Sunday, November 13, 2011
Volume Numbers Continue to Suggest the Stock Rally is Corrective; Euro Topping
From an EWP perspective the rally is getting very deep. After a nice top and reversal for wave (ii) at the 78% fibonacci retracement level of the previous decline we got a very nice and sharp selloff which was encouraging for the bears. But the ensuing rally has gone quite deep, yet has not made a new high. Therefore the above count remains valid. But I expect a top to be in now, or with just one more quick pop higher tomorrow morning before the heavy selling returns. But that "pop" higher is not necessary, looking at the euro we may get immediate weakness right at the open tomorrow. Either way, the risk/reward favors the bears here.
The count on the back burner is the possibility that a triangle is forming which means Intermediate wave (2) is not complete, and that the larger downtrend has NOT resumed. This would also be another explanation for the decreasing volume the past few trading days. I don' t see this count as top choice right now though, but with the holidays approaching and the weak volume right now and sideways price action, this count is gaining traction as a strong possibility. A break above 1277 would put this triangle alternate on the table.
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Volume supports the EWP count in that last week's rally has been on severely weakening volume. As I hinted in my last post, the Veteran's Day holiday Friday brought the market a nice rally but did so on weak volume at only 745 million NYSE shares. So the masses aren't taking part in the rally, at least not yet. So for now, price action relative to volume gives a bearish outlook for stocks right now.
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The euro looks to be topping here. Using basic EWP analysis it appears a nice ABC correction is complete with wave B being a triangle. Although I don't have a longer term count that's reliable, it doesn't mean we can't us EWP basics to get a good idea of the shorter term action.
The 78% fibonacci retracement of the previous decline has been reached and slightly exceeded, making it the preferred maximum retracement possible to still reliably count this rally as a correction. The fact that the RSI and stochastics diverged on the recent new high at today's gap open, and that it looks like an exhaustion gap since it was immediately reversed after a big rally, the euro may be topping here. I'm looking for the euro to head sharply lower now and the risk here is tight, i.e. either at today's high or 1.3860.
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.