Back in June, 2014, Anglo American stock was trading around 14.60. It was a recovery following a decline from 16.78 to 13.91. However, the wave structure of this decline made us think the recovery was going to be a fake one. By “fake” we mean a move against the larger trend, which is supposed to be fully retraced, when the trend resumes. The chart below, shown in “Anglo American, Fake Recovery In Progress”, was all we needed to form an opinion.
As visible, the decline we mentioned is a five-wave impulse. The Elliott Wave Principle postulates, that every impulse is followed by a correction in the opposite direction. Once the correction is over, the trend should be expected to resume in the direction of the impulsive sequence. As the chart shows, we thought the zone around 15.80 was going discourage the bulls. Those of you, who have been following Anglo American, know the stock went higher. To be exact, it managed to climb as high as 16.60. Nevertheless, it did not reach 16.78, which was the invalidation level for our Elliott Wave count. Let’s see how the daily chart of Anglo American looks like today.
Today, more than seven months after the forecast, the chart shows price around 11.40. On January 14th, it was even lower – 10.28. The Wave Principle is not an automatic trading system, but it still provides concrete invalidation levels for a protective stop-loss order. Anglo American gave a good example of a count that was threatened by a very deep retracement, but survived and brought a lot of profit to those, who can wait.
