Thursday, January 26, 2012
Stocks' Rallying in a Final 5th Wave into a Top; Euro Uptrend Well Intact
The short term wave count suggests that price is rallying in a tiny 5th wave that should mark a long awaited top. I know, I'm playing the same ole' tune I have been for the past few weeks yet the market goes higher. But this is what I see and so this is how I call it. I've been establishing small short positions on every new high but won't get in heavy on the short side until a topping formation occurs. Right now, the stock uptrend is still intact, and fighting the trend is never a good idea in my opinion. The easiest money I make is when I identify the larger trend fairly early, then just keep looking for opportunities to take short term positions with that trend. Right now we don't have that. What we have is an overstretched and weakened uptrend that has yet to break. I feel there's too much risk getting bullish and holding that long position iin overnight trading. Day traders may want to continue on the long side until the trend has been confirmed to have reversed to the downside. But I'm a swing trader, and I'm not getting long right now because there's simply too much risk in holding overnight positions. Patience is key right now.
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Earlier in the week I said that the euro may rally to 1.3050 to form a right shoulder of a head and shoulders pattern before reversing lower. Well, that's what happened. Unfortunately it had no follow through and later rallied sharply to new highs surrounding the Fed action. It's clear the uptrend is still intact, and shorting is not wise here. Looking at the daily chart above you can see how choppy the decline was from 1.4200 and then how sharp the rally from 1.2600 has been. So the rally is much stronger than the decline, raising concern that this rally may get some legs and continue for a while. The key will be to watch for this rally to falter; either with some choppy price action, or a series of rallies and declines giving it a net sideways result for several days or weeks. But right now, I'm not getting short.
Lastly, notice how the RSI has come far out of oversold territory on this rally. Viewing this from bearish eyes it could mean that this rally is simply allowing the euro's downtrend to "recharge" by squeezing out a lot of shorts, moving sentiment out of extremes, and getting momentum geared up for another big decline. But this is all speculation for future action. This will only be important if we later see the euro rally faltering, or we get a solid reversal pattern. So right now, it's bullish or nothing in my view.
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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.