Saturday, October 31, 2009
Since the stock market has been moving inverse to the dollar I thought I'd post a long term dollar chart so you can see how it will coincide with the stock market collapse illustrated in the previous posts. As you can see in the attached chart of the USD/CHF (which follows the US Dollar Index closely), we are setup nicely for a large wave C rally composed of at least 2300 pips! I've already called a bottom in the dollar, as evidence strongly supports it, so a strong wave C rally coincides nicely with a wave 3 or C down in the stock market. For the USD/CHF, the key level is the low of 0.9610. As long as that remains intact, the dollar is bullish in my view. And the risk/reward right now strongly favors the bulls as one can even go heavily long right now with a stop just beneath the recent 1.0032 low and risk a little over 200 pips to possibly make thousands of pips.
The dollar is bullish, and should take off from a launching pad soon without breaking 1.0032.
What a nice reversal of that bullish move on Thursday. Thursday I listed 4 bullish things that occurred and needed to be reversed in the coming days to eliminate the potential of the bulls regaining control, and Friday that's exactly what it did in the just the first few hours of trading. Friday: 1) the S&P recaptured the underside of the daily ascending trendline from the March lows, 2) dwarfed the bullish engulfing daily candle from Thursday with a bigger daily bearish engulfing candle Friday, 3) exceeded the NYSE internals data with it being more heavy to the downside Friday than Thursday, and 4) with new lows in all the major indices it negates any 5 wave interpretation of Thursday's rally being an impulsive rally. So all 4 bullish indicators from Thursday were erased within the first few hours of trading on Friday......amazing. (see my post on Thursday that listed the 4 bullish elements I just mentioned: http://principleanalysis.blogspot.com/2009/10/bulls-charge-back-but-bigger-bearish.html)
So the bearish evidence continues to pile up now: today's action left a big daily bearish engulfing candle with a lower close than yesterday in all the major indices, they are all declining impulsively (5 waves) signaling the trend is now down for the foreseeable future, NYSE internals continue to be weak and suggest the bears have control now, rallies are not having follow through and are being met with more selling to new lows, and on and on and on.
The momentum of this decline should be heavy, and rallies can be sharp and brief, so I am in no position to try and get in and out to catch every top tick. I will eventually miss out on big selloffs and have a hard time re-entering, waiting for a rally that never materializes. So I'm heavily short, as I have been, and will not budge on that as long as the S&P cash stays below 1101, period.
With that said, there are some bullish implications in the short term here. Here are the main 3 bullish implications that may result in a short term corrective rally:
1) most indices completed 5 waves down, which means a correction is due. But they may end up subdividing lower though, so again, I'm not trading this, I'm just keeping myself aware a corrective rally MIGHT happen as I hold my short positions.
2) the Russell 2000 has been a valuable tool to forecast where the other indices are headed. Well at the end of the day today it showed more strength than the other major indices as you can see in the attached chart (bottom two charts) where it shows that the S&P made a new low on the 5 minute chart while the Russell did not and was showing more strength. This mild strength shown in the Russell compared to the other indices MAY be signal that a correction is coming.
3) the VIX exploded today, causing it to close above the top of the bollinger band as shown in the big top chart attached. When the VIX closes above the bollinger band and then closes beneath that bollinger band, it usually results in some type of bottom in the stock market, as you can see from the last 3 times the VIX did this, the S&P made a bottom and rallied to a new high. Although I doubt this time it will rally to a new high, it is very possible it will bottom and rally for a few days.
So there it is, the market is overwhelmingly bearish in the big picture and I'm heavily short with my breaking point being the 1101 S&P cash level, but I'm also aware that some short term bullish potential lies ahead of us next week that should fall way short of getting to 1101.
