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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Curiousmind3861 said...

Does today's action qualify for a blow off top of wave 5? Or maybe still more upside to come? If the market tanks, won't euro go down with it? Do you have a chart for USD? It have been beaten hard after the fed.

PrincipleAnalysis_Blogspot_Com said...

I don't think this is a blow-off top.  Blow-off tops are much stronger and more dramatic than what we see here in stocks.  And they usually occur in commodities and currencies since they are such highly leveraged markets.

If stocks fall, in theory the euro should too, although the two rarely move in complete lock step.  But more-or-less they move together.  I don't have a USD chart (like the US Dollar Index) because I don't trade it.  But the EUR/USD on the spot market moves practically opposite the US Dollar Index so I just use that as a proxy for the dollar.  I don't have a wave count on the EUR/USD though since I don't have a lot of confidence in the counts I come up with, so I just stick to basic tech analysis.  Take my euro analysis and just flip it upside down and it should work for the USD too.

addictiveaussie said...


Basically it's a race to the bottom but given the amount of lqiuidity the ECB have been pumping out of late, especially since Oct 11 the EUR is about to outpace the USD to the downside.

I may regret this but I think the EUR has seen the last rally until we hit 1.20.

Certain indicators on the EUR/USD chart are the most overbought in over 12 months and vica versa the USD chart.

So many analysts have turned bearish the USD the last few days with many calling support failure. I say FAKE OUT!

PrincipleAnalysis_Blogspot_Com said...

I like your thinking.  Although I attempted shorting the euro twice in the past two weeks and got blasted in short order both times.  I want to see a close beneath 1.2925 before I try again.

addictiveaussie said...

It's wise to wait for confirmation and no way would I criticise for that.

Just a suggestion. Take a look at the weekly USD chart.Whilst far from perfect I see nothing to really concern me or that indicates to me that the trend will not continue higher.
We have a nice cup formation with perfect time symmetry and now a pullback and test of the 200wm and possibly the handle.
A little more sideways action here and I'd say we were then about right to break and move up to the May 10 high zone.

TAfool said...

This rally may not be over. $1.3500 is not out of the question before turning lower. Disregard the top part of the chart on the weekly, just check the COT positioning for N.C.'s. Looks primed for a squeeze to me.

From my prior USD charts, I've been long EUR/USD but sold out and went short for a scalp at top of channel (closed just after futures re-opened). Once (ii) appears in will go long again on EUR/USD for the target of the lower gap line.

PrincipleAnalysis_Blogspot_Com said...

I usually speculate and "guess" when a top occurs 2-3 times.  But after that I need to regroup and wait until I'm more certain.  That's just me.  Much like you, I do think the dollar is in a long term uptrend and will eventually end up much higher.  I'm just not sure it's done correcting yet.

Curiousmind3861 said...

You are absolutely right. Sentiments on USD has turned markedly bearish since the FED, with lots of people calling for it to reach its support back in July,2011. I hope the USD is acting like a crouching tiger ready to pounce higher. The FED wants the USD lower, but things dont turn out the way they want usually...

Idiot said...

you are a fucking idiot