Line in the Sand....the Rubicon 1370.58

February 9, 2012: I don't have anything new to add. The Dow made a new high while the S&P has so far lagged behind, failing to exceed 1370.58. If a reversal occurs with the S&P failing to make a new high above 1370.58, then there would be a major intermarket divergence in place suggesting a major top had formed. But entering short prior to that is purely speculation in my opinion. I'm waiting for a reversal pattern to form, and if it occurs before the S&P can exceed 1370.58, then I'm jumping in big on the short side. Until that happens, I'm simply waiting, doing nothing but trying to determine if it's possible to twiddle my thumbs long enough to burn off the two donuts I ate this morning, and to see if I can twiddle them fast enough to break the sound barrier.

Internals illustrate a typical Friday behavior where volume is fairly soft and a large majority of up volume accompanied the rally relative to down volume.  Nothing conclusive here since price moved right in line with these internals as would be expected.




I thought today would be a great day for a nice reversal to the downside and hopefully leave a setup to either short today, or early Monday.  But Mr. Market wanted to annoy me today, and he succeeded.  The rally remains intact and I see no reason to "guess" and just short here unless you're a gambler.  I'm waiting for evidence of a reversal, and will load up on the short side upon confirmation of a reversal if it's not too late when that happens.  The market is moving higher, contrary to what the evidence I see suggests it should be doing.  When this type of thing happens, I want to simplify things and focus on the bottom line.  The bottom line is that 1370.58 is key to the bearish wave count, and the bearish case as a whole.  The Dow came within just a few points of exceeding its wave ((2)) high today, so things are a bit shakey for the EWP bears right now.

But as along as 1370.58 in the S&P cash index remains intact, the bearish wave count remains valid and so any good sign of a reversal on the short term charts is worth taking a shot at the short side with a stop at the day's high, or just above "the Rubicon" level at 1370.58.  A perfect scenario for the bears would be for the Dow to exceed its wave ((2)) high Monday while the S&P stays below 1370.58 and then a big reversal occurs.  This type of divergence in two major indices would be deadly bearish.

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Although the euro has been able to make a new low and has not been able to make a new high, there has been no follow-through to the downside.  As a result, there has been a net sideways action the past week or so.  This consolidative pattern conveys a similar message that an EWP triangle conveys; which is that the euro is pausing from its uptrend before it thrusts higher in a sharp and deliberate move to new highs.  Now since this is not an official EWP triangle the euro has formed, so I can't say the thrust to a new high will happen with any level of certainty.  But I will say that the odds are slightly tilted toward the bullish side for right now.

Technical Indicators: A Love-Hate Relationship


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.

Stocks Remain Flat; Euro Prints Head and Shoulder Top

Thursday, February 2nd note: I just wanted to touch base with a quick note to state that I see no new developments in the market since my last post, as seen below. The market continues to be "on pause" it seems and has been in this mode for quite some time.  The general malaise in the market for the past few weeks still tells me a big move is coming soon.  And the evidence suggests that this move will be to the downside. The euro has made a new low and although the recovery was deep, it still failed to make a new high.  Now a series of lower highs are in place, which is the definition of a downtrend. Unfortunately, the moves are almost sideways and there's no follow-through to the downside at the moment.  So it doesn't give me much confidence in calling a top at the moment. I'm currently short the euro, but I wouldn't doubt a sharp new high is around the corner with the action the way it is, so I'm managing risk accordingly. I'll be back with new info as it arises.

It's tough to write new blog posts when not much has changed since the last post.  It's tempting to create drama where it doesn't exist, or to overthink simple setups.  I'll spare you from both.  This post is simply to add on to the previous post and mention the few new developments since then.

Today actually saw small spike in volume that's worth noting.  NYSE traded just over 1 billion shares which is far from jaw-dropping, but certainly strong relative to volume the past few weeks.  Unfortunately, the market closed mixed with some indices up and others down on the day.  Since this behavior is occuring at the end of an uptrend, it's reasonable to think that this indicisiveness and volume is the result of a top forming.  So we'll see.  But volume possibly re-entering the market now means we should get some moves of significant - finally.

Technical Indicators: A Love-Hate Relationship

The daily stochastic I've been talking about the past few weeks has finally started trending down.  Prices are now certainly free to follow.  This is quite an elementary indicator, but one of many in the toolbox, and I'm using it strengthen the other bearish evidence I've laid out, as well as illustrate how momentum appears to shifting to the downside.

