Elliott Wave - Oil, GBP/USD

Yesterday we saw one of the worst days ever for the U.S. financial markets with the majority of U.S. stocks incurring the largest drop in U.S. history. After the Bailout plan failed to pass the euro rose higher to around the 1.4570 level. The financial crisis from the United States is now also threatening the United Kingdom, and the investors of different banks are already worried. We will review the cable from a technical point of view. Below is the Oil chart, which is already threatening $90 per barrel for the second time this month.

Today's Charts

Oil

On the chart below we can count five waves down in the current red wave A, which is called the impulse. A lot of Elliott wave traders count our blue wave A as the three wave move, but if you turn to page 74 in your Elliott Wave book by Frost and Prechter you will notice that when the wave four terminates well above the bottom of wave I, a five wave sequence must be classified as an impulse. In our case, a three wave move will be the incorrect labeling or counting. In cases of three wave moves, wave B would be expected to rise up for at least 50% of the previous drop. If the current wave count on the chart below is correct then we can expect new lows in red wave C soon, as the red wave B is already done with this nasty move to the 130 level. The bottom of wave C could be somewhere around $80 per barrel or lower. In this case, we can also expect a move lower on the euro chart from yesterday.

Gbp/Usd

The closed candle from last week confirmed a bounce from the weekly trend line, which is currently reacting as resistance for possible lower prices in the future. This is the reason why we labeled wave C also as possible wave III, which would mean that the market could be currently trading in wave IV correction and then further in wave V. On the RSI indicator, you will notice a very powerfully bearish channel which is signaling new lows in the near term as the prices bounced from the resistance. If the sterling continues to weaken then we can expect prices around the 1.700 level, lows from 2006.

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