EUR/USD; September 8, 2009

For those of you who are currency traders and know that right now the EUR/USD is correlated fairly well to precious metals and the stock market, I wanted to post what Jamie Saettele with FXCM says about the pair because it mirrors my expectations and wave count now that it broke through the previous high of 1.4440. Jamie's long term outlook and wave count on the majors are very similar to mine so I recommend his column on DailyFX to be looked at on a daily basis for free currency analysis: http://www.dailyfx.com/

The entire article excerpted above can be found at: http://www.dailyfx.com/story/dailyfx_reports/daily_technicals/Dollar_Breaks_Down___Pairs_1252419404910.html

Today's Rally Weak, and Fading Fast; September 8, 2009

Today's rally in the stock market really didn't get any legs from Friday, the big rallies in the European and Asian sessions, and the crashing dollar this morning. Internals are not strong at all, however all this can change rather quickly. As long as the highs of the year are not broken then the bearish call for wave 3 is still on the table. But the market needs to give way and fall hard soon for this to remain a possibility. The first step for the bearish case was to have little or no follow through with all the rallying from last week and overseas. That is happening SO FAR. The second step is for a major reversal to occur very soon.

Gold and silver appear to be doing "blow off tops" which commodities normally do, and the dollar is making new lows which appeared likely after the sideways movement it had done for weeks. My eye is on the EUR/USD though and I expect it to pop above it's previous 1.4730 high to complete a "flat correction" where it will have a formed a major top and reverse at least 2,000 pips from there. Gold and silver should follow and fall hard after this blowoff top is complete. The stock market should fall at the same time as well.

So now we wait to see what happens and see if this year's highs remain intact to keep the wave 3 crash possibility still on the table. Hopefully we'll get a better idea of where we're at in the market by the action at today's close which could get quite volatile.

My Current Holdings; September 7, 2009

Just to remain transparent and fully disclose what I'm doing I'm listing my current put option positions:

SPY December 2010 at $80
QQQQ January 2011 at $30
XLF January 2011 at $9
SLV January 2011 at $9
IWM January 2011 at $35

Friday's Action Lessens Confidence in Immediate Bearish Case; September 7, 2009

Friday's strong rally on strong breadth and internals after getting so-so news on the US job market was very bullish. All the indicators and reactions in the past several months point towards Friday's big rally being the beginning of a larger rally that should last for days or weeks. So new highs are quite possible. The only that gives me pause in completely abandoning the short term bearish call is the fact that it was a trading day prior to a long holiday weekend and the rally was done on very very light volume. However, the Asian and European markets rallied hard on Monday and US futures are up fairly big. This is not the type of reaction I'd expect if the mass of traders were bearish and didn't agree with the rally on Friday. It tells me the masses agree with the rally and think the market should move higher. And the fact that so many people are coming back from taking time off for the holiday, it means that this market can really soar a lot higher this week.

The first hour of trading Tuesday morning will tell us a lot. If the market just comes out of the gate rallying and continues throughout the morning on strong volume and breadth, then we will know that wave 3 most likely is not underway yet, and we'll have to wait just a little longer for it to begin.

I still have all my same positions.

Nothing Changed; September 3, 2009

The market has done nothing since the selloff Monday until the last few minutes of trading today. Today's sharp rally at the end of the day tells me the "cheaters" and smart money know the big jobs report tomorrow will be good. On a short term basis it appears the market is falling impulsively, but it's not complete. A correction to around the S&P 1015-1020 is expected before the next round of selling. As long as last Friday's highs hold, I will conclude that the market is in the big wave 3 crash right now.

On a very speculative short term note: I can easily see tomorrow being a fairly strong rally day after a good jobs number on light volume right before the long holiday week and the apprehension of most people not wanting to be short going into a long weekend. So I expect a strong rally day tomorrow. However, as long as the market stays below Friday's highs, we should see very heavy selling resume early next week.

My positioning remains the same.

Wave 3 is Likely Underway, the Modern Day Financial Dark Ages are Here; September 1, 2009

Today was a horrible day for the market as good ISM and employment data came out yet the market sold off sharply in reaction to it. On top of that, NYSE had declining stocks outpace advancing stocks by almost 5-1 and almost 95% of all volume today was the to the downside. And speaking of volume, today's selloff was on monster volume. The selloff also confirms the momentum indicators' (MACD, RSI and stochastics) bearish divergence with today's weak close.