Credit Crisis: Are We Set Up for The Perfect Storm?

There is certainly a lot of evidence for a top and reversal at any moment, and there has been for weeks in my view.  But unfortunately on a short term basis EWP does not support a top being in right now.  This is because the recent pullback looks like a 3 wave drop, and it didn't get a chance to subdivide into an impulse move since today's rally broke above the previous high, which cemented the 3 wave structure in place.  This is not a death blow to the bearish case, it's just a short term indicator that suggests a top may not be in right at this moment.  So it keeps us honest, and as always, it keeps us managing risk appropriately.

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And lastly, and certainly not least since this is probably the most significant development of everything I follow.  The EUR/USD appears to have formed a head and shoulders top and has broken beneath the neckline today.  The uptrend has been broken and now the bears just need a little follow-through to the downside to be even more confident that a top is in.  I've already entered a short position with a stop just above today's high.  Any rallly that stays below today's high will only get me to short more.

If the euro has topped, it's most likely entering a very bearish phase and will move sharply lower from here.  This also lends itself well to a top forming in stocks as well since the two often move in the same general direction.

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.

Stocks' Rallying in a Final 5th Wave into a Top; Euro Uptrend Well Intact

The short term wave count suggests that price is rallying in a tiny 5th wave that should mark a long awaited top.  I know, I'm playing the same ole' tune I have been for the past few weeks yet the market goes higher.  But this is what I see and so this is how I call it.  I've been establishing small short positions on every new high but won't get in heavy on the short side until a topping formation occurs.  Right now, the stock uptrend is still intact, and fighting the trend is never a good idea in my opinion.  The easiest money I make is when I identify the larger trend fairly early, then just keep looking for opportunities to take short term positions with that trend.  Right now we don't have that.  What we have is an overstretched and weakened uptrend that has yet to break.  I feel there's too much risk getting bullish and holding that long position iin overnight trading.  Day traders may want to continue on the long side until the trend has been confirmed to have reversed to the downside.  But I'm a swing trader, and I'm not getting long right now because there's simply too much risk in holding overnight positions.  Patience is key right now.

And for those who may not have done so already, check out Elliott Wave International's free 14-Page eBook, "How You Can Use Fibonacci to Improve Your Trading".  I always take advantage of free tools from reliable analysts.

Earlier in the week I said that the euro may rally to 1.3050 to form a right shoulder of a head and shoulders pattern before reversing lower.  Well, that's what happened.  Unfortunately it had no follow through and later rallied sharply to new highs surrounding the Fed action.  It's clear the uptrend is still intact, and shorting is not wise here.  Looking at the daily chart above you can see how choppy the decline was from 1.4200 and then how sharp the rally from 1.2600 has been.  So the rally is much stronger than the decline, raising concern that this rally may get some legs and continue for a while.  The key will be to watch for this rally to falter; either with some choppy price action, or a series of rallies and declines giving it a net sideways result for several days or weeks.  But right now, I'm not getting short.

Lastly, notice how the RSI has come far out of oversold territory on this rally.  Viewing this from bearish eyes it could mean that this rally is simply allowing the euro's downtrend to "recharge" by squeezing out a lot of shorts, moving sentiment out of extremes, and getting momentum geared up for another big decline.  But this is all speculation for future action.  This will only be important if we later see the euro rally faltering, or we get a solid reversal pattern.  So right now, it's bullish or nothing in my view.

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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.

Strong Sell Signal in Place; Euro Slaps Me

Comments from Friday's post remain in play today.  Volume today was extremely light suggesting major market players continue waiting on the sidelines.  News-watching seems like a good choice since the wave count and momentum indicators suggest a sharp reversal at any moment.  Maybe some Fed news will shake this market up in either direction.  So be alert.

And while you're waiting for the market to give you a reason to stay awake, check out Elliott Wave International's free 14-Page eBook, "How You Can Use Fibonacci to Improve Your Trading".  I always take advantage of free tools from reliable analysts.

The projected wave count remains unchanged.  The daily stochastic has been overbought for some time now, and needs relief, i.e. it needs to fall.  The short term average crossed down today so it's possible a top in price is in, although I would definitely not put in a short position solely based on this indicator.  It is quite primitive and not a good stand alone indicator.  It's much better used in conjunction with several other pieces of analysis, to include the wave count and internals for me.

