Monday, October 3, 2011
Stocks' 5th Wave in Full Force; Euro Getting Oversold
Today was a solidly bearish day with decent volume at over 1.4 billion NYSE shares traded and about 97% of all shares traded going to the downside. But again, this is not as intense as we saw on Minor wave 3 down which had about 2.5 billion shares traded and 99% of volume trading to the downside. So the lightening up of intensity fits well for this being a 5th and final wave as we're counting it since 5th waves have decreasing momentum compared to the previous 3rd wave at the same degree.
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The way I'm counting the S&P above suggests the major downside for Minor wave 5 is just getting underway. However, as I've said many times, 5th waves are tricky and often imperfect. Since I had such success shorting Minor wave 3 and some of this Minor wave 5 as of today's close, I took a lot of profits on my short position late today. I wanted out of the S&P around 1100 in the cash market and we closed almost right on that number, which is perfect for me. Sure the market can fall hard like the count above suggests, but since this is a 5th and final wave, and that once Minor wave 5 is over it means that a very large and long Intermediate wave (2) rally will get underway, I'm protecting my profits and minimizing risk here.
For those who are aggressive and vigilantly watch the markets they might want to hang on short with a clear and disciplined exit strategy. Those who are more like me and take a more conservative swing trade approach might want to consider lightening up short positions considerably with hard stops on the short positions left in. My opinion.
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Shorting the euro the past several weeks has been very profitable. Price action and structure does not suggest the euro is oversold, but common sense and the RSI do suggest it's oversold. I covered half of my short positions at a hefty profit and will watch the action closely for a bullish reversal so I can exit the rest of my short positions. This is only a short term move, I will again reshort the euro at a later time since I feel long term the euro is bearish and the US dollar is bullish.
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.