After 5 Waves Down, Stocks and Euro Look to Rebound

Volume remains light in the market, making it tough to get a definitive consensus of trend. Volume today was still well under 1 billion shares on the NYSE, so although there was a bullish reversal today, the light volume doesn’t make it a convincing reversal…..probably will result in just a day or two of rallying.

Looking at the wave count I’ve been tracking the past several weeks we can see that things are falling into place so far. I’m unsure of the degrees of trend here since the above degrees don’t fit well into the larger wave count, yet the magnitude of the moves shown here do in fact fit well with the degrees I plugged in here. So there’s conflicting issues here as far as degree goes so remain flexible in that respect.

Today we saw a nice bullish reversal since the market opened very weak and made a new low and then rallied all day and closed in the positive. But the damage has been done to the bulls since a nice 5 wave decline was printed with the action over the past few days. This suggests that the current reversal is the start of wave (ii) that should last Friday and probably at least some of Monday. The market should stay below the wave X high and eventually turn lower sharply with wave (iii) probably early next week. Ultimately, the Wave W low should be broken, which is a significant decline despite it just being part of a correction.

Learn Elliott Wave Principle

Looking at the daily chart you can see that this latest rally has been done on very weak momentum as shown by the declining volume (also seen clearly on the SPY and NYSE) and RSI. This alone is about enough I’d need to see to be getting very conservative as a bull at a minimum. But I’m not a bull, so I don’t have that problem. The only reason I feel this is just a WXY combination correction unfolding is because the drop from the high on the year is clearly a 3 wave move, which means unless that high is broken then this entire move is most likely corrective all around.

Learn How to Use Bar Patterns to Spot Trade Setups

The euro’s wave count eludes me in the short and medium terms. But the long term count shows a clear downtrend. So I have a bearish bias and am currently short right now. The increase in volatility is a good sign a top is near, if not already in. A breakout should ensue soon and I feel that a breakout to the upside will probably be sharp, but short lived and sharply reversed. A breakout to the downside should result in massive US dollar short covering, sending the euro lower in a hurry. So to me, the best place to play this pair is on the short side when opportunities arise.

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.