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I got so bored with this market I did not notice that the market's lethargy triggered and then executed a VIX sell signal.  I only realized this after reading Steve Hochberg's Short Term Update from EWI.  The daily close beneath the lower bollinger band, and then the later close above it, executes a sell signal.  This is the most reliable timing indicators I know of.  Usually a reversal in stocks occurs within 3-4 days suggesting a reversal will occur this week in stocks.

The euro stood me up, reached back, and laid a huge slap down on me.....I mean just a hard 5 across the eyes.  I had a sell stop order almost right at the bottom this week which executed and then reversed sharply to a new high and stopped me out.  I mean, I lost money and had the position closed before I even got up in the morning.  Slap!  But that's the game.  There's a long reversal wick in place right now and 1.3050 should stop any rally attempt if a top is in and a head and shoulders pattern wants to unfold.  My jaw still hurts though, so I'm waiting for more selling and a series of lower lows to get printed before I tackle this one on the short side again.

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.

Stocks Push Higher, But Still Look Weak; Euro Looks Strong

Wake up everybody!  Wake up!!  I know the market is boring right now but we have work to do :-)  The market has continued it's slow boring hump higher on weak internals and volume.  Although this can continue even longer, the risk right now is with the bulls in my view.  Momentum indicators are overbought, volume refuses to accompany the rally, and the price action is very choppy.  All spell out that when this rally ends, the move down will be sharp, fierce and probably quite deep.  Today's volume was a bit strong relative to the previous days, but that's because today was options expiration day which usually means we get a surge in volume.  But relative to most options expiration days the past few years, today's volume was very light.  We usually see well over a billion shares traded on options expiration.

When you're a bear and growing impatient with a sloppy rally, we can tend to over-analyze every little thing on the bearish side and read too much into it.  I don't want to do that here.  But it's worth noting that the overall market today was fractured with the Dow doing quite well, the S&P barely eeking out a gain, and the Nasdaq closing slightly negative.  With options expiration out of the way, and the evidence of a weak rally the past few weeks, it's quite possible early next week could be the pullback we've been waiting for.  Timing is very difficult, as you can probably see from the last few posts I've put up which practically say the exact same thing.  So I simply want to be ready for a decline, but not be positioned as if the decline will immediately occur.  This choppy sideways-to-up action can continue for a while longer.  So keeping risk tight, and my finger on the sell trigger seems like a wise choice at this time.

Five Fatal Flaws of Trading

If all I had were elementary indicators like the overbought stochastic and a fractured Friday market to tell me the market is topping, then I might as well just throw my money out the window or burn it in a pile to keep warm because I'd be losing my money in the market anyway.  But the fact that the wave count and internals support the outlook of a major top forming, these small indicators simply add to the bearish outlook and can help us get our timing down a little better.  The stochastic has been maneuvering around overbought territory for a while now, and needs to come back to earth before another major rally phase can get underway.  Oftentimes the stochastic will start moving down prior to prices establishing a downtrend.  And since we don't have that yet, it certainly would not be wise to use this indicator to get short right now.  But if the stochastic starts trending down and prices don't, I might nibble on the short side a bit even if there's no sign of a top.  A long time overbought stochatic starting a downtrend after a weak rally in prices seems like a good shorting opportunity.

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The euro stopped me out a few times in the past week or so.  So I'm on the sidelines again.  With the previous swing high taken out this week, the short term downtrend has been broken so we need to look for higher levels until it proves to us it has reversed trend to the downside.  There's a nice confluence of support levels in the 1.2875-1.2900 area that I'm watching right now.  At 1.2875 you have the previous swing high, at 1.2885 you have today's low, and at around 1.2900 next week you'll have the base of an ascending trendline.  So it's quite simple, a a close below 1.2875 would get me to short the euro again with a stop just above today's high.  Until then, I think it's best the bears wait this rally out.  The euro has been declining almost non-stop for the past several months now and a sharp and deep corrective rally would not be out of the question.  Keeping risk tight here until the euro proves that the uptrend is no longer intact seems wise to me.


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.

Stock Pullback is the Next Big Move; Euro Rally Creates Good Shorting Opportunity

There's nothing new to add to prior posts.  Stocks continue to flip flop around with an upside bias on light volume and diverging momentum suggesting the next big sharp move will be to the downside.  Ideally, 1356 in the S&P cash index needs to hold for the bears to still have a high probability trade in my opinion.  I'm adding to my current short position as the market rises. 

