Thursday, December 8, 2011

The Stock Decline Begins, is it Corrective or Impulsive?; Euro Reversed - Heading Lower


Volume was light relative to normal trading days throughout the eyar but it did kick up a bit relative to the volume that accompanied the recent rally.  It's also some decent volume for a December.  In addition, an overwhelming majority of the volume (96.7%) was to the downside.  So today was a bearish day internally, and in the price action. 

Today's action was in line with the projection I gave in Tuesday's post in that a decline was real close, but unfortunately there's not enough evidence to determine whether this decline is just a correction before moving higher, or if it's the start of the next major selling phase to new lows.  The volume and intensity of today's move coincides with either a C wave, or a larger wave 3.  Since today's decline might be a C wave in a flat correction before moving higher, the bullish outlook still remains just as likely as today's decline being the start of another 3rd wave down.  So we're still mixed here in my view, and need to at least see Friday's and Monday's action before getting a better idea of the larger trend.  But I think a slight advantage lies with the bears because there is still a series of lower highs in place, the euro looks very bearish here, and the risk/reward is very appealing to the bears right now.

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Earlier in the week we saw that the declining volume, mature wave structure, and long candlestick wicks on the daily charts suggested at least a short term pullback was coming soon, and today it came true.  If the above count is correct, the market should be selling off with little rest for the coming weeks.  That may be a tough task to expect for a market heading into a normally positive time of the year.  But we'll see. 

Although the evidence for the bears and bulls are almost even here, there is one piece of evidence that lends itself to the bearish camp for stocks.  And that's the action in the euro.  If stocks continue to track the movement of the euro more or less, and the euro has some serious selling pressure on it right now as it seems, then the bearish stock count above looks more likely at this point.  After Friday, and maybe Monday's action, we should have a better idea of the larger trend and wave count.

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The euro was able to sneak in a new swing high on the hourly chart during the European session but was immediately reversed and sold off to a new swing low.  That type of reversal is extremely bearish.  What's even worse for the bulls is that on the US session's rally later in the trading day, the bears again pushed the bulls down with some heavy money as you can see with the second long wick on the above chart.  These long wicks may mean that some big money is coming in and hammering the euro, preventing it from making any real progress or gaining any momentum.  The bottom line is that the trend remains down and the I remain bearish the euro.  And that's bearish for stocks most likely.


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.

4 comments:

ScottyS2 said...

Corrective, or at least we will find out soon

http://markethighsandlows.wordpress.com/

TAfool said...

From the prior comment a few days ago about needing a pullback, looks to be on the last leg. Here is the 30min chart: http://www.tafool.com/Charts/eurusd12081130ma.png

Also notice that a 100% pattern projection will close the gap. Not shown is that the c to a ratio grid has the 138% ratio of c to a fall on the 100% pattern projection point. If it gets there, it would be an excellent low risk long op with about a 20pip risk with tremendous upside; $1.4158 would not be out of line.

Santa Rally anyone?

ScottyS2 said...

BUY SIGNAL

http://markethighsandlows.wordpress.com/

ScottyS2 said...

Saturday Update
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