Up Down Up Down, Where's the Market Headed?

There is plenty of bearish and bullish evidence at this point for the short term and instead of grinding out both sides, I'll just sum up the core of each side.

The bulls can claim victory because after 13 days of a sell off that shed 106 points off the S&P, the bears have failed to gain any momentum to continue selling to new lows. We've seen quite a few "fakeout" sell offs to the downside this week, only to have the bulls them up to new highs. This has also created numerous bullish daily candlestick wicks on the charts. So the bulls are holding their ground, and it's making this possible wave (iii) down looking a bit unlikely since it's taking so long to get going.

The bears can claim victories too. There are three core elements to the bearish case that keep me short term bearish:

1) the market has been declining in 5 waves and rallying in 3 waves, or pairs of 3 waves, telling me the larger trend is still down.

2) so far the market has rallied and reversed at a common fibonacci retracement level of 61.8%.

3) after 13 days and a 106 point decline, all the bulls have managed to recover from that in 5 1/2 days is a meager 31 points. That again tells me that the larger trend, and path of least resistance, is still down.

Other elements that add to the bearish case are the fact that most of this week's rallying has been extremely choppy which is characteristic of a correction, NYSE volume has been quite tame on the rally compared to the sell off prior to it, the EUR/USD has made new lows appearing to have resumed its downtrend, the stock market has been very wild and volatile throughout the day which is characteristic of a bear market (many of you remember the March 2009 rally was mostly just a steady float higher), and the XLF still failed to break and hold above the key $14 level. All this is very short term bearish in my view.

Instead of getting too caught up in the little ups and downs of the market, I'm choosing to align myself with the bearish side with comfortable risk levels and just letting the market play itself out. I think the evidence does favor the short term bears here, but I don't want to get too aggressive until 1059 is broken in the S&P. The ultimate breaking point is the 1105 level for the bears so I'd like to be comfortably bearish with a stop above that level, and/or get short with a break of 1059.

My currency stance remains the same, I'm looking for US dollar strength to resurface and still have a sell stop position to enter the GBP/USD with a break below 1.5555. I'm not comfortable shorting with a market order at this point though as the currency picture is not clear enough to eliminate further upside from current levels.

....one more thing, I thought I'd try posting some polls at the top right of the blog to see if we can get some value or entertainment out of them. So please participate! :)

Have good weekend!!


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.

Despite Big Rally Today, Market Not Convincingly Bullish; Bears May be Set Up to Take Control Very Soon

Yesterday I put up a late post showing slight concern for the short term bearish view due to the action in the stock market and the US dollar. Today brought some clarity to that concern. First, observe the 5 minute S&P chart above. You can see that today's big rally was strong and composed of 5 waves that made a new high just under the 61% fibonnacci retracement level, my initial target for wave ii to end, and all the way up to 1092. When we're in a correction, it's important to look for 5 wave rallies to new highs because they are often "C" waves, which are the last wave in a corrective move. Of course you have to be careful that these 5 wave advances don't morph into a larger impulsive rally that may signal a trend change. But in the context of looking for wave ii to end, this 5 wave advance to a new high is welcomed. It makes it easy to get short, or establish more short positions because if the market drops to below that 5 wave advance it will confirm that the rise was in fact a C wave ending a correction, and eliminate the possibility that the 5 wave rally was the start of a new uptrend. The start of that 5 wave advance was around 1060, but there is a another low just prior to that at 1059, so I would establish short positions on a break below 1059 with an ultimate stop just above the end of the 5 wave rally (now at 1080), or ultimately the make or break level is 1105.



Now let's take a step back and look at the bigger picture with the 1hr S&P chart. The correction is an ugly overlapping affair, especially relative to the prior declines which were straight down and decisive. Again, suggesting that the trend is still down. The wave ii correction appears to have traced out a WXY double zigzag. All this means is that it traced out one abc correction (W), then declined (X), then rallied again in another abc correction (Y). The index again made it to just below the bottom of my reversal zone at 1081 before stalling. The correction can count complete right now, but I'm not sure we'll get a bunch of aggressive bears coming in on a Friday right before a 3 day weekend to push this market lower in a wave iii of (iii), but you never know, this market market has been quite erradic lately. In summary, with the 5 wave advance today the market looks like it's wave ii rally is in its final stages, and as long as 1105 remains intact, I remain firmly short term bearish.



Last night, I pointed out how the action in currencies was hinting that something was amist with the short term stock market and US dollar outlook. It proved to be a good indicator as we had a solid rally in equities. Well today we have more odd behavior occurring, but only in the opposite direction. The euro was pummeled today against the US dollar as it tanked to almost make a new low just beneath 1.3600 before snapping back hard. If you look at the 1hr EUR/USD chart above and compare it to the 1hr S&P chart just above that, you'll notice that they've been moving more or less in tandom with each other until today. Yesterday the EUR/USD and especially the AUD/USD soared higher, which of course led to a stock market rally today. However the stock market made a new high today yet the EUR/USD came far from doing so itself. Is the EUR/USD telling us something here again? Perhaps the extreme weakness in the EUR/USD will catch up with the stock market tomorrow or early next week, we'll see.

