Fifth Wave Extensions Can Make You Rich!

We all want to make money. The financial markets seem to offer a huge number of opportunities to fulfil our dreams. However, the single most crucial setup that delivers most of the time is when the fifth wave sees an extension. Believe me, fifth-wave extensions can make you rich! This article shows several examples of how this setup can be used to our benefit.

When do we say a wave is extending?

The Elliott Wave Theory says that one of the three impulse waves in a five-wave cycle will usually be extended. A wave is considered an extension when it travels an abnormal distance. Although Ralph Elliott never said this, I recommend that we consider wave 3 to be extending if it travels beyond a 161.8% projection of wave 1 by a decent margin. As for wave 5, it will be an extension when it is larger than the other two waves and travels more than 61.8% of the distance from point zero to point 3. A wave 5 extension will typically be 100% or more of this distance. I have covered extending fifth waves in great detail in my online Elliott Wave program.

Where do we see the opportunity to make us rich?

As explained in my Elliott Wave book “Five Waves to Financial Freedom”, when an extending wave 5 ends, we will see a swift correction down to sub-wave 2 of this wave 5. So, the opportunity presents itself in two ways. First, we know it will be a rapid correction, which means we will not have to wait long to realize our profits. Secondly, we know approximately how far the down move will likely travel.

How does the correction after an extending wave 5 present itself?

The easiest way to make money in any market is after a fifth-wave extension. While identifying the precise endpoint of an extension is often a challenge, you can become quite rich by joining in once the correction starts. Typically, a market comes down to the level of the 2nd wave of the just completed 5th wave (as wave 'a'), corrects higher (as wave 'b'), and thereafter collapses as wave 'c' to reach the 4th wave bottom (or lower!).

How can we use Fifth Wave Extensions to our benefit?

In the last 3-4 months, there have been innumerable instances where we have seen this happen. Regular readers of this blog have been alerted to the opportunities. Today, I am going to review those trades so that you can have a permanent record in one place of how fifth-wave extensions can make you rich. Let us start with Crude Oil.

Fifth Wave Extension in Crude oil and subsequent sell off

If you had been on my mailing list before this blog was started in October, you were warned that if Crude Oil were above $140, we would go down to $50. As recently as 5th October 2008, and on this blog, you saw this post.

What happened to Crude Oil prices then?

It is hard to believe, but by 20 November 2008, a mere 6 weeks since our prior analysis, Crude Oil was trading at $52!

Crude Oil is trading close to $52, as shown in this chart. The important point to note here is that prior to this stupendous sell-off, crude oil saw the end of an extended wave 5. Now, it has given up all the gains of that wave 5 and is trading at the prior wave 4 level. Clearly, fifth-wave extensions can make you rich!

Fifth Wave Extension in S&P 500 Index and Opportunity to Make Money

Now, let us look at the S&P 500. On 3rd April, I emailed several of you that we could recover from the current level of 1367, but failure to stay above 1415 could trigger a sell-off to around 1050. Here is the chart for April 2008, followed by the chart for 20th November 2008.

What happened to the S&P 500 index?

Once again, the above case study showed that once the extended wave 5 was completed, the index turned around and collapsed, presenting us with a huge and easy opportunity to become rich!

Fifth Wave Extension in Gold Was Another Opportunity to Make Money

For those of you who are interested in GOLD, this chart should open your eyes! Just a few weeks ago, on 8th October, I wrote in your favorite blog that this precious metal was ready to collapse. That was when the commodity was trading at 910, and analysts at Credit Suisse put out a bullish report on Gold. Take a look at this chart below and judge for yourself. Gold has traded well below $700 before recovering recently.

Fifth Wave Extension in Bank of America Stock Also Delivered Huge Profits

Let us look at a specific US Stock. Bank of America! This blue chip was at $26.61 on 30th June when I alerted you that we would see it down to around $18. Some of you will remember we bought the stock near there and made between 40% and 65% in a few days! (That was the 'b' wave rally). Here are two charts for your study.

The first chart was prepared in June 2008. Observe that we anticipated a wave “b” countertrend rally but warned that we would experience a further sell-off later.

The Bank of America chart below is from November 2008, and you can see the opportunities to make riches when we experienced the devastating sell-off to the prior wave 4 low and below.

Wave 5 extension in the Euro that made traders rich

Next, let us take a look at the Euro dollar. The EUR/USD was trading at 1.3560 on 12th October 2008 when I warned you that we are on our way down to 1.25.

Sure enough, by 23 November 2008, the Euro was already trading at 1.25 levels. Such is the power of this concept that traders seeking extended fifth waves as the only trades they will take should all be pretty rich!

Are you an emerging market buff? Then this chart of the Bombay Sensex should be instructive.

Extended wave 5 in India's Sensex Index also presented profitable trading opportunities.

What is the lesson here, folks? Technical analysis can be used to considerable benefit. And there is no doubt that fifth-wave extensions can make you rich. Yes, we all are scared when it comes to pulling the trigger. (Honestly, I made money in only some of these recommendations because my stops were too close! And even then, I could not risk a very large sum. But those who had the staying power made millions. One of my clients saved over $7 million by shifting his GBP deposit into USD just before the collapse. But coming back to the average Joe (the plumber or trader) we should definitely take small risks at the end of fifth wave extensions. Please bookmark this post and share it with your friends. With best wishes. Ramki

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