CHAPTER 10
Forecasting Techniques: Waves and Projections

ANSWER 10.1   MMM Monthly with Swing 2 Labels

  1. See table below. I ignored the 90.0 and 95.46 swing highs because the first swing high, 98.19, is higher than these levels. Starting from X, one would only connect to highs that are higher than the initial Y, 98.19.

    X Y Z
    1 40.87   98.19   68.63
    2 40.87 140.43 123.61
    3 40.87 146.43 138.43
  2. To determine the impulse projection, Target = Z + a(Y – X), a = (Target – Z)/ (Y – x). a = (146.43 – 68.63)/(98.19 – 40.87) = 1.35. This is close to the Intermediate target (1.382) of 147.85, and within 0.96 percent of the actual 146.43 high.
  3. To determine the corrective projection, Projection = Z + a(Y – Z). a = (Projection – Z)/(Y – Z). a = (147.85 – 68.63)/(98.19 – 68.63) = 2.63. Phi squared, 1.618 squared = 2.618. Thus the 146.43 high fulfills the P2 projection, which is actually 146.00, within 0.29 percent.

  4. See table below.

    X Y Z Target Price
    1   40.87   98.19   68.63 L 161.38
    2   68.63   95.46   86.74 X 160.90
    3   81.99 140.43 123.61 S 159.73
    4 123.61 146.43 138.43 E 161.25
    5 123.61 146.43 138.43 P2 159.37
  5. The next major resistance point might be around 160.5, the average of the targets in the Price column above.

  6. See table below.

    X Y Z
    1   40.87 146.43 138.43
    2   68.63 146.43 138.43
    3   81.99 146.43 138.43
    4   86.74 146.43 138.43
    5 123.61 146.43 138.43

  7. See table below.

    images
  8. A price of around 124.7 is the 21 percent retracement of the entire move up, so it's very important as the first key line of support. If this holds, then the correction might be said to be very minor. This is also near the 89 percent retracement of the most recent move up from 123.61, so, in a sense, it's the last line of support for that move. The price is also confluent at the 38 percent retracement from 86.74.
  9. The equal to target for the wave, 146.43 – 138.43 –140.89, is 132.9 and the P2 corrective projection is 134.5. The average is 133.7. This is close to the 62 percent retracement from 123.61 and 21 percent retracement from 86.74. Given the confluence of the wave targets with retracements, I'd expect a price around 133.4, the average of the wave projections and retracements, to form interim support.

ANSWER 10.2   M Monthly with Swing 2 Labels

  1. See table below. Note wave cycles are numbered for convenience of reference. The numbering system has no further significance.

    X Y Z
    1 5.07 11.93   6.27
    2 5.07 15.29 10.27
    3 5.07 20.84 15.34
    4 5.07 25.25 16.925
    5 5.07 26.32 21.69
    6 5.07 30.62 22.66
    7 5.07 42.17 32.31
    8 5.07 50.77 42.18
    9 5.07 61.26 54.82
  2. Corrective projections include P1, P2, and P3. P1 = 6.27 + 1.62 * (11.93 – 6.27) = 6.27 + 1.62 * (5.66) = 15.44. This is close to the 15.29 swing high met at the peak of the next wave. P2 = 6.27 + (1.62)2 * (5.66) = 21.09. This is within 25 cents of $20.84, the third Y peak listed. P3 = 6.27 + (1.62)3 * (5.66) = 30.24, near the Y point of 30.62, the sixth wave cycle listed.
  3. The P1 projection is 16.925 + 1.62(25.25 – 16.925) = 30.4. This was fulfilled by the 30.62 swing high, and it is confluent with the P3 projection for the first wave up from 5.07.
  4. L = 10.27 + 1.62 * (15.29 – 5.07) = 26.83. This is near 26.32. Percentage off = 0.51/26.32 = 1.9%, so within the 2 percent tolerance.
  5. For the wave 5.07 – 26.32 – 21.69, which two consecutive impulse projections were met within a 2 percent range? The equal to and intermediate targets were met within 2 percent. Starting with the smaller than, I calculate S = 0.62 * (26.32 – 5.07) + 21.69 = 34.87. Using multipliers of 1.0 and 1.38 for the equal to and intermediate, I calculate 42.94 and 51.02. The smaller than target isn't near any of the values shown in the chart. However, the equal to target of 42.94 is within 1.8 percent of the 42.17 swing high, and the intermediate target of 51.02 is within 0.5 percent of 50.77.

  6. See table below.

    X Y Z Target Price
    5.07 11.93   6.27 T 66.06
    5.07 30.62 22.66 L 64.00
    5.07 50.77 42.18 P2 64.67
    5.07 61.26 54.82 P1 65.24
  7. The average of the targets is $65, so the next target would be around $65.00

  8. See table below.

    X Y Z
    1   5.07 61.26 54.82
    2 10.27 61.26 54.82
    3 15.34 61.26 54.82
    4 16.93 61.26 54.82
    5 21.69 61.26 54.82
    6 32.31 61.26 54.82
    7 42.18 61.26 54.82

  9. See table below.

    images
  10. The next major retracement is around 44.4. This is the 21 percent retracement of the entire move up, the 38 percent retracement from 16.92, and the 62 percent retracement of the most recent wave up.

ANSWER 10.3   K with Waves and Swing 3 Labels

images
  1. Valid up waves marked in blue.

  2. See table below.

    X Y  Z
    1 55.69 69.50 59.65
    2 59.65 63.28 63.13
  3. Valid down waves marked in red.

  4. See table below.

    X Y  Z
    1 69.50 64.465 66.73
    2 69.50 59.65 63.28
    3 66.73 65.14 66.50
    4 66.73 59.65 63.28
    5 66.50 59.65 63.28
    6 63.28 63.13 63.13
  5. The 62 percent retracement for the wave up from 55.69 to 69.50 is 60.94. The $59.65 level is below this, so the retracement has been met. Calculation: 69.5 – 0.62 * (69.5 – 55.69) = 69.5 – 0.62 * 13.81 = 69.5 – 8.56 = 60.94.
  6. The 38 percent retracement for the wave down from 69.5 to 59.65 is 63.39. The 63.28 level is below this, so the retracement has not been met. Calculation: 59.65 – 0.38 * (59.65 – 69.5) = 59.65 – 0.38 * (–9.85) = 59.65 + 3.74 = 63.39.
  7. The wave cycle 55.69 – 67.49 – 64.80 was valid until the point at which prices dropped below 64.80. Once prices dropped below 64.80 the wave is said to have been “taken out,” and isn't valid now.
  8. The wave cycle 68.80 – 66.98 – 69.50 was never valid because 69.50 (point Z) is higher than 68.80 (point X). At an earlier point, where Z <= 68.80, the wave cycle was valid.
  9. The Intermediate, or 1.38 target for the first wave cycle down from 69.50, 69.50 – 64.465 – 66.73, is 59.78. Calculation = 66.73 – 1.38 * (69.50 – 64.465) = 66.73 – 1.38 * (5.04) = 66.73 – 6.95 = 55.78. The low, 59.65 is within 13 cents or about 0.23 percent so also within the 0.50 percent criterion.
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