And on another note, I know us elliott wavers don't care much about news affecting the markets, but I find it interesting that the news buzz of the past several days has been about Greece worries. Today the stock market rallied hard, so the Greece worries must have eased, right? But if you look at the big selloff in the euro against the USD, it sure doesn't seem like everything is okay in Greece and the Eurozone, does it...




One last thing worth noting. The XLF has been correcting a nice 5 wave decline this week and it appears that its abc corrective rally is complete, or near complete. One thing that helps us determine this is the apparent "b" wave triangle that occurred. Triangles only occur in B, X and 4th waves. After a triangle is complete, we get a sharp thrust in the same direction as the corrective trend, which ends rather quickly and immediately reverses to at least the apex of the triangle. The structure of the XLF's triangle and thrust suggest that the financial sector's wave ii correction is over and that the sector is headed sharply lower in the very near future. This also lends itself as evidence to the outlook for stocks forming a top and reversing soon too. Also worth noting is the XLF's action near the $14 level again. I've mentioned before how important this level is and how substantial it was when it was broken and closed beneath it. Oftentimes when significant support levels are broken, they will be retested on the underside of them before resuming their downtrend. Well the $14 level was tested twice today and failed to hold ground and close above it. So perhaps today was the XLF's final kiss goodbye to the $14 level.

I am very tempted to get long the dollar right now, especially by shorting the EUR/USD, but the stop is a bit wide, the AUD/USD is still looking strong, and the GBP/USD's decline recently looks corrective. So it seems like these dollar pairs may continue higher in the Asian and European sessions so I don't want to get impatient. So I'm keeping my sell stop order on the GBP/USD in place at 1.555 in case it does decide to tank lower in continuation of its downtrend while I'm getting sack time tonight. If I see a safe and good risk/reward opportunity before my order executes, I'll post it here.


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.

Some Late Thoughts on the US Dollar, Stock Market

The fact that the stock market has not declined quickly in a wave iii of (iii) has not sat well with me, especially after today. Although the light volume may explain the delay, and there is certainly plenty of bearish indicators in play, I'm not satisfied sitting on a fat short position with a wide stop at this time. Now is a time to control risk a little bit more. In taking a look at the US Dollar this afternoon I'd like to point some things out. Notice in the above daily EUR/USD chart (the EUR/USD moves almost opposite the US Dollar) that so far the pair has declined in only 3 waves, which is a correction. Now this should just morph into a 5 wave decline, which I do think it will, but I don't want to get caught blindly bearish and overleveraged to the downside this late in the game. The way I see it, as long as the EUR/USD trades beneath 1.4579 then the large downtrend remains intact. A break above that level before completing a 5 wave drop would make the entire decline from 1.5143 a 3 wave drop, and therefore a correction, which means a rally to above 1.5143 would be inevitable. But as long as it trades beneath 1.4579, then I remain very bearish this pair, and very bullish the US dollar in the medium-to-long term. This is of particular importance to my equity stance because if the dollar ends up heading to new highs, the stock market will most likely be surging higher as well. This is nothing I'm panicking about, it's just something I want to put on the radar for us to watch.



Above is a 35 minute chart of the EUR/USD. You can see that I circled what might turn out to be a 3 wave decline, which is a correction. If the pair rallies above 1.3813, then it will confirm that it did in fact decline in 3 waves, and that it's almost assured it will also charge higher above 1.3840. From there, we'll have to see the structure to determine how much more euro strength and dollar weakness will occur. But the short term picture is looking bullish for the euro, and bearish for the dollar, which is in a bit of a contrast to what I've been expecting; much like the stock market not behaving properly.



Lastly, I want to post my 1 hour AUD/USD chart which shows a large 5 wave rally against the US dollar. This is very concerning for short term dollar bulls, as this large AUD 5 wave rally against the US dollar indicates that the larger trend is now up for the AUD, and judging by the size of this rally, after a correction it's going to remain in an uptrend for quite a few days. Now contrary to this are the other majors like the GBP/USD and the EUR/USD which do not have 5 wave advances, and the GBP/USD is lagging severely. So the US dollar remains strong there, so it's not all bad for the US dollar; but the AUD rallying in 5 waves against the US dollar is definitely something to watch. Is it leading the other pairs higher against the dollar, or is it just an anomaly that means nothing? I have no position in the dollar right now so I can comfortably just sit back and wait and see. I'm just watching it vigilantly to see if I see a good trading opportunity, and also because I know that any big moves in the US dollar will also affect the stock market.