As I've said in the past, with a clear 5 waves down on the daily and weekly charts on the major stock indices from the highs, the trend is currently down. So the entire March 2009 rally had to be a correction that would finish prior to making new highs above those made in 2007. With 5 waves down, it is most likely an A wave, as part of an A-B-C correction, or it's a 1 wave part of a 1-2-3-4-5 impulsive decline. So that means the decline we're currently in will either be a 3 or C. According to EWP the wave characteristics are often the same in that they are both usually very powerful and unfold in 5 wave patterns. Wave 3s are more likely to be a big stronger and extended though, and of course they'd be followed by a wave 4 and a wave 5 to lower levels. Right now I'm not concerned with that. The bulk of money will be made on this decline occuring right now, and whether it's a wave 3 or C is not that relavent at this point becuase they both will look about the same. The only thing to watch for is that if it is a wave C, then it might unfold in a diagonal which is a weak and overlapping 5 wave decline. We should know if this is occuring quite early in the decline though.
Just to show some of the new ellioticians out there what we're dealing with here if this is a big wave 3, I attached a daily S&P futures chart showing the prior wave iii of 3 from 2008. That wave took 11 weeks to erase 488 points (37%) in an almost straight line down. Well this wave 3 we're starting in right now would be of a larger degree, and so what you see on the chart in wave iii of 3 is what you can expect this entire wave we're in right now to look and feel like for several months. And in looking at that chart, do you think you'll feel comfortable navigating in and out of that market? I don't. Trying to snipe every little top tick out of this huge wave 3 will be foolish in my view, and this decline will move so fast at times that re-entry will be difficult. This is a "sell and hold" decline.
My breaking point is the 1101 in the S&P. The market will try ferociously to shake out the weak bears and convince them that the market bottomed and will rally to new highs, just like they did Thursday. But as long as the bears are disciplined and trade like robots, only breaking when 1101 in the S&P is broken, they will have an opportunity of a lifetime to capture the biggest and fastest decline since the early 20th century.
My minimum target for this decline will be under the assumption that the decline is a wave C so we can plan for the weakest and hope for the strongest. Wave C's often equal wave A's, or a 61.8% multiple of wave A. So here are the initial targets, which will of course change as the structure develops:
Wave C equals wave A 61.8% in S&P futures [(1586.75-665.75)x61.8%)] =530
Wave C equals wave A 100% in S&P futures [1099-(1586.75-665.75)] = 178
So the minimum expections for this decline is for the S&P futures to reach the 530 level, or perhaps even the 178 area. Hard to believe but that's what EWP states is possible. And if this is right, it will reach those targets in a hurry.
Friday, October 30, 2009
The major indices wasted little time completely erasing yesterday's rally, and then some. With the S&P holding below 1074, and then declining to a new low today with the other major indices, it completed 5 waves down from the highs. Most indices are following suit, or some variation of 5 wave declines, but the main point to take home is that the market is declining impulsively which tell us the trend is now down. And once again the Russell 2000 is leading the way as yesterday it sported a clearly corrective rally that was severely losing momentum as the Dow charged higher later in the day. That told us that the Dow's 5 wave rally was bogus. What's of significance in this area is that the Russell 2000 has already broken well below its October 2nd lows. So if the Russell is leading the way, then the S&P, Dow and Nasdaqs should follow soon and break their October 2nd lows as well.
The attached charts show the various indices and their five wave counts, as of right now. The waves can extend or subdivide lower, but they are definitely 5 wave impulsive declines. This is EWP definitive proof that the trend is now down.
Thursday, October 29, 2009
Today was an extremely bullish day on many levels. Four things occured today that were victories for the bulls:
1) the daily S&P trendline I've spoken so much about that was broken and closed beneath yesterday, was not held today as the bulls regained the upper end of the trendline, making yesterday's break a "false breakout".
2) the S&P, Dow and NYSE all made big bullish engulfing daily candlesticks that shadow yesterday's decline. These are known as "reversal candlesticks".
3) NYSE internals were very strong, and when combined with numbers 1 and 2, it is a possible setup for a bottom and reversal to new highs.
4) the S&P, and especially the Dow, sported clean and strong 5 wave impulsive rallies today.
All alone, the above 4 bullish indicators are not that impressive, but when combined together, they make a great bullish case. But let's not give up to the bulls just yet. Not at all. There are several things to consider to this 'just one day' event. Let's look at the bearish case, which I feel is still much stronger:
1) no index has made a new daily high, which is the ultimate guage right now of the bearish potential. As long as 1101 remains intact in the S&P cash index, the market is bearish for the foreseeable future.
