Thursday, November 4, 2010

The Final Surge Higher? (Euro Update for Friday)

In looking for a top in equities I'm watching the euro closely.  The decline today can be counted as a 5 wave impulse move suggesting a top may be in.  Unfortunately it's not a very compelling structure since it can also be counted as an ABC as well due to the relative lengths of subwaves.  But it may clear up a bit as the session moves on.  But I just wanted to post the possibilities of a euro top here as I see it.

Today's move higher both in price and internally was impressive.  Total volume was high at 1.37 billion shares on the NYSE, up volume represented 90% of total volume, and advancers well exceeded decliners.  Moves like this often act as launching pads for sustained moves higher.  Only a close below today's low will negate the bullish outlook and suggest a top may be in.  Until then, expect higher levels.

My guess is that some folks shorted the market or stayed on the sidelines expecting a "sell the news" event after the Fed announcement yesterday.  When the market held stable after the announcement and into the global sessions overnight, the shorts covered and the sidelined folks jumped in with full force.  This is what I feel was behind the move higher today.  Is it just a capitulation move before a reversal?  Or the foundation of a sustained move higher in the coming months?  Hopefully next week we'll get our answer so we can trade accordingly.

The Next Major Disaster Developing for Bond Holders

Well the inevitable happened today as the blue chips followed the Nasdaqs to new highs on the year with today's surge.  The past week or so I've assumed this would occur since the uptrend remained well intact and the Nasdaqs had already made new highs on the year, and they tend to lead the overall market.

Today's rally to new highs was done on big volume with a move that closed on the highs.  Quite convincing indeed for a larger sustained bull run.  But we'll see.  The current rally that started in August has taken little breathers other than sideways chops, making it feel a lot like a 3rd wave.  But unfortunately for the bulls the rally certainly doesn't subdivide on the intraday charts well as a 3rd wave, nor do momentum indicators support this case well either.  So it could easily be a C, or a larger zig-zag forming in my view. 

The XLF (financials ETF) was on fire today, well exceeding the market's gains again.  It gapped higher and made a new high today as well.  If the XLF continues to outpace the S&P's gains higher for a long time it may catch up to it's rally the past few months, eliminated the divergence they've had, as well as some of the best evidence the bears have to a longer term bear picture.  So I'm watching the XLF closely.

With tomorrow being Friday, I doubt a heavy bear stampede will enter the market going into the weekend, but if early next week we can get a gap down reversal in the XLF creating an island pattern, and the major indices can close below today's intraday lows, then we'd have our first solid signs that Primary wave 2 has topped and that perhaps Primary wave 3 has started.  But until that happens, we must continue to understand that the market is showing no signs of stopping its push higher and that until the above action occurs, higher levels should be expected.

"Market Manipulation" Is Not Why Most Traders Lose

Of course the euro rallied, and the dollar sank, in conjunction with the stock market rally today.  I'm counting the euro as thrusting in a Minor wave 5 from a Minor wave 4 triangle right now.  Once its thrust tops and reverses, it should mark a major top and move down to parity with the US dollar eventually.  There are no signs of reversal yet htough, but when they arise I'll certainly mention them here.  A top in the euro and bottom in the US dollar should occur about the same time equities top and reverse.

DJIA Priced in Gold: What It Means for the Long-Term Trend

Of the many forward-looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold -- "the real money," as EWI's president Robert Prechter calls it. What implications might the present position of Dow/gold have for the long-term trend of the nominal Dow? In this video, Elliott Wave International's Steven Hochberg shows you several revealing charts that answer this question.
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agnes1938 said...

P2 could have ended yesterday....

after some thought, this could make sense, as except for the "flash crash" it didn't really feel like P3 since April, heh?

P3 should be clearly

DH said...

If you are suggesting a wave 2 from 4/26/2010 in the form of an irregular flat then when this completes it will be positioned for a wave 3 higher so this is a suggested bullish count.

Gooner70 said...

Hi Todd

Looks like your high or top in the EUR may be in, there is significant Bearish Divergence, I have highlighted this on a 2 DAY candle chart, which shows this better. .

I still remain Bullish on GBPUSD ironically, if I'm correct we could see EURGBP trade much lower.

regards Steve

BTW , excellant posts as usual.

Gooner70 said...

Just to add to that,,,with regard to GBPUSD, I feel this is part of the final rally for GBPUSD, so when I say I'm Bullish, it is short-term, with a likely major top once this rally ends which could be anywhere from here to 1.6700,,, though personally I think 1.6700 may be tested.

gugion said...

I apologize if the following is littered with grammar mistakes as I spent a long time writing a comment and my browser crashed losing all of it.

I read your blog every day and will continue to do so into the future. However, I'm wondering if you feel as I do, that elliott wavers have really done their readers a disservice over the past year or so. Given that prechter was right about his "Wave 2" target of about 10k-11k on dow, but still the people that subscribe to elliott wave (ie daneric) have been completely wrong for a while. Reading them while they "look" for a top in equities is really annoying. Let me tell you what I see on the weekly charts and tell me where I'm wrong. Please mind you, I am not an elliott waver, but I do believe in things like A-B-C corrections are other basic patterns.

I look at the weekly nasdaq 100 since the 2007 top and I see a GIGANTIC inverse H&S continuation patterns (yes, inverse H&S patterns don't only have to be seen at bottoms, despite what some claim). I worried, as a long time bear, that the nasdaq might form a right shoulder prior to the decline in April. I feared if it did so, everyone would be fooled into thinking the next bear market was here. When we broke out of the shoulder in September, it did exactly what it had to do to prove it was a giant shoulder, it broke higher and never looked back. The target, as you can see, is much much higher, about 1000 nasdaq points higher!!!

Anyway, now I look at the gold miners and see something similar, the 2008 decline as a giant head, and now we approaching a breakout to new highs (the target on the $XAU is 140 points higher).

I look at the CRB index, and I see a B correction that ended this summer and since then has been in a C move higher ever since.

I look at the chinese market ($SSEC), and I see an A-B-C correction which started in Summer 2009 and ended this Summer. We are about to break above the large declining channel and the C-wave will be confirmed. (The FXI shows something more along the lines of a cup and handle, but still bullish).

So I ask you, what is wrong with my analysis? My patterns fit with the current trend (up). Mind you, I am a LONG time bear and continue to believe we'll see a decline either close to or below the 2009 low, but for all I know it could be 2013 before the decline starts. So I ask, why are my patterns wrong? The most obvious pattern to me, and the most concerning as a bear, is the NASDAQ 100 as it has formed the most obvious looking inverse H&S pattern I've ever seen, and probably the largest.

Please help me. Thank you again for your blog, I truly enjoy reading it every day.

abooz said...

I think the euro still has chance to reach 1.44 - 1.4450 before turning south. the charts have not formed divergence on 4 hour chart.

Eur10000000 said...

i've mentioned that the euro should reach 1.44 - 1.4450. it has now and divergence is forming in the daily chart. once the charts turns south, then it's parity. what a golden chance to make money! Once in a lifetime opportunity. imagine 4500 pips per lot. WOW.