Stocks and Euro Look Bearish Here

Nice action today in the markets because it seems it has cleared up some of the clouds hovering over my wave counts.  And more importantly, I think I have a better idea of the wave count we should follow for the short term. 

The market was strong most of the day and reversed into the close.  In addition, volume was big today at 1.6 billion shares on the NYSE.  So today’s rally and reversal into negative territory in some indices on big volume smells like a bullish capitulation to me.  I expect today’s reversal to continue at least tomorrow, if not the rest of the week.  The bears should be in control now.

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The new highs today pretty much put the triangle at the bottom of the list right now.  It could be an “irregular triangle”, but it’s taken so much time compared to Minute wave ((ii)), and it has only completed Minuette waves (a) and (b) of the triangle.  So it’s unlikely at this point, but still possible.  I’m taking it from my top choice and moving it to my bottom choice now.

There are two much more viable options for likely wave counts I see here.  My top choice is shown above.  It has Minuette wave (b) completing a flat correction, and now a sharp impulsive Minuette wave (c) should take the S&P below Minuette wave (a)’s low to around 1165 or so before bottoming.

The top alternate count has Minute wave ((iv)) already complete, and the subdivisions of Minute wave ((v)) are already underway.  I think Minute wave ((iv)) is a bit too short to make this my top count, but it certainly is a strong contender here.  A sharp impulsive decline right through 1160 will put this count as my top choice.  A break below 1129.24 will in fact make it my top choice and signal that a major top is probably already in.

Both counts suggest the upside is limited, or already done.  So I’d be looking to short at this point.

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The euro rallied strong yesterday but reversed nicely today, keeping the short term wave count intact.  So the euro bears still seem to be in control, although not convincingly quite yet.  As long as the Minor wave 2 high holds, then I’m bearish.  If that high broken though, I’m neutral and out of the way.

Short term I see a nice 5 wave decline and overlapping corrective bounce afterwards.  If my count is correct in both the longer term and short term counts, then the euro should be selling off hard soon.  This also lines up well with my top count for stocks as well which also projects a solid decline coming soon.

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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.

Market Set to Decline; Euro Needs to do the Same to Keep the Confidence in my Wave Count

Internals today were as exciting as the price action in the markets.  But there were two things of interest that lend themselves to the short term bearish case in my view:

1) volume was extremely low at 800 million shares on the NYSE which tells me that interest in buying the market at this point in the rally has dissipated drastically.  This leaves the bulls fully exposed here for a gut punch from the bears, if the bears decide to come in here and flex some muscle;

2) the S&P decliners were at 300 today while the market’s price was only slightly down.  I expected a more even advancer vs. decliner ratio with the closing price today.  So again, it appears the bulls are a bit exhausted here and it leaves the bears some opportunity here since they seem to be gaining some momentum in the background.

From a price action and internals perspective, the market rally appears weakened and ready for at least a short term pullback to recharge the bulls.  The market has a rolling-over look to it, and the internals suggest a lack of buying interest at current levels.  But if the bears don’t come in and strike real soon, it will embolden the bulls and surge the market higher as a result.  So tomorrow or Wednesday we should see a sharp move; and my guess is that the move will be down.  How far it drops will help us determine the longer term wave count, but I still think we’re probably in a Minute wave ((iv)) triangle right now.

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Minuette wave (b) should be over at current levels.  A break above the Minute wave ((iii)) high would severely damage the triangle outlook and suggest that probably a flat correction is occurring for Minute wave ((iv)) instead.  The market price action and internals suggest that the market is vulnerable to a bear takeover here, if the bears decide they want to step in. 

If we’re in a triangle, then the market should decline with modest strength to around the 1190 area for Minuette wave (c). 

But if we’re in a flat, at least one index should make a new high above Minute wave ((iii)) and then all the indices should sharply reverse in an impulsive decline for Minuette wave (c) down to the 1160s before bottoming.

So we’ll see which one plays out.  With the holiday season upon us, I’m not expecting any big sustained moves in any direction in the coming weeks.

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The action in the euro last week was a bit concerning.  Right now we only have 3 waves down from the highs which I’m labeling Minor waves 1 and 2, with Minute wave ((i)) and ((ii)) probably complete now.  This is a bit of a problem because with only 3 waves down from the highs, it leaves my impulsive wave count down very vulnerable here.  And now that Minute wave ((ii)) is greater in size than Minor wave 2, it casts some serious doubt about the wave count I have right now.  Waves of smaller degrees should not be bigger in size.  But the key word there is “should”.  This behavior doesn’t violate any EWP rules but seeing as that it does violate a guideline, we need to be vigilant in protecting our short position.  We’ve made a lot of pips on this euro short trade and I’m not going to give them all back because I couldn’t stay objective.  The euro needs to resume its downtrend very soon to eliminate this doubt in my wave count calling for immediate lower levels, but I definitely do not want to be short if it rises above the Minor wave 2 high.  I will stop out above the Minor wave 2 high.

