Wednesday, January 20, 2010
A Top is in...
What an exciting week this has turned out to be in the markets. The S&P cash index made a new high by .04 points according to OptionsXpress, but the S&P futures fell short of a new high by .50 points according to OptionsXpress. Like I've said many times before, and as many of you know, the market will do everything it can to shake you out before it forms a major top and reverses. The Dow made a new high, but the Nasdaq Composite and Nasdaq 100 failed to do so. We also have break-away gaps from the major indices at this morning's open while all the major indices broke last week's lows. The Dow has been making new highs the past several days while other indices, especially the Nasdaq Composite, has failed to do so. This type of action, along with the break-away gaps this morning, are signs of a severe exhaustion in the uptrend. Although it appears that a major top is in, we've seen this market do crazy things to shake out the weaker hands, so I'd like to see the S&P close beneath last week's lows at 1131.39 today in order to confirm that a major top is in. Continuation and acceleration of this downtrend will strengthen the case that THE top is in of wave C of Z of  or [B].
Adding more pressure to equities is the collapse in precious metals today with silver down well over 4%, as well as weakness in the EUR/USD (US dollar strength). As you can see from the attached chart, the long term EUR/USD trend is now officially down as last night the the pair made a new low completing its 5 wave drop from the November highs. The pair should be at the beginning of a multi-month decline which means the US dollar will be on a multi-month advance. This will bring about tremendous pressure on the stock market and precious metals and other commodities, which also lends itself to the projection for a top in equities as well.
Many of you subscribe to and follow Bob Prechter and Elliott Wave International's newsletters, educational materials, and forecasts. I don't want to reveal any proprietary information they have for their paid subscribers, but they have been nailing this wave count and technical analysis for a long time now. And although they certainly are not perfect, no one is, they have been excellent giving average traders like myself a significant advantage in the market. I'm not just saying that because I'm an EWI affiliate, I'm saying that because credit is due where it's deserved.
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.