In summary, I wanted to post this tonight to put my recent analysis into perspective as it's applied to real world trading. To be clear, I'm still short term bearish the stock market and bullish the US dollar. However there are some factors occurring contrary to these views that I don't want to ignore. It means that if I don't want to be too risky then I may want to only get short the S&P if it breaks below 1057; or if I want moderate risk I may want to be short right now and only risk what I'm comfortably willing to lose with a stop just above 1105. And as for the dollar picture, my sell stop on the GBP/USD remains the same at 1.5555 until I get a better signal that a top is in to where I may short at a higher level.

The moral of this post is that I'm bearish in the short term, but I'm not going to get overly aggressive until at least 1057 in the S&P is broken, and I'm not getting overly bearish the dollar pairs until the GBP/USD breaks beneath 1.5555.


Okay, enough rambling, good night!

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.

Wave iii of (iii) Needs to Get Going Very Soon

This entire week of "rallying" has been done on pathetic volume, all of which stayed below the 13 day moving average. Today's big snow storm on the east coast didn't help matters as apparently many traders just stayed home. Despite an entire week in "rally mode", the S&P has only managed to take back 23 of the 106 points it lost since the highs of the year. Clearly a feeble attempt by the bulls, so far. If we're in wave (iii), as I suggest with the count in the above chart, this market needs to get moving to the downside very soon. Today we had another fakeout selloff that was met with a quick bottom and rally reversal. In the short term, this is a bear killer, especially if anyone is shorting on weakness as I suggested in previous posts. However stepping back and looking at the bigger picture, keep in mind that in 3.5 days, the S&P has managed to only regain 23 of the 106 points it lost as of closing today. Also, notice on my somewhat cluttered chart that today's break beneath 1061 confirms that the previous rally was a 3 wave affair, which is a correction. Again, this helps us determine that the larger trend is still down.

So when will the market tank in a wave iii of (iii)? Tough to answer but I'll do my best. As I said, if the market is in a wave (iii) then this market should be moving in a hurry, so this 3.5 days of rallying is a bit concerning to my wave count. However, it does look like a correction with the recent 3 wave rise, the sideways action, the declining volume and the inability to sustain any rally attempt. Note that my chart also shows a possible head and shoulders pattern forming (see red circles/text). When you consider this pattern along with the fact that the market made it just shy of the 61% fibonnacci retracement level earlier this week, it's possible this market has topped already. If not, any rally should be treated as a correction in my view and should be halted in the 1081-1092 area, leading to wave iii of (iii) down. 1105 should remain comfortably intact, but a break above that level would mean that a wave C of a wave (ii) flat was finishing up before wave (iii) begins. Even if 1105 is not broken, the longer this market churns upward and/or sideways, the more likely that we are NOT in a wave (iii), but are in fact still in a wave (ii).

To sum up, with the head and shoulders pattern and a common 61% fibonnacci level reached already, it's possible to call a wave ii top in right now, leading to a powerful wave iii of (iii) down almost immediately. If not, then I'm looking at the 1081-1092 area to offer a good topping level for wave ii of (iii).

My sell stop on the GBP/USD remains the same at 1.5555 where if it executes, my protective buy stop will be at 1.5760.


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.

Financial Thunderdome Continues...

The market was wild today, giving me a couple "fakeouts" to the downside, but the market kept pushing higher to make new highs. Internals were extremely strong, but volume was very light, as it has been the last few days of rallying. So even though everyone in the market was buying today, there was just a small amount folks participating. Today's sharp rise, especially late in the day, seemed a lot like a C wave. Recently, spikes higher have been met with fierce selling. As a matter of fact, the S&P has only risen 26 points from the bottom in these last 3 days of rallying. For some reason, it feels like it's risen much more. Prior that, the market made much more progress as it declined. This easy down and hard up behavior, combined with the 5 wave drops and choppy low volume rallies, tells us that the larger trend is still down.

But the key question is, when will the rally end? Well if the above count is correct, wave ii of (iii) should end prior reaching 1105. So that's the ultimate breaking point for this count. A rally above that level would probably mean that the drop to Friday's low was a B wave of a "flat correction", leaving us in a wave C to just above 1105 to complete wave (ii). Either way, the market should not break this year's highs, and it should barrel much lower, and very fast. But the above chart shows my preferred count. My target for wave ii to end is around the 61% fibonnacci level at 1081. The market fell about 2 points shy of that level today, so it's possible a top is already in. If not, we may see a test of 1081-1092 later this week to complete wave ii.

With that said, I don't want to get too caught up in the real short term ups and downs. I would be comfortable sitting on a short position with a stop just above 1105, or if I was really aggressive and mentally disciplined, I would simply wait for signs of weakness and keep shorting aggressively against the most recent high. That was a failed strategy today, but with the profit potential of a wave iii of (iii) being so great, someone could get stopped out several times before catching this wave and still make a profit overall. The hard part is having the mental fortitude to take several losses just to make one quick large gain.

