Thursday, November 18, 2010

Strong Rally Today Suggests a Temporary Bottom Might be in

Internals today were very strong.  Bulls managed a 1.2 billion share day today on a strong looking rally.  Bears managed a slightly higher 1.3 billion share day on the big decline earlier this week.  So the bulls are trying to regain control of the market here.  So far, the rally looks impulsive with a breakaway 3rd wave gap occurring this morning, and the flat sideways movement the rest of the day being a 4th wave.  Looking at the internals, the bulls were in full control as up volume and advancers overall were very strong.

As I mentioned in today’s addendum, the rally in the S&P today broke above the descending trendline I’ve been tracking the past few days.  It failed to close back under it, and when you combine that with the strong internals we saw today, we need to be prepared for more rallying ahead.  The only thing that will negate this view is a strong decline and close back beneath the trendline Friday or Monday. 

So what are our wave count options?  The triangle count looks best to me.  With the sharp decline for Minute wave ((ii)), EWP’s guideline for alternation suggest a more sideways correction for Minute wave ((iv)), and a triangle at this point seems to be the most likely scenario.   Above you can see my preferred count mapped out for the Minute wave ((iv)) triangle.  Minuette wave (a) lower completed yesterday, and now we’re in Minuette wave (b) higher.  We’ll chug along sideways through the holidays and into the new year where we should thrust higher from this triangle and into the Primary wave ((2)) top.  From there we should find ourselves another great attempt to catch the top of a lifetime.  There are other possible corrections besides the triangle, but I’ll discuss them if the triangle seems to become less likely.
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As for the bears, I don’t think there’s anything to get too excited about in the long term prospects here.  Above is my attempt at calling Primary wave ((2)) already complete, and a series of 1s and 2s lower from there.  My experience as an elliott waver tells me that whenever I have to label a count as a bunch of 1 and 2 waves for it to try and be impulsive, then most likely the count is wrong and it’s just a correction.  Well that certainly applies here.  Although it’s possible this count is correct, it just looks very unlikely at this point.  Although a sharp and deep decline, preferably below 1129.24 in a hurry, might raise this count to higher probability.  But as it stands now I think this above count is doubtful.  A break above 1207 would eliminate this count completely.

I cannot put an impulsive wave count on the euro with high confidence at this point.  Perhaps it needs to subdivide further, or I just need to be more creative.  But I will say that the slope and speed of the decline does seem impulsive.  It appears perhaps at least a short term bottom might be in, so I placed the Fibonacci retracement levels to watch for the correction to top out at.  It’s currently already finding resistance at the 23% retracement, but if it’s correcting the entire decline from the October high then it probably will continue higher to the 1.3862-1.3962 area before topping.

Euro's Twists and Turns: What's Next for the Currency?

(Note: This video was recorded on November 5, 2010)
Since the November 4 high, the euro has declined sharply against the U.S. dollar. Does this mean that it's time for a trend change in the dollar? Watch the free video below to get Elliott Wave International's Senior Currency Strategist Jim Martens' take on what he thinks is coming next.

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