Five Fatal Flaws of Trading

On the hourly chart, the RSI is diverging drastically from prices.  This doesn't signal when a turn is coming necessarily, but it does suggest underlying weakness and that a pullback is probably the next big move ahead.  Also notice that the daily stochastic is starting to trend downward.  Again, not necessarily a good timing indicator, but a suggestion that the next big move will be down.  To me, the only question is whether or not the upcoming pullback is going to just be a temporary decline before moving higher, or if it's going to be a major top signaling the next major downphase has started.  The wave count suggests the latter.  But I can't say with any level of certainty when stocks will stop floating higher, so I don't want to just load up on the short side right now since I could encounter a lot of pain if this float higher continues much longer.  And I don't want to wait for the decline to jump in short because it may decline overnight several hundred Dow points and I'll miss most of the move if it turns out to just be a short term decline.  So I decided to simply just add small short positions as the market moves higher and average into the market on the short side.  It's the best way to play this type of market and reduce risk in my opinion.

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Although stocks are boring me to death, the euro is moving around quite nicely, making it good to trade right now.  The huge rally we got today was a good opportunity for the bears who may have missed the big previous move.  I added short today at 1.2750 and put my stop just above today's high.  The chance of a top here is solid, and the risk/reward for the bears here is excellent.  So in my opinion, it's worth taking a shot at the short side here.  If today's high is broken in the overnight European session, then I'll simply wait for another reversal pattern to reshort as long as 1.2877 remains intact.


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.

Stocks Putting us to Sleep......Before the Collapse? Euro Surprises to the Upside, Shorts Squeezed

Stocks are putting me to sleep.  Thank goodness for currencies which have been moving sharply lately.  NYSE volume was a whimpy again today with only 768 million shares traded, and uppers vs downers slightly tilted toward the bulls' advantage.  Nothing to really make of this though with such light volume and little price movement.  Both the bulls and the bears appear to have better things to do, or they're all in room with a carbon monoxide leak.  Either way, when volume re-enters, the downtrend should resume.  Until then, try to stay awake.

The European Debt Crisis and Your Investments

The S&P continues to defy gravity and as a result, it's starting to concern me slightly as a bear.  I would have thought the market would have tanked by now but it's been holding up fairly well, albeit without any volume which is still significant.  Price is near the comfortable maximum retracement level of 78%, so a decline now would be nice.  I still doubt the market will push much higher from current levels, a pullback of some kind is warranted before any further significant push.  So the short term advantage goes to the bears to enter on weakness as soon as it arises in my opinion....especially if volume accompanies the move down.  The count above remains valid and my top choice.

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Momentum indicators above slightly favor the short term topping outlook the wave count suggests.  The RSI has a very slight divergence in place right now to where a decline from current levels would confirm the divergence and open the door to the possibility that a very large decline is underway, such as the wave count suggests.  Also, the stochastic has been grinding away in overbought territory for a while.  Another sign of at least a short term pullback is near.

With the evidence at hand, it seems quite clear that at least a short term pullback is coming soon.  So if I were to play this market short term I would be looking to short on weakness any minute.  And if high volume accompanies the move, I'd load up even more short.  If I were to play this market more long term, I'd wait for the structure and strength of the upcoming pullback, mainly to see if volume consistently accompanies it and the decline is impulsive.  If so, I'd get short for a longer term position. It's important for the longer term traders to be patient if a decline comes because the market may be simply "recharging" before surging higher again.

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With a high confidence euro count still eluding me, I have to rely on basic technical indicators.  And for the past several months, despite their simplicity, these indicators have worked very well for me.  The key element to the euro is the impulsive structure of the declines, and the series of lower highs and lower lows which has been the theme lately.  Unfortunately for the bears. last night broke that pattern, and the bulls did so with strength.  You can see the area where I marked the euro's bullish candles on the above chart.  You have a long wicked bullish candle immediately followed by a long bullish candle.  And what's significant is that this big strong move occured at the previous swing high.  So the bulls broke the downtrend with conviction last night, at least for the short term. 

