Wednesday, February 3, 2010
S&P Close to a Top; GBP/USD Poised to Tank Hard
I know my current S&P cash count is controversial because wave ii exceeds the start of wave i which is a violation of EWP rules. However I analyze the S&P because I feel it gives a great picture of the overall stock market. So I use the S&P to illustrate the market as a whole. Well the market as a whole doesn't agree with the S&P cash this time because the S&P futures, NYSE, Nasdaq Composite, DJ Wilshire 5000 and the XLF did not make new highs with the S&P and Dow cash indices where I'm placing wave ii. So far, I think the "best look" to satisfy EWP guidelines for the entire stock market is the count I have placed above for the S&P cash index. This may change as the wave structure unfolds, but as of right now I view this count to represent the market as a whole.
With that said, today's lack of follow through on the wave C rally is encouraging for the bears as it shows this corrective rally does not have much conviction or strength behind it, so far. This can obviously change in one day, but as of right now, the rally is quite weak. C waves should be strong and powerful and should be like Monday and Tuesday's rallies most of the way through. Today's stall may just be a very small 4th wave within wave C, which means a slight new high will be made tomorrow to probably around the 1110 area at the 50% fibo level before topping and reversing. Or, today marked the high and tomorrow will be a very strong and powerful wave (iii). In support of this is the fact that most of the currency majors (GBP, AUD, EUR, CHF, CAD) opposite the dollar appear poised to tank hard, which means US dollar strength. US dollar strength should result in a strong stock market decline. This would coincide well to the stock market topping today, or after a slight burst tomorrow. So I'm on the lookout for a top and reversal any time.
My stance remains the same on the stock market in that if the market can get to the 1116 area then I will add to my shorts. If it doesn't make it there, then I'm happy with my current positions. So my only strategy right now is to sell into strength, and nothing else. Don't forget, Friday is the non-farm payroll report so late Thursday or all day Friday may bring about some extra volatility.
The GBP/USD's strong decline that lead to a break beneath 1.5902 today confirms that the rise from 1.5850 was a 3 wave move, which is a correction. It also means that there's a high probability that the 1.6069 high of the 3 wave rally will remain intact for some time, at least until 1.5850 is broken. Judging by the behavior in this pair, along with that in the AUD/USD, EUR/USD and the other majors, it appears these pairs are trading very heavy and weak, implying that the US dollar may be ready to break out hard to the upside. A dollar surge higher will cause the GBP/USD to fall hard. I'm ready for it. My stop in the GBP/USD remains at 1.6075 locking in a 160 pip profit at the moment.
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.