Friday, September 3, 2010
I just wanted to add some currency data to today's post I put up a few minutes ago. The euro (EUR/USD) looks poised for a top at some degree. Since I feel the larger trend is firmly down, any topping structure in the short term gets my full attention since it could lead to a major selling phase for months.
Above you can see that a possible ABC correction is unfolding with the tail end of wave C wrapping up here soon. The RSI is diverging in the 5th wave which is a typical development. Also, wave C is counting well as a complete, or soon to be complete, 5 wave move. We even have a triangle completing yesterday and that fits well with the sharp rally today as a thrust from that triangle. Although there's no significant decline yet to place risk at a top with high confidence, I thought I'd point this out since some aggressive currency traders might find use in it. I'm one of them as a matter of fact and went short at 1.2882 with a stop at 1.2945. A break above 1.2945 certainly does not negate this corrective topping structure, it just means it's extending. And I need to control risk and I think 1.2945 is where I'd want to step aside and wait for another good sign to short.
Also notice that the USD/JPY, a currency pair that often follows the stock market fairly well. Although I know other pairs now do so much better, like the AUD/JPY. But still it tends to move more-or-less in line with equities. Well here on the hourly chart you can see it is clearly not doing so and recently it did a big pop rally that was completely reversed almost immediately. This is very bearish in my view, and trading below 84.00 would be a good sign that this pair is heading quite a bit lower.
Lastly, the last post was already quite long and I didn't mention this to prevent crowding. But I thought I'd add it here to this addendum post.
Almost all the major indices and the XLF are sporting a similar overbought indication on the RSI hourly and 2 hour charts. This is not a good timing indicator, but it sure illustrates what I said earlier about the market moving too much too fast. Here you see that the S&P's RSI is deeply overbought and is at a much higher level than where it was at during the August 9th high, yet the S&P is still almost 30 points lower. If the stock market wanted to undergo a major selloff, shooting momentum indicators to this extreme right before doing so would certainly be a high probability. This doesn't mean a major decline is coming, but if a major decline is in fact coming, then this would certainly be what you'd want to see prior to it occuring.
Have a good long weekend everyone!
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.