I personally think this was just a short squeeze.  I think there were just too many euro bears in the market and they got squeezed last night.  But nonetheless, the basic trend following I'm using suggests a bottom is in for the euro for the time being.  Until another big reversal pattern occurs to the downside, or an hourly close beneath 1.2700 occurs to negate the big bullish move last night, I'm on the sidelines.


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.

Stocks Float Higher, Should Reverse Sharply Soon; Euro Still Correcting Before Collapsing

The S&P continues to float higher, but nothing changes from the previous forcast.  There are numerous internal divergences to price occurring, along with momentum divergences like the RSI as seen above.  Volume remains very light as well.  There is really nothing behind this rally at all in my opinion.  Those types of rallies usually end with a big reversal, so be aware in the coming days.  With the evidence at had, it seems clear to me that this move is part of a correction, and probably the final stages of a correction.  The bears are lying low and waiting for a good opportunity to strike.  Meanwhile, the few people in the market are able to float it higher.  Look for a sharp reversal at any moment, that will bring a good shorting opportunity in my opinion.  I will get short as soon as I can and place my stop just above the top of that reversal. 

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The euro has managed to get of the matt a bit here and push a little over 100 pips higher from its low.  But you can see that after the initial push to 1.2780, the rally has lost steam and moved choppy and almost sideways.  Today the rally appears to be faltering and is trading right at the top of that initial surge at 1.2780.  A solid break below that level will be the first sign the rally MIGHT be at an end.  A sustained break below 1.2720 would most likely signal another major top is in.  But I'm not waiting for that.  I'm already adding short right now, and if it rallies higher then I'll short some more.  Nothing about the euro's charts or the overall European and US economies suggest a euro bottom (US dollar top) is in place.  So I'm focused on the short side big time 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.

Stocks Trying to Breakout, But Still No Volume; Euro Tops

Stocks have done nothing the past two days so I wasn't going to even post anything today but the action in the euro demands attention.  Looking at today's internals you can see that volume is still declining and overall very light, and that there is a general malaise amongst market participants after the New Year surge.  So the New Year kicked off with a typical bullish day, but there's been no follow-through to the rally.  That's overall bearish in my view.  When volume re-enters, stocks should fall soon afterward, if not immediately.

Why Choose the Wave Principle?

Nothing has changed from my last post, so see my comments and wave count below in the previous post for context of today's thoughts.  Stocks have been range bound for a while now, albeit not perfect at all.  I don't recommend trading off this since it is quite imperfect, but it is something to watch.  On the daily chart you can even see what some call a "pennant", but we wavers call a "triangle".  Only it doesn't fit EWP's rules for a triangle so I'm not posting it here.  But it's still worth noting that this pennant formation has made it onto CNBC where some analysts have mentioned it looks like we're breaking out to the upside.  The contrarian in me would love that.  A sharp rally out of the "pennant" would most likely lead to a quick reversal, and probably mark another major top. 

Stocks are trying to break out of the range they've been in the past couple months, but will have a hard time doing so without any volume to fuel the move.  Like I said above, a sharp rally and reversal would be a welcome sign for the bears to jump in with a clear stop level just above the top of point of reversal.  The action in the euro also lends itself to the near term bearish outlook for stocks as well.

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And speaking of the euro, it got a little sneaky the other day as it topped and sold off sharply before I had a chance to get in fully short.  I added a small amount to my core short position yesterday around 1.2925, but only about 10% of what I wanted to add altogether.  It may be tough to add shorts at this point, but if we're fortunate enough to a big bounce after what appears to be a nice 5 wave decline, I'll be adding shorts ferociously since it looks like another big top in the euro has occurred.  And this bearishness also lends itself to the bearish outlook for stocks as well.


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.

Stocks Surge to Kick Off 2012, But Volume Doesn't; Euro Correcting Higher

The new year kicked off with a bang for the bulls as there was strength through most of the day with the Dow closing up almost 200 points.  Not a surprise really since many people engage in fresh buying to start off the year usually.  But volume is key here.  Volume remains very light on the rally the past few weeks and only 853 million shares were traded on the NYSE today.  So all-in-all, today's rally didn't have much teeth in my view.

Preparing Your Finances for 2012

In addition to the light volume on the rally, the market is fractured at the moment.  The Dow has exceeded its October high, while the S&P has not (see below chart).  The Dow's structure fits well into a WXY "combination correction" for its Intermediate wave (2) which means a top will occur at any minute.  The ensuing decline will be massive, and fast.

