Friday, June 1, 2012
Stocks Tank, in Line with Forecast; Euro Daily Candle Warning to Bears
The weakness in stocks continued to a new low as forecast in last post. There are several different ways to count the decline, most of them are impulsive suggesting the larger trend is firmly down for the foreseeable future. The only question is at what degree should the waves be labeled? Above are my top choices. Both have one thing in common, if the counts are correct prices will stay below the wave (ii) high at 1415.32 (S&P cash index). So I'd have stops just above that level for now and let the market play itself out. As the pattern develops more, hopefully I can drop my stop lower to reduce risk.
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The action on the daily EUR/USD chart is very telling, and is worrisome for the bears. It shows an RSI that is trying to recover from being deeply oversold accompanied by a daily outside reversal candlestick forming on the daily chart. If that candle holds up through the close today, the EUR/USD looks to have put in a bottom today. When you add the fact that the euro has historically made a lot of major reversals on news days like this, it is telling the bears to take be careful. I've removed half of my short position already and am considering removing more before the close today. Euro bears beware here.
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Just to add on to my previous thought, the 4 hour chart above shows a long and drawn out bullish divergence occurring between the euro's price, and the RSI. Priced continued to make lower lows while the RSI was making higher lows. This build up has carried over to the daily chart where the RSI is bouncing hard out of oversold territory, and is doing it on a big news event today and an outside bullish reversal candlestick forming. Euro bears beware.
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.