2) the US dollar did not make a new low, and although it gave up some ground today like the stock market, it fits well into the larger wave count which has it correcting a 5 wave rally ending yesterday.
3) the Dow and S&P made strong 5 wave rallies today, but the Nadaqs and the Russell 2000 did not (see charts attached).
4) the Nasdaqs and Russell 2000 are risk barometers and tend to lead the overall market and both are making corrective-looking rallies lagging the S&P and Dow and neither made a daily bullish engulfing candlestick either.
5) although volume and internals today were solid, neither matched what the bears accomplished yesterday.
6) the topping action of several indices, to include the Dow Transports, has not been reversed and is extremely bearish for the long term.
7) today may just have been a short covering rally based on government spending inflated GDP. But no real positive fundamentals have changed, and post-earnings stocks are still mostly trading lower than their pre-announcement levels.
8) I've said before that the Russell 2000 has been leading the rest of the market. Well yesterday this index made a new daily intraday and closing low beneath October 2nd's low. In fact, the Russell's rally today only had it closing right on the October 2 closing low, while the other major indices are trading well above their October 2nd lows. If the Russell is leading the way, then today's bullish action will be quickly reversed and October 2nd's lows will be broken in the other indices.
Although today was a very strong day for the bulls, it does not trump several days of bearish activity, and the overriding bearish evidence that makes a top in the stock market the highest probability at this point. Tops are never easy to catch and hold, and the market makes it as difficult as possible to do so.
The bottom line is that the evidence still strongly favors the bears in that a major stock market top is in place and that the market is in "crash mode" right now. The key for this bearish case to remain intact is for the S&P cash to stay below 1101, and that the US dollar does not make a new low beneath this week's. My philosophy is to ignore all the "noise" that will surround this erradic and volatile market in the coming days and focus on what I just said in the previous sentence. The market is bearish until it proves it's not.
Just a quick note: notice the attached chart (click on it to enlarge) shows the Dow, S&P, Nasdaq Composite and the Russell 2000. All followed suit with a straight line up this morning, but the riskier the index, the less enthusiastic the second half of the rally has been. You can see the "tipping over" effect as you look from left to right at the trajectory blue and red lines I drew on the indices. This shows that the higher risk assets are loosing steam, and they tend to lead the way. Now this can be resolved if they all charge higher at any time, but as of right now it shows a lack of confidence in the second half of this rally today which may be signal of the near future. I'm not calling a top here, although certainly possible, it's just something to watch as this rally unfolds.
Today's rally on better than expected GDP from government spending.........uh......I mean "consumer" spending, has the markets very giddy. The rally is strong internally and across all sectors and indices. The wave count so far is unfolding nicely and places this rally as a wave 4 (see 15min S&P cash chart). If so, the rally cannot exceed the wave 1 low of 1074. A break of that level will cause me to rework the short term wave count. The key level remains the 1101 high though; that should remain intact for a very long time.
Today's action appears to be a relief rally removing the short term oversold condition left in the markets. Afterall, with such strong selling conviction across the board yesterday it was evident that everyone was selling who wanted to sell which really leaves a few bottom feeders to come in and fluff the market up on mediocre volume.
As long as the rally unfolds in a corrective manner, on light volume, and key levels remain intact, it will be overall bearish because it will alleviate the short term oversold conditions as well as the calm the VIX down to prevent the panic capitulation the bulls want to form a bottom.
Just to update the EUR/GBP short trade. It continues to show weakness as expected, and has slipped more overnight. When I initially posted the trade idea it was trading at 0.9142 and it is currently at 0.8926, which is a 216 pip gain! It's usually wise to take profits on such a gain, you can always add back those positions on a rally. The key stopping point that should cap any rally now is the 0.9238 level. I expect the pair to eventually get into the 0.8400 area at least so I would keep some of the short position on still and manage your stops appropriately.
