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How to determine price targets in uncharted territory - Case study USDRUB

USDRUB & EURRUB trade at fresh all-time highs. The price history does not exist, hence the anchoring points are missing nor can we estimate a potential resistance or target price in a regular fashion.

After peaking at 36.353 in February 2009, USDRUB corrected between 61.8%-76.4% of the advance from 23.130 to 27.157 in 2011. However, at this point the correction was not finished and an extended sideways action followed. A key higher low was established at 29.838 in early January 2013 initiating a major rally, that is still under way today.

According to Elliott, the market's essential form is five waves to progress and three waves to regress*. As the rally is currently at its 5th and ultimate up-wave, we can state a late stage of a rally. However, as it is an extended 5th wave, how far can it go?

To arrive on a most accurate price target, we have used four different techniques trying to get a cluster of target prices to evaluate the most probable outcome.

1. In an extended 5th wave formation, wave five is related by the Fibonacci ratio of 1.618 or 2.618 to the length of wave 1 through wave 3 giving the price target of 44.792 and 51.736 respectively.

2. By projecting the 100% height of the Jul08 – Feb09 rally from the 29.838 (Jan13) key higher low, we get a price target of 43.061.

 

3. Projecting the height of May11 – Jan13 bull channel gives a (moving) price target of 43.109 (rising .030 per week)

4. Upside space towards the top of the Jul08 – May11 long-term bull channel gives a (moving) target of 44.579 (rising by .030 per week)

As the pool of evidence suggest, it appears we are at the late stages of a rally with a shrinking upside. Through different projection techniques we have arrived at the target area of 43.061-44.792. We are not necessarily looking to sell in this area unless the technical signals emerged to indicate that a reversal was likely.

* "Why 5-3? Think about it and you will realize that this is the minimum requirement for, and therefore the most efficient method of, achieving both fluctuation and progress in linear movement. One wave does not allow fluctuation. The fewest subdivisions to create fluctuation is three waves. Three waves in both directions would not allow progress. To progress in one direction, .... movement must be at least five waves, simply to cover more ground then the intervening three waves." Prechter R., Frost A. (2005). Elliott Wave Principle. Georgia: New Classics Library