Wednesday, May 23, 2012

Stocks Falling in 5th Wave; EUR/USD Headed to 1.1876

The S&P has followed my previous forecast almost exactly.  It popped a little higher for wave iv, and is now collapsing in wave v.  I expect a move toward the 1275 area before a meaningful rally occurs.  But that's not to say it won't continue lower.  The larger trend is down, so surprises will be to the downside.  I will not get long at 1275, but it will just be an area to watch to protect my short position.

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The EUR/USD has also followed my forecast for a move to the 1.2600 level.  The breakaway action and fierce selling shown on the above weekly chart is very bearish for the euro.  This decline could really pick up steam and shoot toward 1.1876 support very fast.  And that's a long ways away with a lot of pips for the bears to gobble up.  I remain short.

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Keeping an eye on the shorter term daily chart, you can see a clear descending trendline has been respected by the euro a handful of times.  I expect that trendline to remain intact during the euro's decline.  With 1.2600 breaking down, there is not much holding up the EUR/USD before it gets to 1.1876.  Watch the trendline, and watch the swing highs.  As long as the daily swing highs and the above descending trendline remain intact, I'm firmly bearish the euro.

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Vinniesj said...

I have great respect for your analysis as you well know, you made the first call down from SPX1422, when everybody was having as party. But this time, I can't see a Wave 5 down yet, especially after the complete bullish hammer reversal we got at the close today. The pattern was classic and on a huge triple digit pivot.
I actually see a rebound to about SPX 1360, and then a decline through 1275. Look forward to your take.

Daniel Bradford said...

How about this? I still have my 1390 turn range, which would give a truncated 5th, or maybe just slightly higher at 1421 at the gray 61.8% mark. One more little tid-bit for 1390, (5) of c would be 50% of (1) of c right at 1390! This also gives a retest of the breakdown area from the wedge. It would be really nice if it turns out to be this simple.

Chart with highlighted 50% mark:


PrincipleAnalysis_Blogspot_Com said...

Looks good!  Oftentimes it is in fact "that simple".  Keeping it simple will be you success, that's what I always say.  When you complicate things you are trying to convince yourself of something, or you are trying real hard to impose your own bias on the market.  Keep it simple.  Good job.  As for the euro, those open gaps are annoying to me as a bear.  But it can fall for a long time before coming back and filling those.  But every time a bottom looks to be in place we have to respect the gaps as a target, in my opinion.

PrincipleAnalysis_Blogspot_Com said...

Vinnie, that's quite plausible.  But all it would do is have me change the degree of waves to make them a ((i)) ((ii)) down, and then (i) (ii) down.  Still bearish.  Is that more in line with what you're talking about?

Vinniesj said...

I certainly can't put it in EW terms, but I think you got my drift. I just see a retracement higher in an overall bearish trend. But one that is worth buying calls to 1360, even as high as 1393, but I'd pull the trigger and go all puts the second the downward move starts.
I think after this long 3 day holiday, we get a clearer picture right into the jobs number on 6/1, or is it 6/8? Hate when the first Friday falls on day one of the month.

Vinniesj said...

In my simple world terms I use the DIA as an options vehicle. When I see the DOW clear 12,575, I feel we'll sail to 12,750-12,900, then fall off a cliff to DOW 12,100 or lower. I'm currently positioned with DIA calls, and will stop out if no move occurs by 6/10 because of time decay, wait for a directional signal, and re-enter short or long, whichever offers the better play.

PrincipleAnalysis_Blogspot_Com said...

Thanks for the input, Vinnie!  We'll how your call unfolds.

Vinniesj said...

You were right again, I was wrong as we got more selling, and then even more after a dismal employment report, so I'm here to say I'm taking a beating, will sellout my positions next week on a relief rally, and wait for another opportunity in either direction out into August puts or calls.

PrincipleAnalysis_Blogspot_Com said...

If stocks are in a 5th wave like I put up in this post, you'll get a good opportunity soon to get out.  EWI is also putting this count forward as well.  But in my most recent post I projected a wave iii down, instead of a wave v.  That could mean trouble.