ASIA AND EUROPE SELLOFF AND THE END OF TRADING
Above I posted some Asian and a Europe chart to show the end of day weakness we can see in the major indices. There are more but I didn't post them all here as I didn't feel it necessary. So seeing as that these markets weren't overly excited at the Fed announcement yesterday, and actually sold off at the end of trading, it's possible the US will follow suit today. Just something to keep in mind as we watch the action into the close.
To add to yesterday's post where I talk about risk pulling back after the Fed announcement we have continuation of that trend today. You can see that the higher risk indices are well exceeding the blue chip Dow and even S&P's declines. Although not shown, the XLF which I went into detail yesterday about its bearish implications this week, is down 1.67% at the time of writing this.
So this is the type of risk averse behavior we'd like to see if a major top is forming. Keep in mind the evidence I laid out in yesterday's post on the wave count and fibo retracement level (EWI tutorial section 8) the S&P reached and reversed at, along with the slew of other evidence the past few days that support the idea that a top forming. And it may already be in. Volume is a bit light today though, so that's not what I'd expect if a major top is in and the trend is changing to down, but the internals are still solidly bearish regardless.
US DOLLAR (ELLIOTT WAVE CURRENCY ANALYSIS)
Normally I follow the euro vs. the US dollar for the outlook on the US dollar's status but the euro is in a straight line up at the moment and I see nothing bearish about its structure yet. So usually turn to other pairs to look for dollar action, such as the British pound which has quite a nice bearish setup at the moment vs. the US dollar.
The British pound is not showing the strength against the dollar that the euro is, and you can see that the pound made a nice 5 wave decline recently and the start of that 5 wave decline has not yet been exceeded. Now the correction is quite strong and deep so that's a bit concerning, but it's quite possible that it's a wave 2 since it has those characteristics and hasn't exceeded the start of the first wave down (EWI Tutorial, Section 7.1). Then you see at the top of the recent rally that there's been a lot of volatility there, which could also be part of a topping structure.
The risk/reward here for the British pound bears is phenomenal since one could enter short now and put a stop just above 1.5728 with the potential to make much more than what's risked. To learn more about entry and stop levels using Elliott Wave Principle, check out EWI's free report on the subject.
I'll post some follow-up stuff after the closing bell.
In light of the Fed's announcement today I thought I'd post the offer for Prechter's August 2008 Theorist for free. In this issue he does a question and answer format on the government's role in the economic conditions we find ourselves in. Below are some of the questions he addresses in the newsletter:
- What impact did the so-called “stimulus package” have on the U.S. economy?
- In an economic depression, will pension funds keep most retired Americans afloat?
- Who really benefits when the government props up Fannie Mae and Freddie Mac, and what's the fraud behind the idea of “too important” to fail?
- Who does the government consider to be homeowners: you and your neighbors, or the banks that hold the deeds?
- Who really endorsed the emergency Housing Act – and who will be hurt by it?
- Can the Fed keep making loans to banks forever?
- Is it actually against the law in some states to warn people of potentially dangerous banks?
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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.
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