Wednesday, July 9, 2014

ICE: An iceberg of ambiguities

IntercontinentalExchange Inc. (ICE), headerquartered in Atlanta, Georgia and owner of the New York Stock Exchange, Euronext and other platforms, has been on the decline since January.

The chart suggests more downside to come at first glance. A deeper look, however, reveals the chart's true nature: A towering iceberg of ambiguities.

The Chart

ICE's chart shows a muddy Elliott wave count from the Great Recession low of $46.69 in 2008 to the peak of $229.50 attained Jan. 7 of the present year.

The decline from the peak shows a clear five-wave pattern in the making, marking it as an impulse wave, a move in the main direction of the trend.

Yet, the upward 4th-wave correction from the low so far in the downtrend, $188.30 on April 11, has ambiguities of its own.

Click on chart to enlarge.
ICE 9 years weekly bars (left), 180 days 4-hour bars (right)
I've labeled the May 2 peak as the end of wave 4 {+1}, but it could well be that the 4th wave continues as an extended flat of some variety.

The duration fits my labeling, but while implying that I'm correct, it is far from certain.

I've labeled the present five-wave decline as being one degree lower than the wave 5 {+2} peak (itself an imputed labeling, since the count of the preceding uptrend is unclear). It may well be much lower. Absent a clear count in the rise from 2008 to 2014, there is no way to tell.

Also, the present five-wave count to the downside could be part of a new downtrend of larger degree, or, if wave 5 {+2} is really a third wave, it could be part an A wave within a correction. The answer determines whether there is any upside potential to speak of in ICE's future.

This is all a long way of saying that I dislike this chart. It tells me very little except that ICE is in a nearer-term downtrend. I knew that already.

(Actually, I love this chart as a fine example of just how little clarity Elliott wave analysis can provide in some cases. But for trading? Not so much.)

At this point, as I complete the labeling of the chart, I see that ICE has moved back within its 20-day price channel, losing its confirmed status. As I watch, it's toggling back and forth between confirmed and unconfirmed.

At this point, I know enough to make a trading decision.

Decision for My Account

The chart lacks conviction, and the on-again off-again confirmation status lacks it as well. There are just too  many unknowns on the chart and too little downward momentum for me to open a bear position in ICE.

I'm not taking the trade.

-- Tim Bovee, Portland, Oregon, July 9, 2014


My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here.

I from time to time use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

See my post "Chart Analysis: Nomenclature" for an explanation of my method for labeling waves on the chart.

By preference I place my shorter-term trades in the last half hour before the closing bell in New York. See my essay "When is the best time to trade" for a discussion of the practice.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

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