Wednesday, October 28, 2009
Well the Dow/NYSE sell signal mentioned yesterday proved itself worthy again today with the Russell 2000 losing 3.51%, the Nasdaq Composite losing 2.67%, the S&P losing 1.95% and the Dow losing 1.21%. Internals continued to weaken into the close and so far are as follows:
- NYSE decliners outpaced advancers an amazing 8.63 to every 1 advancer
- NYSE had 2457 more decliners
- NYSE down volume was 90% of total volume
- S&P 500 had only 30 stocks close up today
- Volume was strong, and was its highest since Sept. 30th (another down day)
Also, the dollar continued to rally across the board and confirmed that it has in fact formed a major bottom and should rally for months, which will be a major headwind for the stock market.
Today's decline in the S&P broke and closed beneath the ascending trendline holding the market up since March of this year. And it broke through it convincingly. The S&P needs to hold below that trendline on a closing basis the rest of the week for it to confirm "the crash" in wave 3 or C is underway.
With such a sweeping across the board selloff with such weak internals that I described above, a snap back rally is possible, but not required. With the overriding trend down very strongly with wave 3 or C, rallies may be very small and short. One indicator I watch closely for bottoms and rallies in the VIX/Bollinger Band indicator. Notice on the chart posted that the last 3 times the VIX (red/green candle chart at the bottom) had a daily close above the top orange bollinger band and then later closed beneath that same top bollinger band, the S&P (blue line at top of chart) made a bottom and rallied. We did not get a VIX close above the bollinger band today, but I'll be watching it in the future to give us a sign that perhaps a big rally is coming.
That's all for now. Overall, the market is meeting expectations for wave 3 or C to be underway now, which will eventually lead to the S&P getting into the 400s and the dollar soaring significantly in the coming months.
The NYSE/Dow sell signal I mentioned yesterday held true today. Like I said before, the last time this signal was very reliable was back during the last wave 1 or A down from the 2007 highs to the March 2009 lows was underway. The fact that it held true again today, at least so far, suggests that we are in another large declining phase.
Looking at the internals of the decline today we see a very weak picture (see pic above). NYSE has a whopping 5.1 stocks trading down for every 1 stock trading up, which results in 2017 stocks more trading to the downside. NYSE down volume represents 87% of total volume. Also notice the S&P where only 53 stocks are trading up today. The Dow is weighted in an odd way and I don't even really look at it much as a reliable indicator of the overall market because of that. The Dow is stronger today, again, than the other indices, but the S&P and Nasdaqs tell a better picture along with the internals I just illustrated.
It appears that in combination with the NYSE/Dow sell signal yesterday, the Russell 2000 continues to lead the way and tell us ahead of time what's in store for the overall market as yesterday it made new lows while the other indices did not. Today the Dow and S&P followed the Russell and made those new lows. So I will be watching the Russell 2000 closely until it proves to me that it's not a good indicator of future action. But right now, it's doing a good job forecasting what's coming.
The larger trend is down and a major wave 2 or B in the stock market has most likely ended. The momentum and pressure to the downside is so extreme that I'm not going to try and play this day-to-day. I am short for the long haul. 1101 in the S&P cash should hold for a long long time. As wave structure unfolds I'll be able to lower key levels for stops for those interested.
With all that said, the S&P has broken through that ascending trendline I've mentioned on the daily charts which today is at about 1056 in the cash market (S&P is currently below that trendline at 1051). That trendline is significant, and the market knows it. It wouldn't surprise me if the bulls try desperately to rally the market above the trendline by the end of the day, so I'm cautious of a rebound today, although a rebound is not required at all. But if it does happen, the trendline will soon be reversed and retested. Every time it's tested it erodes the bullish protection to where eventually it will crush through the trendline. Whether it happens today or later on, a strong close beneath that trendline and holding it will confirm that wave 3 or C is unfolding which will take the S&P into the 400s AT LEAST.
The dollar continues to rally hard across the board this morning, putting a lot of downward pressure on the stock market. Yesterday I suggested that with 5 waves up, a correction is due and a retest of the descending trendline was possible. Well after a very feeble decline that didn't quite touch the trendline, the dollar is charging higher. This is a signficant bottom in the US dollar that should last months if not years. Look for the dollar to continue higher from here.
