US Canadian Dollar Exchange Rate Prediction

January 13th, 2012 and December 19th, 2011 are the nearest inflection dates of significant importance. Gann date cycles indicate that December 19th is next expected cycle low. Approaching Dec 19th the USD/CAD is expected to be equal to or less than 1.0137. The price level of 1.0137 is the theoretical "Brick Wall" for our outlook. If the brick wall does not break, we expect a continuation of the existing Gann Price Trends as the USD/CAD rallies up to either Mid 1.05's or 1.0811 by Jan 13th 2012. If the bricks begin to crumble, we expect a continuation of the existing Gann Time Trends as the USD/CAD slides down to .9769 by Jan 13th, 2011.

 A reader lacking the trader mentality will think I have determined price will either go up or down by Jan 13th. Potential skepticism is caused by the inability to determine how to profit from the price outlook. Secondly,  skepticism is a result of the lack of understanding as to how your clients can hedge risk based on this outlook. Some of my successful spec trades involve trading in the direction of the "windfall gain" while acknowledging the limitations of that strategy. The earlier you can acknowledge when the potential limitation occurs, the quicker you can realize profit. The "windfall Gain" in this scenario occurs if prices break below 1.00 (or 1.0137). With a break below 1.00 an acceleration of the existing trend is expected to occur and we can price in a downward "Market Shock" scenario as the USD/CAD falls to .9769. If a test of 1.0137 reveals strength then I can cover USD/CAD shorts or  Sell EUR/USD. With certainty we can determine that when the USD/CAD is below 1.00 the primary functions remain linear. Above 1.00, the Gann prices form an exponential relationship.

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Some functions, when differentiated, give a result which can be written in terms of the original function. Perhaps the simplest example is the exponential function, f(x) = e^x. If we differentiate this function we get e^x again, that is

Another example of a function like this is the reciprocal function, g(x) = 1/x. If we differentiate this function we will see that

Other functions may not have the above property, but their derivative may be written in terms of functions like those above. For example if we take the function h(x) = e^xlog(x) then we see

Functions like these form the links in a so-called Pfaffian chain. Such a chain is a sequence of functions, say f₁, f₂, f₃, etc., with the property that if we differentiate any of the functions in this chain then the result can be written in terms of the function itself and all the functions preceding it in the chain (specifically as a polynomial in those functions and the variables involved). So with the functions above we have that f, g, h is a Pfaffian chain.
A Pfaffian function is then just a polynomial in the functions appearing in a Pfaffian chain and the function argument. So with the Pfaffian chain just mentioned, functions such as F(x) = x³f(x)² − 2g(x)h(x) are Pfaffian.

References

• Khovanskii, A. G. (1991), Fewnomials, Princeton, NJ: Princeton University Press, ISBN 0821845470 .

AUD/JPY Final Update

This is an update to a previous AUD/JPY analysis which can be viewed at my blog by visiting http://1618analytics.blogspot.com/2011/06/audjpy-2-gann-prices.html

Originally I thought this trade would be good for a run all the way up to .94's. As you can see from the trade history included in this chart, I was in the trade for 2 weeks. In most cases my greed takes over and I look to hold the trade until the instrument reaches the intended target. In this trade I was fortunate not to be stubborn and instead I chose to exit the trade well before my target was reached. My decision to exit was based on the correlation between the AUD/JPY and the USD/CAD. For that period of 2 weeks both these pairs showed significant strength. The usd/cad was just below parity, and I knew that if the AUD/JPY was going to rise up to 94's, this would indicate the USD/CAD would reach 1.03-1.05's.  I wasn't very confident that we would see that much of a rise in the USD at that time. Again, given the correlation, if I wasnt going to be long of USD/CAD then I could no longer maintain this position in the AUD either. After exiting, I was rewarded for my instinct because both the USD and the AUD fell precipitously. Hopefully in the future I can maintain a larger degree of flexibility when viewing my open positions.

Heating Oil Futures Update

For Previous Heating Oil Futures chart please visit the link at my site http://1618analytics.blogspot.com/2011/06/heating-oil-futures.html

I should have updated this chart some time ago. In my previous post you can see that the Elliott Wave count indicates the completion of a wave 4 up. It's always nice to see a classic wave 5 scenario unfold as expected. The decline blew through my intermediate targets and went straight for the new low.  The previous chart shows us Gann Time Cycles which are indicated by two sets of the blue and yellow lines. Here's what is very important to notice...

