Monday, June 6, 2011

S&P Downtrend Intact, but Nothing Impulsive Yet; Euro SHOULD Reverse Lower Soon

Stocks continue to trade very heavy.  The bulls attempted to put a floor in the market through the first half or so of the trading day but gave up as the close neared.  The bears still have control and today's internals highlight that fact.  Volume was modest at 954 million NYSE shares traded with 92% of stocks trading to the downside, and 449 of the S&P 500's stocks closing the day down.  The selling in June is probably more than just some kind of new month profit taking since May failed the rally for the year.  The decline has developed into a little more than that.  But without a clear EWP count, I'm still cautious getting too excited and overleveraged on the bearish side here.

Without a clear impulsive count on the decline I have to use retraint on the short side.  On the last swing high (3rd red line to the right on above chart) I thought shorting after that day's close was a good risk/reward opportunity on the short side since a new swing high failed to be established.  That "bet" paid off well as the market has slid ever since.  Late last week I thought taking profits on part of that short position to protect gains was a good idea.  The market has continued lower though.  But I would not close the rest of my short position here since there is no sign of a bottom.  Granted, those signs often come in the overnight futures session and there's little one can do to protect themselves from a monster rally in the cash market first thing in the morning.  But I'm going to play it tight and protect gains and simply trail this decline lower until I'm stopped out. 

The play here is simple, as long as the market keeps making lower highs and lower lows, I want to remain short.  If this is the big Primary wave ((3)) then there will be plenty of opportunities to pile on after we get some big impulsive wave counts.  I don't want to get ahead of myself though, I want to trade what I see now, in the short term.  And the short term action tells me to play it on the short side, with a small position, and have a quick trigger finger to stop/exit out of the position.

The euro has been a bit frustrating lately.  Stocks have fallen and yet the euro has continued its rally.  It's now very deep for the projected (c) wave of a flat correction so I'm not that confident in the count here.  There's nothing suggesting the euro's rally is nearing an end other than this wave count.  If the count is correct, there is little room for the euro to move any higher.  As a euro bear I'd like to see it reverse lower very soon to keep this count in play.

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