The EUR/GBP just made a new low beneath the long held 0.9000 level as projected. There is plenty more downside potential as you can see from my wave count. But for those risk averse, consider taking some profits on your current position and/or dropping your stop loss to just above the wave (2) high at 0.9238. If the pair rallies, you can add on if you choose. Whether you protect profits or are all in for the ride, this pair should continue lower in the coming weeks.
Tuesday, October 27, 2009
Today was another bearish day for stocks. The Dow was positive at the end of the day, but that's about it. The Nasdaqs finally gave way and played catch up to the Dow and S&P with accelerated down moves today of well over 1%. NYSE breadth was also negative today with decliners outpacing advancers 1.88 to 1 with 924 more decliners, and total down volume was at 65%. All this while the Dow squeaked out a modest gain. This shows internal weakness and a small group of stocks, mainly in the Dow, holding the market up. This is not healthy. A healthy market has most stocks and sectors rising together.
During the big wave 1 or A down from the 2007 highs into the March 2009 lows, I remember that whenever the Dow closed the day in the positive, and the NYSE closed in the negative, the following day usually resulted in a big selloff. If the market has in fact topped for months/years, and we are in wave 3 or C right now, then I would expect similar behavior. So we'll see if the Dow closing up and the NYSE closing down today results in a big selloff tomorrow in equities. I suspect it will
The daily charts in the Nasdaqs and the Russell 2000 look especially bearish. I wanted to point out how the Russell 2000 appears to be the leader of the decline and is signaling the future of the blue chip S&P and Dow. Take a look at the above charts (click on image to enlarge). At the top row you'll see that the daily Russell 2000 chart made a double top and did not exceed its September high. Then look at the S&P chart and it shows a clear new high. This non-confirmation led to the current top and severe reversal we're in right now. So the Russell gave us a telling sign. Now look at the bottom row and notice the Russell again is leading the S&P lower with two new lows today, while the S&P held those levels. We'll see if the Russell 2000 is establishing itself as the leader of this decline as we watch to see if the S&P follows suit soon on Wednesday. When you look at the 5 wave rally in the dollar which looks to have bottomed, the impulsive looking decline in the major stock indices, the closing divergence in the Dow and NYSE today, and that the Russell 2000 is pointing lower, plus a lot of other technical data, the evidence is strengthening that this decline is of a very large magnitude.
One side note: in order for this decline to maintain itself I think we need an orderly selloff in the beginning with accompanying optimism. I really like the fact that the past week or so the market has started the day off rallying and then reversed sharply by the end of the day, but not with any real panic. This is a great "slow bleed" for the bulls. If the market does a panic selloff at this point, I think too many people will see it as a capitulation and then establish a bottom and perhaps rally in big volume to eventually make another daily high. I don't want to see panic, at least not right now. I want this trend to continue with good earnings, optimism on the declines with people saying "buy the dip" and "buy this stock for the long run", rallies at the open that are reversed, and no panic. That is the "slow bleed" that will kill the bulls and keep this decline on solid ground where eventually the rug WILL be pulled out from under it and we'll start getting some big Dow down 300+ days again.
Remember my Dow/NYSE sell signal in play tomorrow!
Just a quick update on the EUR/GBP trade I mentioned in a previous post (http://principleanalysis.blogspot.com/2009/10/eurgbp-clear-five-wave-decline-bearish.html). The pair continues to fall after the 5 wave drop and 3 wave corrective rally. I recommended a short position here at about the 0.9142 level and it's now at the 0.9042 level, 100 pips in the profit. I expect the pair is at the verge of a significant decline, so I feel that rallies should be sold with stops at 0.9411 or 0.9238 depending on risk tolerance. A break of 0.9000 result in an acceleration of the downtrend.
As long as the pair trades beneath 0.9411, I will remain bearish for the foreseeable future.
It's evident that the past couple weeks after earnings reports that money has been moving around. It's mostly been buying up pre-earnings stocks, then either dumping them on earnings day or shortly thereafter. Many of which trade much lower than when the stock announced "blowout" earnings numbers, a clearly bearish sign. Tech has been stronger lately as shown by the Nasdaqs' (Composite and 100) strength the past few days, mainly due to Amazon and Apple, and a few others. So it seemed that people were shifting money out of some stocks and putting them into selected Tech companies in hopes that they will continue the bull run and lead the rest of the market higher.
