Monday, April 12, 2010

Market in Final Stages of Rally Before Falling Lower Toward 1171; EUR/USD Still Looking Bearish

S&P 500 Cash Index




The market sructure on the smaller timeframes appears to show that we need one more push higher to complete a 5 wave rise which should be a wave v of (v) of 5 and finally end this very persistant rally from the 1050 area. The only problem with this outlook is that if you look at my 15min chart above you'll notice that wave i is much sharper and deliberate than wave iii. Although this breaks no EWP rules, it's still a bit unusual so I'm cautious in hanging onto every little detail of this count. But it's a good basis for the short term and when to expect a top to be in. The fact that it does seem like a 5 wave rally is unfolding and that it's a wave v of (v) of 5 which usually shows signs of weakness anyway, I'm putting this as my preferred count. The first target for the decline will be the 1171 area (correction from the 1071 I originally posted). I'm currently short using SDS and will add aggressively to it when I see signs of a reversal in place.


EUR/USD




The EUR/USD still sports a nice opportunity for the bears to get short this pair in anticipation that it will close the huge gap left from Sunday's open. With the Greece news all over the place recently, and the rise from the lows looking like a corrective 3 waves, I'm all over this short trade and am looking for lower levels in the EUR/USD, and higher levels in the US dollar.


VIX Setup




For those of you who subscribe to Elliott Wave International's Financial Forecast newsletters, you'll know that they have lots of nice technical indicators for optimism and internal market strength, some of which were shown in today's newsletter. Some are proprietary so I won't mention them here, but the VIX indicator is quite common and something I've followed for quite some time. Today we will see that the VIX's reckless descent has caught up to this bull run as today's close was beneath the lower bollinger band on the daily chart. This is showing complacency in the market as investors continue to think protecting positions with put options is a waste of money. Once the VIX closes above the lower bollinger band, it will be a sell signal. This is one of the most reliable technical indicators out there, so today's action got my attention.

So the evidence is falling into place, although it's been doing so for several weeks it seems, that the market is in its final stages of uptrend for the short term and that selling pressure should soon hit the market. Despite the constant fakeouts to the downside, if we play the market right and control risk properly with a disciplined strategy, we should still be able to profit on a downturn here despite being stopped out a few times in the past few weeks.


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.

2 comments:

moola said...

Todd, The BBands seems widening following a squeez and the VIX may be going further low and market may have its final thrust upward. Getting ready to accumulate QIDs. Moola Reddy

Todd said...

Thanks for the note. What's your long term outlook?

Todd

StatCounter