Wave "a" of (2) indicated by the vertical blue lines, matures at a time cycle duration of 1.406 degrees.

Wave "c"of (2) indicated by the vertical yellow lines, matures at a time cycle duration of 5.625 degrees.

Wave "a" of (4) indicated by the second set of vertical blue lines, matures at a time cycle duration of 2.812 degrees.

Wave "c" of (4) indicated by the second set of vertical yellow lines, matures at a time cycle duration of 11.25 Degrees.

These Gann time cycles show us a predictable time symmetry between corrective waves of the same degree. As you can already see, the price cycles of corrective wave (4) were exactly twice the duration as the corrective waves of (2).
"a" of 4 = 1.406 ^2 or 2.812
"c" of 4 = 5.625 ^2 or 11.25

The Gann time cycles used in this trade setup worked remarkably well and I will be sure to test this time cycle algo on additional instruments in the future! This was the first time I compared time cycles of alternating price patterns in this fashion, and I was very excited to see it work with such accuracy.

EUR/USD Rebound

Over the past month and a half the Euro has depreciated against the USD by over 9%. The Euro's steep decline provides opportunity get long of Euro under the 1.30's with a stoploss @ or below 1.29. The metrics I follow strongly indicate a EUR/USD rally back above 1.35, possibly 1.38's in extension.

The Euro's change in trend is signalled through a confluence in both Time and Price. The metrics are aligning very similar to what we have previously seen occur on my No.11 Sugar posts.

The four points of interest are labeled A, B, C, and D. (Month/Day/Year)

A= 10/26/2011 & 1.424

B= 12/01/2011 & 1.3545

C= 12/15/2011 & 1.3017

D= 12/15/2011 & 1.2942

The Time and Price measures of C and D are derived from the time and price occurrences of A and B.

The Date of C is 22.5 Degrees down from the Date of A

The Date of D is 5.625 Degrees down from the Date of B.

The Price of C is 5.625 Degrees down from the Price of A.

The Price of D is 2.812 Degrees down from the Price of B.

In mathematical terms, C & D are the quadratic functions of the 2.812 degree polynomials listed as A & B. As I mentioned, the EUR/USD is aligning similar to what we have previously seen in No.11 Sugar. With Sugar we identified a confluence of supporting factors which led to over a 50% increase in the 2 months following the buy recommendation.

The support price of sugar was 11.25 degrees of importance. The supporting dates of sugar were both 22.5 degrees & 45 degrees of importance.

The price degree of similarity to EUR/USD occurs because 5.625^2 = 11.25 &

2.812 ^2 = 5.625. A comparison of Price and Time degrees indicates that a EUR/USD rally is not as likely to occur and if it did occur, would not be as robust as the strength which sugar displayed. The reward to risk parameters for this trade given an exit @ or above 1.38 is 5:1.

2011 Review. Dollar Index 1 Day

The U.S. Dollar Index outlook which was formed June 6, 2011 called for 4.44% appreciation within the following 2 months. As you recall, the Gann prices in focus called for the DXY to reack 77.29 by august 5th. With prices currently hovering in the high 73's, this trade met acceptable risk/reward parameters. One month earlier than expected the DXY rallied 4.25% up to 77.15.

This was an excellent trade because the p/l was positive from day of entry. Success in this instance came as a direct result from timing date of entry.

For previous DXY post click on http://1618analytics.blogspot.com/2011/06/us-dollar-index-daily.html

AUD/JPY 3 - Gann Price & Time Extended.

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Now that the AUD/JPY is starting to move higher, I thought now might be a good time to get some solid price targets. Currently we look to .9413 as the immediate upside target. August 7th is the time target which I am focusing on.

AUD/JPY 2. Gann Prices

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The downward consolidation we have seen in the AUD/JPY has taken the form of an Elliott wave formation known as a descending triangle. After Gann prices are taken into consideration, we notice that each consecutive wave lower of the triangle is 22.5 degrees lower than the preceding high.

The previous AUD/JPY post regarding Gann time cycles, highlight a specific degree of time. If this time cycle is in fact mature, then we obviously see an amazing symmetry between both time and price.

