Wednesday, January 27, 2010
Stock Market is in a Wave 2 Rally; GBP/USD Points to a Sharp Thrust Lower
The market bounced all over the place today, and tanked hard in the morning but recovered into and after the Fed announcement to close positive. This can easily complete a 5 wave decline in many of the major indices to include the attached S&P count. The XLF financial sector ETF did in fact bounce hard off the $14 support I mentioned yesterday, again suggesting the downtrend needs to take a breather.
The above S&P hourly chart shows a potential stopping point for this wave 2 rally. The 1115 level has been significant in both resistance and support over the past few months. I suspect this will provide another barrier for this current rally, and perhaps may cap the rally altogether. What's also of interest is that the 1115 level is very close to the 50% fibo retracement of the entire decline from the high. So this level should act as a good barrier for the market's rally in the coming days. I highly doubt this year's highs will be broken, but this is a wave 2 rally so it should be strong and feel "euphoric" in that the worst is over and this recent decline was just a hiccup that is now over and the return to the bull run is on. I doubt this will be the case at all. The market should halt shy of this year's highs and reverse very sharply in a very strong and fast wave 3 down. I'll do the best I can to identify the turn when I see it.
As for the GBP/USD, it appears to be forming a triangle that is complete, or near complete. I have the entire decline from the recent highs as an A-B-C affair, with the B wave as the triangle. This isn't preferred in the bigger picture because I feel the GBP/USD has formed a major top and is in a downtrend, but the structure this pair is tracing out is quite clearly a triangle. Triangles can only occur in X, B and 4th waves according to EWP. So this is why I think it's a B wave at the moment. Regardless, this consoldition should eventually lead to a sharp continuation of the most recent trend, which is down. That means that at least a break of 1.6076 is on the horizon, but should carry much further. I'm saying this because once I see the thrust underway I will probably trail my stop until stopped out because thrusts are sharp affairs that are immediately reversed. So I have my finger on the trigger ready for thrust to close my short position. My stop is still currently at 1.6295. It's possible that instead of a triangle, it's a series of 1s and 2s, but I'll make the market prove that to me by not hitting my stop as I trail it down.
PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.