:
Next, let’s review the recent performance in soybean oil. In his August 11 Daily Commodity Junctures, the near-term sister service of Monthly Commodity Junctures, Jeffrey showed the following price chart of bean oil and warned: “We’re going to go vertical in a third of a third.”
Again, the “after” chart shows how soybean oil started to soar to a one-month high.
The best part is, right now, Jeffrey has identified potential third-wave price action underway, or about to take place, in the price charts of coffee, cocoa, and sugar — not to mention the countless high-confident set-ups in several other key commodity markets.