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Here's what I mean about the divergence in the Dow and S&P.  You can see here that the S&P has failed to exceed its October high, so far.  And so the wave count for the correction is more complex than the Dow's.  A big reversal while this divergence is in place would be a great risk/reward opportunity for the bears in my opinion because it would suggest a major top might be in.  But patience is key.  The S&P may also want to continue higher to exceed its October high along with the Dow.  This would not negate the longer term bearish view, but it would just make it harder to get as aggressive on the short side.  So I'm simply waiting for the market action to unfold, and make it prove to me a top is in and that I should get short.

Looking at this hourly euro chart may be concerning for the bears.  The structure looks strong, and can even be counted as impulsive, suggesting that the larger trend is now up.  But.....

....looking at the daily chart above, you can see that the recent rallying is just another bump in the road on its way lower.  The reversal candlestick in the 1.2850 area along with the big daily candle yesterday suggest a temporary bottom may be in for at least a few days.  But all that means is that I lightened up my short position a bit, and will re-enter fully short when I feel the downtrend has resumed.  Until then, I'm shorting into rallies and waiting for a big reversal day to the downside.  The euro's larger trend remains down.


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.

Stocks Float Higher on Light Volume; Euro Still Very Bearish

I want to take a moment to thank you all for another pleasant year here on the blog.  I feel I'm very fortunate to have such an intelligent and friendly group of folks here who read the blog and post their comments for all of us to read.  Also, many of you have clicked the sponsor's links I post here, signed up for Elliott Wave International's free Club Memberships, and even ordered some of their high quality products.  All of the above keep me motivated to continue posting throughout the year.  Hopefully we can continue to get more high quality readers and comments through 2012, and if so I can assure you that I'll be here, posting my thoughts and engaging in discussions with you all so we can help each other navigate these markets better, and learn off each other.  I wish you all a very happy and successful 2012!

Speaking of the holiday season, I hope you're all enjoying it as much as I am.  I'm pretty much just sleeping 9 hours a day, stuffing my face with tons of leftovers which segues nicely into my noon time nap where I wakeup to watch football, eat again, watch a movie and then go to bed.  My goal is to get so fat that I need to be rolled around the house to do basic stuff.  Then, I get back into shape after the New Year.

The market action doesn't mean much to me right now since volume is so light and end of year maneuvering is occurring.  The wave count remains the same with the option of one more new high to around 1300 to mark the end of Intermediate wave (2).  This is not required although it would make more sense as far as the wave count goes.  The move down from my first proposed Intermediate wave (2) high (1292 on Oct 27th) is clearly a 3 wave move, and the behavior since that move has been far from being "wave 3 like" since it has just flopped around sideways on light volume since then.  Another new high around 1300, or just above it, to mark wave (2)'s end followed by sharp selling on high volume would be a much more ideal scenario.  So I'll wait for that to occur to ramp up my short position again.

"Market Manipulation" Is Not Why Most Traders Lose

Looking at the S&P's SPDR you can see how volume has fallen off a cliff during the recent rise.  The market can continue to do this for a few more days into the New Year, but I wouldn't be piling up on the long side here.  Once volume re-enters the market after the New Year, stocks should fall.  Until then I wait.......and eat......then take a nap....eat again.....and roll over to the TV to watch the football games.

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The euro has been a cash cow for the bears the past couple months, again not failing me for the bearish November/December scenario I've talked about the past few years.  The trend remains firmly down.  There is a nice long reversal candlestick wick at the 1.3200 area that suggests strong resistance at that level.  I have my aggressive short position set to stop out on a move just above that level.

Happy New Year to you all!!


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.

Stocks and Euro Should Continue to Work Lower (Also, Prechter Talks About the Safest Banks)

The wave count and internal structure of the decline is not ideal for the above wave count to hold true.  But just because it's not ideal doesn't mean it's not accurate.  Markets do not like to unfold into perfectly well rounded packages that fit our anaysis methods 100%.  And there are several factors that can explain away the fact that wave (ii) is much bigger than its larger degree wave ((ii)), volume overall is still light, and the market is holding up quite well for what should be a wave 3 at various degrees.  And those factors are that there was a lot of European government interference in the markets the past month, and December tends to be a light volume month anyway.  Now I don't want to try and fit a square peg in a round hole here by imposing my own personal biases onto the market instead of just viewing the market objectively.  So  I'm still cautiously bearish here with stops firmly in place at comfortable levels should this wave count be wrong.