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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.

Minuette wave (c) Down to Start Soon; Euro Still Correcting in Minute Wave ((ii))

Internals today showed a very strong bullish bias but volume was a bit tame at just over 1 billion shares traded on the NYSE.  So the big volume numbers that came in on the last selloff have not been matched by the bulls.  But the bulls have still pushed the market significantly higher nonetheless.  Although the internals don’t suggest any bullish exhaustion, the wave count does suggest a reversal to the downside soon.

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Minuette wave (b) should be complete now, or very soon, as it’s at the tail end of my target range of 1210-1220 right now for the triangle scenario to remain valid.  I expect the market to fall immediately in Minuette wave (c) now.  As long as it falls short of breaking below the Minuette wave (a) low then the triangle count for Minute wave ((iv)) is still well intact.  But a break below the Minuette wave (a) low in the 1174 area would negate the triangle count and suggest that some type of zig-zag or combination correction is occurring.  A rally higher would suggest Minute wave ((iv)) is unfolding as a “flat correction” and that once Minuette wave (b) exceeds 1227 then it should reverse sharply in Minuette wave (c) down quite soon.

So unfortunately there are still a lot of options on the table.  The “flat correction” and triangle counts for Minute wave ((iv)) remain my top choice.  So for short term aggressive traders I see an opportunity coming soon on the short side.

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The XLF financials ETF has been on fire this week as you can see from the chart.  The ETF did not break below the extreme low of the previous triangle and has rallied hard once returning to the apex of the triangle earlier.  Also notice that the congestion area I labeled with the blue lines has been broken to the upside as well.  I’m not a buyer of this rally just yet, it’s just too much too fast, and probably based on just news headlines and/or Fed data that’s come out recently.  Neither event tends to start trends, they tend to preface the end of one.  And in this case I’m expecting a fakeout breakout to the upside that will soon be reversed with a shot lower to the downside.  I’m not trading this sector right now as I don’t see a clear entry and risk level that’s appealing, and a reliable wave count eludes me at the moment.  However I think the action and behavior in financials is extremely important to the overall stock market.  As long as the financials lag the overall market on a daily/weekly basis like they have been, I highly doubt a long term rally in stocks as a whole can be sustained.

 

As for the euro, I’m labeling Minute wave ((i)) complete at the 1.30 area and Minute wave ((ii)) underway right now.  The choppy overlapping nature of the rally so far supports the view that it is in fact just a correction.  It can certainly push higher since it does seem a bit small so far, but if it’s in a Minor wave 3 down right now, then rallies could easily be very shallow and weak.  I still feel the longer term trend is firmly down here and I would short rallies as long as it stays below the Minor wave 1 high.

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.

Minuette Wave (b) Almost Complete; Euro Correcting

Short update tonight, I don't have much time.

Internals today were very strong and suggest we'll get some follow through at least tomorrow morning.  The wave count suggests the follow-through will be limited though. I discuss more details of that below.  Volume was not that impressive, but looking at the up volume on the NYSE, and the 484 advancers on the S&P, I'd say the bulls were firmly in control today.  But we've seen the bulls and bears exchange blows back and forth the past couple weeks, so I'm not jumping on the bull train just yet.  In fact, the rally we saw today has been expected for quite a while.  Just check out my prior posts.

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The wave count suggests that Subminuette wave y is near its final stages.  Today was probably a Submicro wave (3) within Micro wave ((C)).  So tomorrow, and perhaps Friday, we should get some sideways and up action to complete Minuette wave (b).  From there, we'll see if the triangle remains on track.  Minuette wave (c) should decline modestly, and stay above the Minuette wave (a) low in the 1174 area.  I expect tightening sideways action in the market into the new year. 

We can maneuver in and out of the short term ups and downs all day, but the key is the bigger picture.  Looking at the decline from 1227 it looks choppy with several overlapping waves.  This means it's a correction.  Just like the decline from the highs this April, we don't want to get too caught up in a Primary wave ((3)) outlook simply because we want it to be a Primary wave ((3)).  Only a break below 1129.24 would get me thinking about this even being a possibility.  But right now, the decline from the highs looks choppy, and regardless of how Minute wave ((iv)) unfolds, the bottom line is that EWP is telling us it's all part of a correction. Trade accordingly.

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The euro appears to have found support at the 1.30 area and might be in a corrective rally phase for a few days.  With it possibly being in a Minor wave 3 down right now, I wouldn't get too cute and play the upside here in my opinion.  The larger trend and path of least resistance is firmly down.  The weekly RSI is still far from the oversold territory it usually gets into before establishing a major low.  But some shorter term RSI data suggest the euro is oversold so a short term pop may occur for a few days.  As long as it stays below the Minor wave 2 high I have posted above, I would short rallies.

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.