Wednesday, July 18, 2012

Stocks Wrapping up Minor 2; Euro Correction Might be Over

Nothing really new to report other than that it looks like Minor wave 2 has not completed quite yet.  The internal measures of the market along with momentum and price action are not indicative of a 3rd wave at Minor degree.  A new high is not far away so perhaps it's imminent that Minor wave 2 pops a little higher to complete.  It would be a golden opportunity if we were able to get that new high with a daily reversal pattern.  If so, I will jump in fairly heavy on the short side at that point.  Although the MACD is not a good timing indicator, it does show the level of momentum in a given time period and you can see that the Minor wave 2 rally has been getting weaker and weaker as it has made new highs as reflected in the MACD histogram.  So, I should be looking to short when the opportunity arises.  And there would be a great shorting opportunity if we get a daily reversal pattern with a new high.

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The EUR/USD has tried very hard to establish an uptrend.  And although it has technically done so by definition, i.e. higher highs and higher lows, it is an extremely weak and hard faught uptrend.  Every new high has resulted in sharp reversals to the downside.  But the most recent attempt at a new high has failed, and another selloff ensued.  Unfortunately for the bears, that selloff has not made a new low, which would have solidified that the uptrend was broken.  However, the failer to make a new high signals to me that the trend is exhausting.  A new low beneath 1.2188 would signal that the larger downtrend has resumed and getting should would be wise in my opinion.  I'm even taking little nips at the short side right now.

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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.

13 comments:

Vinniesj said...

I've watched this current move up from DOW 12,500 to DOW 12,900 on paltry volume, Europe is "stabilizing", and the expectation that QE3 will arrive and cure the world. Cue the tape, I've seen this show before, it doesn't end well. I'm all in today 100% puts at the Sept 129 strike. Not worried it can press higher, cause the room for upside is tiny compared to the room for a hefty pullback. Looking for DOW 12,450 within weeks.

PrincipleAnalysis_Blogspot_Com said...

Couldn't agree more.

Rookie said...

What is a daily reversal pattern, and how would it show up?

PrincipleAnalysis_Blogspot_Com said...

There are quite a few of them, and they are illustrated best in the candlestick charts in my opinion.  One bearish reversal pattern is when price makes a new high above yesterday's high, then closes at a new low beneath yesterday's low.  Another is simply price making a sharp new high but then reverses sharply and closes lower on the day, leaving a long candlestick wick.  There are more, but the bottom line is that a daily bearish reversal pattern shows that there is heavy selling pressure at a given level, and that big money is coming in to cap the current rally.  This usually marks major tops and it's worth jumping in on the short side with a stop just above that day's high.  Make sense?

If not, here's a website that shows some charting examples of reversal formations that may help.  I wouldn't pay attention to the words, it will probably just confuse, but the charts tell the story enough. http://stockcharts.com/school/doku.php?id=chart_school:chart_analysis:candlestick_bearish_

Rookie said...

Do you think we printed a daily reversal today, or do you think the S&P is headed higher?

PrincipleAnalysis_Blogspot_Com said...

No, there was no reversal pattern yesterday, but that doesn't mean the market will go up from here.  Today's weakness, accompanied with a new low in the euro suggest a top might be in, although that's far from conclusive.  I do feel it's worth taking a small shot at the short side with a stop just above yesterday's high.  My opinion.  The risk/reward is good here for the bears.

Rookie said...

Thank you for your feedback and help!

Vinniesj said...

And.....cue the tape. Here we go again. I thought this great low volume "rally" for 3 days straight was a sign everything is just fine?

Oh what's that sound? Is it the Euro cratering? The Spanish bond yield getting whacked for 60bps in one day? I thought everything was fine..... What a joke. We retraced 75% of the "rally" on 5 times the volume down compared to up during the "rally" This selling will continue into next week, with little consolidations and then continued selling all the way to DOW 12,600-12,450 range.

PrincipleAnalysis_Blogspot_Com said...

I hate Friday reversals but this one looks legit.  The waning momentum, volume, and price spikes leading into the decline today are reflective of a top and reversal.  Volume is a bit deceiving though since today was an options expiration day.

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