All this suggest a severe exhaustion to the wave 2 rally and a high demand to sell stocks, even on a good news day! Most likely the big wave 3 crash into a modern day depression is now underway.

My initial target for the S&P is to break 450 before the end of 2010, but it can possibly go much much lower. I am fully invested in put options on the SLV, SPY, QQQQ, IWM and XLF with most expirations occuring Jan of 2011 which gives plenty of time for the market to collapse.

I'm on High Alert for Wave 3 to Start any Time Now; August 28, 2009

With the straight line up in this rally, the government including Bernanke taking credit for the recovery, optimistic levels at extremes higher than the 2007 top, breadth contracting significantly in the past couple weeks, light volume at the second half of the rally, the wave count can count complete, and the S&P and Dow are at their previous 4th wave levels, it's time to get serious about looking for wave 3 down to begin.

It should start very soon and I'm on high alert for it. I just went fully short this morning with long dated 2011 put options on the IWM, SPY, QQQQ, SLV and XLF.

BE READY! This decline will be for the record/history books and should take at least 60% off the major indices bringing the S&P to at least the 400s area by the end of 2010!

Wave 2 Appears to be Struggling, Watch out for Wave 3 Soon; August 26, 2009

Wave 2 is really starting to struggle and according to the wave count is almost over. The advance/decline ratio on the NYSE has been weakening significantly the past couple months showing a higher demand to sell and less of demand to buy different stocks, up volume vs. down volume has been narrowing as well, volume overall has been fairly light late in the rally, the RSI and other momentum indicators are sporting a bearish divergence (see above chart), and most importantly optimism has reached extreme levels exceeding that of the 2007 top! The sideways action the past couple days looks like a small wave 4, perhaps a triangle, which means a shot higher to a new high should occur and then a reversal. I expect my 1067 S&P futures level to be tested as I've said it will for months now when this rally got started. Perhaps that may actually mark the top of wave 2.

The bottom line is that wave 2 appears to be in its final stages and with bullish demand waning and optimism at an extreme that's higher than at the 2007 top, the market is poised to undergo the monstrous wave 3 down to the 400s at any time. Time is very speculative in EWP, but my guess is that wave 3 will start before the end of September of this year.

Be ready!

Long Term Wave Count Projection Falling Into Place, Wave 2 Ending; August 26, 2009

Just thought I'd post the long term daily S&P futures projection I've had up for months now with the current price printed. So far it's followed the projection pretty well. All along I thought the 1067 level (prior 4th wave extreme) would attract the S&P futures and so far it's moving close to the area. Optimism is at an extreme and breadth and volume continues to contract telling me that wave 2 is likely coming to an end.

Market at Crossroads; August 20, 2009

The lack of follow through of the selloff from Monday puts the immediate bearish scenario in jeopardy obviously. It's possible the final downward correction is over in wave B (of Y) and now wave C of Y is now underway to finish off wave 2. A break of the S&P futures 1016 level will bring this bullish scenario to the forefront. But if 1016 is broken, most likely it means that the final rallly leg in wave 2 is underway, and the market will reverse sharply in wave 3 down to new lows for the year.

High risk assets are already lagging behind, which usually happens at major market tops. Silver formed a head and shoulders pattern and is declining 5 waves and no where near new highs like the US indices are, the euro is in the same position as silver as it is having trouble rallying with the US stock indices, and probably most importantly the Chinese index is selling off sharply almost making it into bear market territory in a very short period of time. This risk aversion to risky assets occurs at market tops, not at the beginning of bull markets. The US indices may rally higher taking the S&P cash into the 1100 area (my target has always been 1067) but I expect many assets to lag and not make those highs such as silver, the euro, the Chinese and numerous global indices.

If the market barrels through 1016 in the S&P futures tomorrow, it most likely means wave 3 is coming very soon, like within a couple weeks!

Nothing Changed; August 18, 2009

Today's rally changes nothing. As long as last week's highs remain intact, the immediately bearish outlook stands. The market should decline in the coming days, and possibly much more. I remain short with my very long dated (2011) put options but sold my only short term options (August 09 expiration) yesterday on the big selloff. I have not added any positions yet but will post it here when I do.