If you have any questions, please feel free to leave a comment.

Regards,

Justin Neustaeter

Nasdaq Wave 5 Lower

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AUD/JPY

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This chart of AUD/JPY includes Gann time cycles which display a correlation of 45*degree day cycles. After the AUD/JPY has a significant downward correction, price re-tests this low and reverses course on the exact day on which the corresponding 45* time cycle matures. The price increase following each 45* day cycle maturity is approximately 58% of the previous rally. This allows us to not only forecast the next expected price move, but it also gives insight into the fractal nature of capital markets.

The upward price target is approximately $94. Due to the valuation of the AUD/JPY and the long time horizon on which the Gann price estimates are conducted, an exact price is very difficult to asess. Given the difficulty in determining exact price targets, we will instead focus on the time cycle itself. The time cycle in focus matures on June 23/2011. IF THE CURRENT GANN TIME CYCLE PATTERN of MATURITY CONTINUES for ONE LESSER DEGREE than the previous rally, then we should see an increase of atleast 10.5% in the AUD/JPY throughout this summer.

Heating Oil Futures

U.S. Dollar Index--Hourly

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This shorter time frame analysis of the DXY also include Gann Time Cycles.

18/06/2011 is the next minor cycle termination date. Over the following days if we remain above the downside inflection level of 73.73 then we should have a rally up to atleast 74.55. Targets in extension of 74.55 include 75.45 and 77.29. At this point if we fail to remain above 73.73, then an additional leg lower down to 71.20 can be expected.

U.S. Dollar Index--Daily

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The following chart is overlayed with Gann Degree Time Cycles. The next major time cycle terminates on August 5, 2011. The DXY price targets include reaching $77.29 by Aug 5, 2011. Shorter time frame analysis to follow.

No. 11 Sugar Futures Update

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The "Geometry of Time & Price" I spoke of in the previous Sugar post, turned out to be a great trade. I bought 1 lot or 10k pounds of sugar. As for profit, I didnt take the full 300 points it was good for but I did take 200 points.

With the daily close today coming in under the earlier mentioned upside target, we can confirm that upside resistance is met. Currently I am not going to run the algorithm again to arrive at another predictive scenario for No. 11 Sugar.

It certainly is fascinating to witness the predictive power of complex polynomials.

To view the previous Sugar forecast visit : http://1618analytics.blogspot.com/2011/05/gann-time-and-price-sugar-futures.html

Gann Time and Price- Sugar Futures

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WD. Gann's work extensively involved both Time and Price predictions. From his writings, we can determine that he believed time was the most important factor in determining market movements. Gann wrote, "Mathematical science, which is the only real science that the entire civilized world has agreed upon, furnishes unmistakable proof of history repeating itself and shows that the cycle theory, or harmonic analysis, is the only thing we can rely upon to ascertain the future."

The vertical lines on the chart above display an expanding Gann time cycle. The horizontal green line is the current price support level which is similarly derived from Gann Squares.

On 02/02/2011, Sugar peaked at .3592 usd/lb. From .3592 we get a downside target of .2035.

As .2035 is 1/4 of one degree lower than .3592.

Concerning time, from 02/02/2011, we get a target date cycle of 13/05/2011. May 15th, 2011 is 45 degrees down from Feb 2, 2011. In addition to a 45 degree time cycle, a cycle of a lesser degree also occurs on May 15, 2011. 5/13/2011 is 22.5 degrees down from March 24, 2011. March 24th is indicated by a red vertical line. March 24, 2011 is also 22.5 degrees down from 02/02/2011.

Now we can begin to see how the geometry of time and price is beginning to unfold. The minimum inflection from a properly derived Gann price is a price reversal to another Gann level. It may sound confusing but just think of this minimum movement as corrective behaviour. After this minimum movement, the larger trend often continues unless the initial inflection level is of significant time and price importance.

From the .2035 - 5/13/2011 target, the minimum inflection has resulted in a rally to the minimum upside Gann price of .2203. With the evidence that there are 2 time cycles which mature on 5/13/2011, we can hypothesize that the minimum distance price must travel higher is one larger degree than it already has. Given a break above .2203, price is expected to surge and travel up to atleast .2383 before resistance is met. If this analysis is incorrect, and the .2035 level does not hold as support over the next several days, price can be expected to fall to atleast .1869.