Thursday, July 8, 2010
Wave (ii) Probably Has More to Go; Euro Gearing up for a Decline
The market shot higher this morning at the open only to fall and flatten out during midday trading. Again, this might be chalked up to "Amateur Hour" back in effect where mostly amateurs come in during the first and last 30 minutes or so while the professionals trade during the meat of the day. This behavior didn't do us much good on Tuesday though since it led to a huge monster rally on Wednesday. Outside of the first and last 30 minutes of trading today, the market was quite flat. The late day surge turned the internals of the market quite bullish into the close, suggesting that we still have higher levels ahead of us tomorrow, and probably into next week. Also, there's no real big news data Friday, like most of this week, so the bulls will again be able to blind themselves to the economic decay occurring and just feed off each others' unrelenting optimism to float this market higher again.
One thing to note is that the internals were weaker than yesterday's, although still quite strong today, and volume was also quite light as NYSE volume didn't even reach the 13 day moving average. So the majority of volume spikes above the 13 day moving average still occurred on down days, showing us that the conviction of the market is still on the sell side, for now.
Enthusiasm and optimism have already come back strongly as there are headlines and analysts aready discussing the bottom in the market and talking about the decline being overdone and that earnings and the economy are not that bad. Far different from the "depression" headlines we had over the weekend. It's also the type of sentiment we want to hear as wave (ii) reaches its final stages. But the move higher this week on not so hot volume lends itself to the fact that the overall market is not buying into this rally.
Above is a speculative wave count of the wave (ii) correction. I have it as a comination, or double zig-zag, that should now be in wave 'c' of 'Y'. Wave 'Y' can complete any time now, but will probably get into the meat of the reversal zone before doing so, and if the rally carries into next week then it should get to the upper portion of the zone around 1084. There's also a gap to fill just a few points higher from current levels, so it still would seem that we have higher levels to go.
Another thing to note is the action in the euro that I mentioned this morning. Although the euro and the stock market have not been correlated that well lately, it's still worth noting if you're a currency trader, or for whatever correlation to the stock market that still might be left. The euro is completing what looks like an "ending diagonal" which is a finishing move that is quickly and sharply completely reversed. Although the reversal may only be a short term move, it still may be finishing up a much larger correction which could line up well to wave (ii) in the stock market finishing up if the correlation returns.
So the bottom line remains that I'm firmly bearish below 1131.23, but in the very short term it seems wave (ii) still has higher levels to obtain before the next round of heavy selling to lows gets underway. And there seems to be a good opportunity to start building short positions in the euro (or long the US dollar).
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.