Today that Tedh hope appears to have faded though. If you look at the stocks above from the Nasdaq Composite that are leading the Nasdaq to much more weakness than the blue chip S&P and Dow, you'll see that the leaders to the downside are some of the stocks that were really that last hope to hold up the Nasdaq. The Dow is stronger today along with the energy sector, so it seems once again the desperate bulls are shifting money around frantically trying to hold onto to some kind of bull market somewhere. Yet despite their efforts, the Nasdaqs and S&P continue to trade in negative territory and the NYSE stocks are trading with a negative bias.
All this "fracturing" of different makrets is very unhealthy for the stock market as a whole, and is signaling a top. With the dollar appearing to have bottomed by breaking through key levels against the euro and the swiss franc, and the very bearish action in the stock market the past few days, I'm looking for lower levels in the near future for the stock market.
The USD/CHF, which almost mirrors the US Dollar Index (DXY or USDX) has rallied now in a clear 5 wave impulsive pattern suggesting that the US dollar has most likely formed a multi-month/year bottom. The decline can count complete with a 5th wave ending diagonal within another 5 wave decline within a C wave. The rally from the bottom has now done so in a clear 5 wave impulsive pattern, breaking, and so far holding above, a key trendline that has capped the decline since October 1st. But with 5 waves up that MAY be complete here, a small correction is possible, and the trendline is an obvious target for wave (ii) to find a bottom before an even stronger rally gets underway.
The evidence is mounting that a long term dollar bottom is in. Evidence supports the bulls, and any pullback in the USD/CHF I'd buy with a stop below 1.0032. If the larger wave count is correct on the dollar, it can rally 2500-3000 pips against its euro and swiss franc counterparts in the coming months!
The EUR/USD also broken through the key level of 1.4828 I mentioned yesterday that would give a strong indication that the euro topped against the dollar. A short EUR/USD position could be established with a stop just above the 1.5062 high.
Monday, October 26, 2009
The attached 15min S&P cash chart is a speculative wave count based on current structure at hand. This can change at varying degrees as it unfolds, but right now this is what we're looking at. The choppy and fierce up down movements count well a subdivisions of waves 1s and 2s at different degrees. Seeing as that wave 2s' psychology according the EWP is that of strength that usually results in a large retracement of wave 1, this count is sound so far. The reason is that wave 2 psychology is composed of people not knowing or feeling that a trend has changed and so they look at declines as buying opportunities to get to new highs. This is why the corrections in wave 2s are so deep and strong. But they cannot make new highs above the start of wave 1 according the EWP rules, and they eventually give way to wave 3s, which tend to be the strongest of all the waves in EWP.
Today's decline was impulsive-looking, and rallies were choppy and weak and reversed fairly quickly. Most evidence points to a top being in and the larger trend flipping to "down", but I'm waiting for confirmation before making the official call. NYSE internals were weak today with 3.25 declining for every 1 stock rallying, and over 87% of all volume occuring to the downside, with overall volume being strong and exceeding the 13 day moving average. Volume was also high on Friday and the internals were weak as well. Conviction and volume is re-entering the market, and it's resulting in lower levels. Remember, as I've shown before, most of the rally from the March 2009 lows has been down on declining volume. This is very bearish, and typical of a bear market rally, not a new bull market.
Now we now need to look at the ascending trendline to be broken, closed beneath, and held. This trendline has held up the market since March of 2009 so when it falls, so should the entire rally from March of 2009. That trendline crosses about the 1053 S&P cash level tomorrow.
Take a look at the daily S&P cash chart. You can see the candlestick formation I pointed the blue arrows to. If you look closely at those daily candles, you see that the S&P reached its high around the 1100 level and was sold off. The bulls continued to try and rally the market only to keep failing. The bears have increased in numbers and ferocity, finally winning the bull/bear battle today with a nice daily reversal candlestick, and a break to new lows. In the process, it cancelled out the bullish triangle scenario and placed the immediate bearish count on the forefront. Today's action also coincided with a very impressive dollar rally, but a bottom is still yet to be confirmed as so far it's fallen just short of satisfying my requirements. But the dollar bottom and stock market top scenarios are looking very good at this point, and I'm just waiting for confirmation.