Despite volume being so light, you'll notice a slight advantage for the bears in volume action.  The S&P SPDR's (SPY) volume decreased in the early stages of the previous rally, and now volume is slightly increasing as the market moves lower, with volume exceeding the 20 day MA left by the rally.  Perhaps another sign that a sharp selloff is just around the corner.  So volume is light, but it's all relative.  Also note that the action in the euro is very bearish, and should be very telling of what stocks should do in the near future.

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Above is the daily EUR/USD chart.  I see nothing here that is bullish.  The structure and behavior of the euro is very bearish here, and I'll continue to be short this market until it proves to me a bottom might be in, i.e. a big reversal day, new daily swing high, etc.  You can see that a major support level in the euro has been broken, and closed beneath, with a daily bar yesterday.  It's possible we'll get a test of the underside of this support level, which is now resistance, around 1.3150 in the near future, but I'm not betting on it.  Only a strong close above 1.3150 would get me to cover some of my short positions and start looking to see if a bottom might be in.  But for now, this thing is pointed lower. 

One last note, I said weeks ago that I was bearish the euro and one of the reasons was that a gap up was made, and left wide open, on a Sunday.  Those gaps almost always get filled within a few weeks, if not a few hours.  The euro's gap was left open for several days, only strengthening the bearish view in my opinion.  Well it finally closed that gap Monday, just as expected.  Okay, here's my Hannibal from The A-Team line, "I love it when a plan comes together."

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December 9, 2011
By Elliott Wave International

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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.

Stocks and Euro Topped

I'm short on time today and can't do a full post, but I wanted to say that it looks like a top is in and a major selling phase is underway, i.e. wave (iii) down is just getting started.  To recap from last week, I was looking for a decline Friday and/or today which would be either corrective or a resumption of the larger downtrend, depending on its strength and structure.  I said I'd probably need to see Friday's and Monday's action to get a better idea of which of the two options it was.  Well today's action and internals suggest that the downtrend has resumed, putting my top count way up front, suggesting that wave (iii) down is now getting underway (see prior post below for chart and details).  Keep in mind that oftentimes when I make bold predictions like this the market likes to make a fool out of me and move in the opposite direction hundreds of points.  So as always, I'll be managing risk appropriately.

The euro is in the same boat as stocks and appears to have topped and is heading lower as well.  Last week I said the euro's bearish outlook was a big reason why I liked the bearish stock count since stocks often follow the euro, and today we can see why I put so much emphasis on the euro.  Look for the euro to continue lower, with bumps along the way.

Hopefully I can get a full post in tomorrow.

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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.

The Stock Decline Begins, is it Corrective or Impulsive?; Euro Reversed - Heading Lower

Volume was light relative to normal trading days throughout the eyar but it did kick up a bit relative to the volume that accompanied the recent rally.  It's also some decent volume for a December.  In addition, an overwhelming majority of the volume (96.7%) was to the downside.  So today was a bearish day internally, and in the price action. 

Today's action was in line with the projection I gave in Tuesday's post in that a decline was real close, but unfortunately there's not enough evidence to determine whether this decline is just a correction before moving higher, or if it's the start of the next major selling phase to new lows.  The volume and intensity of today's move coincides with either a C wave, or a larger wave 3.  Since today's decline might be a C wave in a flat correction before moving higher, the bullish outlook still remains just as likely as today's decline being the start of another 3rd wave down.  So we're still mixed here in my view, and need to at least see Friday's and Monday's action before getting a better idea of the larger trend.  But I think a slight advantage lies with the bears because there is still a series of lower highs in place, the euro looks very bearish here, and the risk/reward is very appealing to the bears right now.

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Earlier in the week we saw that the declining volume, mature wave structure, and long candlestick wicks on the daily charts suggested at least a short term pullback was coming soon, and today it came true.  If the above count is correct, the market should be selling off with little rest for the coming weeks.  That may be a tough task to expect for a market heading into a normally positive time of the year.  But we'll see. 

Although the evidence for the bears and bulls are almost even here, there is one piece of evidence that lends itself to the bearish camp for stocks.  And that's the action in the euro.  If stocks continue to track the movement of the euro more or less, and the euro has some serious selling pressure on it right now as it seems, then the bearish stock count above looks more likely at this point.  After Friday, and maybe Monday's action, we should have a better idea of the larger trend and wave count.

