Wednesday, December 23, 2009

Dow Running out of Room to Rally and Keep Impulsive Bearish Decline Intact

The Russell 2000 index made a new daily high, confirming the other indices' new highs, which is very disappointing for the bears. The fracturing of the market was quite deep and with various indices and sectors a few weeks ago, but the Dow Utilities and Transports, and now the Russell 2000 have all confirmed the highs of the Dow, S&P and Nasdaq. The only main lagger is the financials, the XLF, which is still trailing badly.

As for the Dow count, it still remains intact but has exceeded the normal level of retracement of 78.6%. The only rule for wave 2 is that it cannot exceed the beginning of wave (1) at 10,511. So the attached count remains valid until that level is broken, and offers a great risk/reward opportunity for the bears.

The dollar measured in the USD/CHF has formed a double top and reversed sharply and broke to a make a lower low beneath the 1.0385 level I mentioned in my last post which breaks the short term uptrend. So extreme caution is now warranted for short term dollar bulls as the dollar might have formed a short term top, and should reverse for the next several days. The long term trend for the US dollar is still up, so I will be looking to buy again when the USD/CHF gets into the 1.0175 - 1.0270 range, and for the EUR/USD I'd be looking to sell when it reaches the 1.4540 - 1.4700 range.

With the holiday season in full force now, and light trading in place, I'm not sure how often I'll be posting before the new year. If something of significance occurs I'll be back, otherwise enjoy the holidays with friends and family and remember that the markets are just a game, but good health and relationships with good friends and family are what's really important.


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