To supplement the EUR/USD analysis in the previous post regarding a dollar bottom let's look at the US dollar vs. the swiss franc (USD/CHF). You can see the wave count can be complete here, and the strength from the lows accompanied by bullish divergent momentum indicators, and the non-confirmation of not making a new extreme against the dollar like the euro did, all add up to a possible significant US dollar bottom at hand. Above I show the 4hr USD/CHF chart with a descending trendline that has capped the decline the entire 5th wave of C. A daily close above that level, which is at about 1.0200, would strongly indicate that a US dollar bottom is in.
The dollar picture is very important for the stock market view as a dollar bottom would indicate a stock market top.
The US dollar is showing the type of strength needed to confirm a bottom as I mentioned on Friday, and that the british pound exhibited earlier which evidently signaled what the dollar was about to do this week as I projected. The above 2 hour EUR/USD chart shows the bullish euro move against the dollar wave count as complete, and the straight line down signifying the dollar's strength against the euro today. A break of the previous wave 4 low at 1.4828 would be a strong indicator that the EUR/USD had formed a top, and therefore the US dollar had formed a bottom.
The dollar is important to watch because a dollar bottom means a stock market top most likely.
Above is the ascending trendline I was talking about in the S&P cash index since the March lows. Sometimes I post things too quickly and don't realize my miswording until after I post it, so the email subscribers get the uncorrected errors. I am working on getting in the habit of triple checking my work before posting now that I've started sending email updates; so please bear with me.
The above chart shows the 1050 S&P cash level as to where the trendline meets today. A strong close beneath that leel, and holding beneath it for a few days after, will be a strong signal that "the crash" is underway. Until then, we wait.
The Dow rallied about 100 points early this morning before falling off a cliff later on now down over 100 points (that's a 200 point reversal in less than an hour). The action the past few days shows the bulls are exhausted and the bears are now taking over. The S&P followed suit with the Dow and broke the triangle's key level 1077 in the S&P cash index which invalidates the bullish triangle scenario. The bears have full control right now, and the US dollar is rallying strongly at the moment, so a stock market top and crash scenario is back on track as a possibility, but not confirmed. The next target for the S&P is a solid break and close beneath to further add evidence to the crash being udnerway is the ascending trendline holding the market up since the March of 2009 lows, which now is at about the 1050 level right now.
Although the crash scenario is not confirmed, with the only short term bullish count erased now, the evidence points towards lower levels at least in the near term as we wait to see the market's reaction to testing the ascending trendline near 1050.
My positions now are holding long dated put options (2011) on the SPY, QQQQ, IWM, XLF and SLV, and I'm long the US dollar throught the USD/CHF and I'm short the EUR/GBP.
In a pair I have rarely traded there is a glaring 5 wave decline as shown in the above chart. It appears that an A-B-C corrective rally may have completed, giving the bears a great opportunity to get short this pair with a stop at 0.9411 or 0.9238 depending on risk tolerance and position size. I am currently short the pair with a stop at the 0.9411 level as that is quite clearly the start of the 5 wave drop and therefore should not be exceeded AT LEAST until the 0.9000 level is broken.
With the rally today in the stock market, the 4th wave bullish triangle I counted on Friday remains intact. All eyes remain on the US dollar for clues of a stock market top (should coincide with a US dollar bottom). Last night the euro made a new high against the dollar but the swiss franc did not (see charts above). Usually these pairs move inverseley to each other quite solidly with a strong negative correlation. When you combine this divergence with the extreme weakness and vulnerability of the british pound to bad news against the dollar, it appears the dollar weakness theme is cracking. It's clear on the 1 hour - 4 hour charts that the dollar decline is really struggling to work lower and severe momentum divergences remain in place along with a viable completed wave count in place, it makes a good case that the dollar bottom may already be at hand. Any break to new lows should be sharp moves that are reversed fairly quickly and will lead to the bottom anyway. So the dollar's downward spiral is ending soon regardless. As I've said before, a dollar bottom should coincide with a stock market top.