Thursday, January 7, 2010

EUR/USD Fulfilling Wave Count Expectations; Stock Market is Not

The EUR/USD has fallen as projected in yesterday's post (click here for post). The pair has yet to break beneath its previous low at 1.4216 so it should continue lower in the short term. If I were to have shorted this pair at the 1.4405 level which was where it was trading at when I posted this count, I would move my stop loss now to break even right now, or at least to above the wave (2) high around 1.4450. Once this pair makes a new low beneath 1.4216 it will have satisfied all of EWP's requirements for a nice clean 5 wave decline from the highs a few months ago (click here for count), so it will be ripe for a sharp and deep corrective wave 2 rally. So I would not get too cute and greedy on this short trade right now, and make sure I protect my position aggressively.

As for the stock market, I had a count Tuesday that suggested the S&P would rally strongly in a wave 3 soon (click here for count). That obviously has not happened, but neither have any key levels I cited been broken yet either. Tomorrow has the all important jobs data that everyone clings to lately, so we should get some volatility and deliberate movement in the market either later today or early tomorrow surrounding the report. Once that occurs we should have a better idea of the short term wave count.

Just food for thought, I posted a daily chart of the S&P cash index to keep our eyes on the bigger picture. It shows that we are in a wave C of a triple zig-zag. There is no quadruple zig-zag, so once this count is complete, that's it, it's over; the market must selloff sharply in wave 3 or C to lows beneath those made in 2009. When we look at the close up of this structure on the 30min chart posted, we can see that it's possible that we're in an ending diagonal right now. This most likely will result in a pop to the upside trapping the bulls, then an immediate sharp reversal. So with the jobs number coming out tomorrow, the bullish wave 3 of C count as well as the ending diagonal bearish count are both viable as they both set up for big market moves tomorrow. Refer to the key levels made in blue that were cited in Tuesday's post for reference by clicking here.



Dave427 said...

Todd - So if we are at about the top of wave 2 up from S&P 666 in Mar 09, wave 3 down will start and take us near or below S&P 666. If so, we should expect wave 3 to be fast and violent, shouldn't we? Aren't corrections down normally faster than rises up?

Todd said...

Hi Dave, wave 3 or C should be fast and violent, yes. Both waves 3 and C have these characteristics so it will be tough for me to distinguish between the two until they are complete. Up or down doesn't matter in EWP, what matters is whether or not they're corrections or not. A correction is usually choppy, hard faught gains, with overlapping waves. When the correction is over, the impulse waves usually reverse the entire correction much faster than it took the correction to form; especially if it's a wave 3. And impulse waves are clear trend blazing waves.

Does that answer your questions?


Dave427 said...

Yes, Todd, Thanks. I also feel a major correction is due. I keep thinking we are getting closer and closer to the tipping point as I sense the overall social mood is souring a little more each day. I am now reading Prechter's 2-volume set on Socionomics books and I find them very interesting. Thanks for your continuing analysis and comments.

eric morera said...

Hi. todd, I also do trading base in EWP and only EWP , thats the only principal I feel good about it,lets talk about the Eur/usd , I believe it is doing a double Zig zag due to the fact it was stop @ the 78.6% fibo level from w-x, please give your opinion.eric

Todd said...

High Eric, with the EUR/USD's break above to a new high it's hard to say what the wave structure is at this point. It's quite possible a double zig-zag is unfolding right now, but this would suggest higher levels for most of the week at least, and this wave 4 is already dragging on quite long in comparison to wave 2. I want to wait and watch the price action now that it's made a new high. Oftentimes the behavior AFTER it's broke to a new high is more important than the break to a new high itself. I'll post something later today on this.

What's your count now since it's made a new high?

I have no position at the moment but will establish one when clarity resurfaces.