Monday, September 17, 2012

Stocks May Have Put in Quiet Reversal; Euro Kisses 78% Resistance

Right now, the evidence supports the bulls for higher levels, i.e. the series of higher highs and higher lows remains intact, rallies are sharp and declines are choppy and/or sideways, the Fed is bullish and assisting the market's ascent higher, and most of the major indices have confirmed the S&P's new high.

With that said, many wavers are perma-bears, like me, so we are always looking for pullbacks.  So that's where I sit today.  I'm simply looking for a top in this market so I can take another shot at getting short.  I don't really see an opportunity to get short here, but it's worth taking into account the apparent 5 wave rally into a subtle reversal formation in the major indices (see above chart).  Could this be a quiet top?  Possibly.  I'm definitely watching the market closely this week in case it is.  Consensus on financial media seems to be that you can't fight the Fed and that the obvious path of least resistance is up.  Well, that to me tells me I should be looking for a top soon.  Be on the lookout for a top, perhaps one was put in last Friday, but it's way too early to confirm, and the evidence to support the bulls is still far superior for right now.

Big Advantages of Trading with the Wave Principle

This analysis here on this chart is basically an assumption on my part since I can't link it directly to a specific wave count, nor do I wish to.  I have not had success accurately counting corrections beyond an ABC zig-zag.  So I simply don't get too caught up in counting corrections.  There are just too many variations and they tend to morph into one another where you can go broke counting them.  The key for me is to look for the directions of smaller degree 3 wave and 5 wave moves, a topping bar or candlestick pattern, and a break of the series of higher lows.  These things help me determine tops.

Anyway, the above chart is just something I noticed when glancing at the S&P 1hr chart.  It looks like a series of 4th and 5th waves are occurring.  Today's weakness wasn't too convincing on the hourly chart to call a top (although it looks toppish on the daily chart), but overall this type of behavior suggests this market is topping.  Once this series of 4th and 5th waves runs its course, it will top and reverse very sharply.  Like I said earlier, I don't see a shorting opportunity here yet because the bullish evidence is far superior to the bearish case at the moment.  But just a word to the ready.

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The euro made minced meat out of my 50%-61% fibonacci reversal zone I posted last week by shooting right through 61% in just a couple days.  Although the euro has put in no signs of a top, it's interesting and worth noting that it's ferocious surge higher halted right at the 78.6% fibonacci retracement as you can see in the above chart.  This is the maximum comfortable level for a 5 wave retracement, so if the EUR/USD plans on topping soon, this would be a great spot for it to do so.  Again, bears be ready.


1 comment:

Elliott Wave said...

 Those folks who sold in May and went away are due back in a week, at the start of October, or at least so the saying goes. I’m looking forward to their return because this market seriously needs an injection of life. Despite the recent breakout to new multi-year highs just last week, things remains brutally slow on a day-to-day basis. Take September for example. We’re 14 sessions into the month, and have seen only two sessions where price gave us anything close to a move of 1% or more. Heck, even during those two sessions, the actual advancing portion was brief and the rest of the day was spent chopping around. My goodness. Last week, I heard a talking head explain that the market had been waiting for several weeks to hear the Fed’s updated policy, and that’s why the market had previously been so slow.
So why did we spend this entire week in a 1% range? So far, not a ton has changed following the breakout. The move has avoided instantly failing, which is an upgrade over all other recent breakout attempts. But the absence of any true upside followthrough still leaves the move vulnerable to a reversal.
There are some clear cut facts about the market and our current situation that make this an important juncture for the pattern. First, there are only so many ways you can label this or any price pattern. The move could be a correction or an impulse. Additionally, it could be a correction or impulse that is about complete, or one that still has a way to go. No bold statement there. By looking at the only possible ways to label a move, we are able to see that the next move is set to be an important one.
Second, the current up leg (which began at the start of September) is a super apparent five-wave move. Again, nothing bold here, just a fact, and an important fact because if this pattern is near its end, it is right here – at the end of the current five-wave move – where price will reverse down on a larger time frame. I’m not saying it will or even that is should reverse, just that if price has a high in mind any time soon, we’re pushing right up on it now. Adding to the intrigue of the current market situation is the fact that price has recently had such a tough time following through, and we’re about to find out if this time is any different.
Of course, at the end of the day, we’re just trend followers. We know the trend is up, and while we can be on our toes for a change, we’re not about to anticipate a reversal until price actually shows signs of such an event. At this point, it has not indicated a high, so let’s continue looking higher until further notice...