Monday, November 23, 2009

Watching the Dollar, Stock Market Still Split

The market surged this morning as has been the case with recent Mondays as of late. A CNBC FastMoney trader has been saying that Monday's rallies have been due to Money Managers having available funds at that time and doing all their buying. Today was no exception. The financial news wires said the rally was on some housing data that came out this morning, but the EUR/USD rallied all throughout the Asian and European sessions before the housing data even came out this morning, signaling a big rally in the stock market was going to occur this morning anyway. So as usual, the "news of the day" has very little to do with market movement despite what the financial news folks say. EWP states that crowd psychology and the wave structure create the news, not the other way around. Today is a good example of that at work.

Internals are very strong this morning, suggesting only buyers in play today. It's a holiday week so volumes will most likely be light, perhaps giving the bulls an opportunity to rally this market big all week. The key will be to see what happens when volume returns. The last few times big volume re-entered the market, it resulted in selloffs. Today the Dow made a new daily high while virtually every other index did not. Again, as this market shoots higher, watch the behavior of the Dow compared to the other secondary indices and sectors. And keep in mind my post on the significance of this "fracturing" occuring right now that's causing the Dow to outperform everything else (see post here). I'm short term bearish as long as the non-confirmation between the Dow and S&P remain intact which means the S&P needs to continue to stay beneath 1114, however I have low confidence that will hold at this point.

An interesting structure and opportunity exists in the AUD/USD. Elliott Wave International and FXCM analysts have pointed out the clear 5 wave decline in the australian dollar/US dollar (AUD/USD). The pair has rallied to the 61.8% fibonacci level which presents a great opportunity for the bears to get short at current levels (0.9253) with a stop above 0.9410.

I'm visiting family and friends this week so I won't be posting much this week other than significant develops that unfold as I see them. Have a great holiday week everyone!



Michael Eckert,aka-Columbia1 said...

Thanks Todd, enjoy your week and do not forget to relax a little, you deserve it!!

Dave427 said...

Todd - A basic question related to EWP: Since EWP shows that investors and the market move as a "herd" based on social mood, I am wondering what the breakdown is between professional investors (Funds, etc.) and individual investors. Do you consider the professional investors to be part of "herd"?

Todd said...

Thanks, Michael, you have a great holiday week as well :)


Todd said...

Hi Dave, In my opinion the "herd" is everyone; and includes the individuals and institutions and fund managers, etc. It's all about the collective group of all market participants. They will not always move in lock step or agree when to turn, that's where corrections and the "push-pull" of the market occur. But the overriding theme is that crowd psychology of ALL participants, illustrated with destinct waves, will ultimately prevail and move the market in the direction of the current trend.

I think the key in addressing your question is the fact that not all participants have to move in lock step and turn on a dime together. Just like a herd of cattle, if you had to reverse a giant herd from heading north to south they sure wouldn't turn on a dime together; some would turn right around quickly, others would panic and run east, some would sit down and take a nap, etc. etc., but eventually they will all end up reversing trend and head south once the "reversing process" (or the topping process in the market) is complete. Right now we are probably in a similar "reversing process". It's a long and sometimes messy and sloppy process, hence the severe fracturing of various markets, but in the end they (stocks) will all end up heading in the same direction....SOUTH! lol.

This is just my understanding and opinion of EWP and its application to the markets so take what I say with a grain of salt.

Hope that helps, if not let me know so I can try to clarify.