Bottom line: look for wave ii to stay beneath 1105 with potential stopping points being 1081-1090, but can top out at any time. A rally above 1105 would mean it's a wave C of (ii) in a flat correction which would end soon anyway.



The GBP/USD has in fact worked its way higher since exiting my short postion at 1.5633 as it currently has a top in at the 1.5750 level. So exiting the short trade at 1.5633 has so far proved to be a wise move. A top may be in right now at 1.5750, but there's little evidence to confirm that. So I still want to get in to catch the next round of selling as I still feel this pair has much further to fall. So I'm moving my "sell stop" order up a little to 1.5555, and if it executes then I want to have a protective buy stop order at 1.5760. My goal is to wait to see if the pair rallies further and shows signs of a top where I can re-enter short at a higher level. If the pair doesn't work higher, then I'm assured I'll still catch the meat of the next decline with my "sell stop" order at 1.5555.


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.

Stocks Make New High; I'll be Selling Weakness Against the Recent Highs as They're Made

I was wrong in thinking that yesterday's high marked the top of wave ii. It appears that decline late yesterday afternoon was just a B wave. Today's sharp rally is part of a C wave of wave ii. With a wave iii of (iii) at our fingertips, I'm a seller of any market weakness with a stop against the recent highs. This may take a few attempts, but the reward will be worth it. The recent decline may just be an X wave, and another ABC rally may occur to complete wave ii, but the risk/reward is too great to miss. It may take a few attempts to catch wave iii of (iii), but I feel that with patience and tight stops, the gains will be good enough to recapture any losses.

More later...


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.

Market Reverses Late in the Day; Wave iii of (iii) Started?

The market fell mildly this morning but then showed some promising strength mid-day, only to get nowhere and fall off a cliff in the last hour of trading. If my count is correct, we are in a wave iii of (iii) of 1 of [3] or C. This wave (iii) should be fast and powerful and corrections can be quick and quite flat, like the wave ii that might have completed Friday and this morning. So today's failure to reach my S&P target area of 1080 before reversing is no surprise if in fact this is a wave (iii) we're in. Now today's late decline could easily be a B wave within wave ii of (iii), meaning tomorrow would bring about a strong C wave rally to complete wave ii; so slight caution is warranted for overly aggressive bears. However, the risk/reward at this point is so appealing because it may be the early stages of a wave iii of (iii) which should practically be a straight line down affair. So if I were to trade the S&P futures, I would short right now and put a stop just above today's highs. If the stop is hit, then it means we have a C wave rally left to complete wave ii and once that shows signs of a top I'd just reshort again. Again, the risk/reward ratio for possibly catching the early stages of wave iii of (iii) are very appealing right now for the bears.



The XLF tried to break through the important $14 level today by hitting $13.97 (according to OptionsXpress) but failed to do so; then declined sharply to a 2% decline on the day. This should be the last kiss of the $14 level for a while and this financial ETF should be headed to the $13 level in hurry, if not much further. The action in the XLF today lends itself to the bearish evidence that perhaps the stock market as a whole has topped today in wave ii of (iii) and is headed sharply lower as well.

The GBP/USD rallied modestly after I exited it early this morning, but sold off quite a bit since the last hour of stock market trading transpired. I still have a sell stop at 1.5530 to again get short this pair. Doing so would mean that I would have missed out on about 100 pips of gains. But I did so in trying to protect 300 pips in current profits. So it's still a good move on my part I beleive. If the GBP/USD, and other dollar pairs, sink to new lows soon, it will add more evidence that the stock market has topped in wave ii of (iii) and is headed sharply lower in the coming days.


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.

I Exited GBP/USD Trade at 602 Pip Profit; Will re-Short on Weakness

The majors that trade against the US dollar (except the JPY) are looking quite bullish, and with the stock market in a wave ii it also suggests dollar weakness ahead. The 15min chart of the GBP/USD gives me concern on top of all this because an inverse head and shoulders pattern has formed. I don't want to miss the next wave down because it should be a doozy, but I also don't want to lose too much of the 600 pips I'm in the profit on this trade. So I exited the short trade I started at 1.6235 at 1.5633 (click here for original trade setup).

After I exited the trade at a 602 pip profit, I feel comfortable entering a sell stop order at 1.5530 with a buy stop on that order at 1.5655. If the pair rallies much higher then I'll re-short at a stronger level, if it does not rally higher and tanks lower in its wave 3 continuation, then my sell stop order will execute and I'll get back in.

In summary, I exited my short position on the GBP/USD and right now have a sell stop order to get back in the trade on weakness at 1.5530 where if it's executed then I'll have a buy stop to protect that position at 1.5655.


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.