Bottom line: the market is bearish in the short term.

August 17, 2009; Pullback Underway as Expected but Wave 3 Call Needs More Time

I don't have time to go into great detail but I wanted to post an update in response to the massive decline today. NYSE decliners outnumbered advancers by over 8 to 1 and over 90% of all the NYSE volume as to the downside. Weakness entered the market at the opening bell and was never alleviated, and the Nasdaq Comp did not confirm the highs of the indices, creating a bearish divergence that often accompanies major market tops.

Bottom line: I expect some further declines in the coming days, and I'm on high alert for signs that wave 3 is in fact underway. Right now, I'm only viewing this as a correction before new highs that take the S&P toward the 1100 area before wave 3 starts. One day of extreme weakness does not make a new trend or tell us much for the longer term. What happens in the next few days will tell us a whole lot more. If we have more days like today with similar weak NYSE internals within the next couple weeks then I will strongly place the wave 3 possibility on the forefront. But as of right now, it's just a temporary corrective pullback that should work lower in the coming days before one final rally.

Pullback Immenent; August 15, 2009

A significant pullback of some magnitude it at the horizon. Bullish sentiment is at an extreme, momentum indicators and the Nasdaq Composite compared to the blue chips are all posting bearish divergences, and today's NYSE breadth was very weak with all sellers in the market with the exception of the last 15 minutes of trade.

Whether this is the big wave 3 or just a pullback before one more FINAL rally leg is still undetermined. What is fairly certain though, is that a significant pullback should take place, bringing the S&P to the 930-950 areat at least. As always, I will be on high alert for signals that wave 3 is underway and will post results and conclusions as I see them. If the market doesn't pullback in the short term here and breaks last week's highs, then it's quite possible the market is making its last rally before wave 3 begins.

I maintain all the same positions I listed in my previous post.

Everything Still the Same, Wave 3 is Approaching Soon; August 8, 2009

Friday's big rally changes nothing to what I've said earlier. In fact, because the market has not pulled back to relieve the overbought condition for quite some time, it makes it more likely that wave 3 will start sometime by mid-September instead of it starting in the Nov-Dec timeframe as previously expected.

I remain half short with options dated well out in advance and will add to those positions as the S&P approaches the 1100 level. I currently own puts on the following:

S&P 500 (SPY)
Nasdaq 100 (QQQQ)
Silver (SLV)
Financials (XLF)
Russell 2000 (IWM)

Prepare for Wave 3 NOW, Just in Case; August 6, 2009

The market has reached a crucial point and all signs are pointed to a decline of significant magnitude either right now with the high in place at 1007.75 in the S&P futures, or that it will do so in a couple weeks most likely. Right now, the Nasdaq indices have lagged the blue chip Dow and S&P indices almost all week. The Dow and S&P made new highs yesterday and today while the Nasdaqs have not. This is an aversion to risk, which usually occurs at major tops. Also, NYSE breadth has been funky yesterday and today with more up volume than down volume but there were a lot more decliners than advancers. This all tells me the market is fractured and weakened. This may all resolve itself with a sharp rally higher after tomorrow's jobs report, but the evidence now suggests that a major top may be in place and I can short aggressively against the high established today at 1007.75 S&P futures.

Many other markets and sentiment indicators are lining up for a major selloff as well. Although I still think the market will rally close to the 1100 level before wave 2 ends and wave 3 begins, the market always fools the masses and surprises us. So I want to be ready for wave 3 NOW. Sentiment is at an optimistic extreme as measured by various technical indicators as well as just watching TV. The president has pretty much taken credit for an economic recovery, most TV talking heads are bullish and the only question is "how fast will this new bull market move", and everyone suggests buying on dips now. These are all signs of a major top at hand and positioned accordingly:

I'm buying longer term (June 2010 and Jan 2011) put options on the SPY, QQQQ, XLF and the SLV well out of the money. The reason is that if the market falls now just temporarily, I'll make money and take profits. But, if the market rallies from current levels in the coming week or so, then I know that wave 2 is in its last stages and wave 3 will begin shortly causing a catstrophic collapse and putting my options well into profit. So buy buying far out put options, I'll either profit from a short term decline now, or from a massive collapse over the next several months.

I only used half of my available capital so if the market rallies or moves sideways I can add to the positions accordingly.