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The euro was able to sneak in a new swing high on the hourly chart during the European session but was immediately reversed and sold off to a new swing low.  That type of reversal is extremely bearish.  What's even worse for the bulls is that on the US session's rally later in the trading day, the bears again pushed the bulls down with some heavy money as you can see with the second long wick on the above chart.  These long wicks may mean that some big money is coming in and hammering the euro, preventing it from making any real progress or gaining any momentum.  The bottom line is that the trend remains down and the I remain bearish the euro.  And that's bearish for stocks most likely.


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.

Stock Retracement Deep, Maybe Too Deep; Euro Consolidating Before Breakout

I was hoping by now the market would be tanking hard as projected and I could give my A-Team Hannibal line of how "I love it when a plan comes together."  But unfortunately, I can't.  I'm not putting much emphasis on the market's internals until after the New Year since volume should be light the rest of the month and there's usually a positive bias right now.  You can see that today's 800 million NYSE shares shows you exactly what I mean.  The interesting note here is that volume was slightly tilted to the negative side, despite the Dow posting a decent gain of 52 points at the close.  When you combine this weak internal structure of the rally today to the wave count and daily bars I discuss below, it tells us that at least a short term top might be nearby.  If nothing else, it's a great risk/reward opportunity for the bears since the retracement is so deep and has now come closer to my stop level just above 1277.55.

Single- and Multi-Bar Price Analysis: Could It Help You Forecast the Markets?

This wave count has become more and more doubtful the past few trading days for two reasons: 1) the smaller degree wave (ii) is much larger than its larger degree wave ((ii)).  This does not violate any EWP rule, but is certainly contrary to EWP guidelines; and 2) the retracement of wave (ii) is very deep, deeper than the usual comfortable level of retracement at 78.6%.  Again this doesn't violate an EWP rule since corrective waves can retrace up to 100% of the preceding move, but the excessive depth of the rally is contrary to EWP guidelines.  So since no rules are violated, the above count is only down, but not out.

One reason I still hold this count as top choice though is that the rally involved governmental interference.  This may interupt the short term gyrations and wave count in the market, but it won't prevent the original larger trend from taking over in the end.  So the two guidelines I mentioned in the previous paragraph have more forgiveness on my part since the wave had government intervention in it.  I know that many wavers disagree with me when I say that external events such as government intervention have an impact on the wave the count at level, but this is just my opinion developed over the past several years of using EWP.  I don't think external influences, such as government intervention, can change the long term trend, I just think it can complicate the short term wave count at times. 

If the above count is correct, the market will stay capped at 1277.55.  A move above this level probably means Intermediate wave (2) is not finished and that I'm going to step aside until I see signs of a top again.

One thing to note as we move forward in the coming days.  Looking at the recent rally which I labeled wave (ii), it looks impulsive on the daily chart above.  This of course would mean the labeling in my chart is wrong and that the larger trend is now actually up.  There are some candlesticks with large wicks on the daily charts that have formed the past few trading session which suggest there is strong resistance at current levels so at least a short term pullback is likely coming.  The reason I wanted to mention all this is because we may get some weakness this week but it MAY not be because the downtrend has resumed but actually just a correction of a 5 wave rally.  So it will be important to get a good definitive wave count on the decline to determine if the decline is impulsive or corrective so we'll have more certainty as to the larger trend.

So a lot of "ifs" and "buts" today which is unfortante.  But I try to just write these posts as objective as possible with all the relavent thoughts I have on the market at the time.  And ufnortunately, the past few days has left some uncertainty.  So managing risk, not maximizing profits, is paramount for me this week.

The euro has obeyed my forecast from last week...........wow, I like how that sounds, it "obeyed my forecast".........anyway, it fell lower after that big reversal candlestick on the 4hr chart I pointed out in last post.  However it has been a bit flat since the initial drop.  Nothing concerning at this point for the bears at this point though, but I'd like to see the euro sell off in the near future to be more comfortable with assuming a top is in.

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The euro is consolidating on the one hour timeframe.  This means that there is probably going to be a breakout pretty soon, i.e. a sharp and deep move.  Since the euro is not giving us a high confidence wave count, I'm not sure how a consolidation or a triangle would fit in here, and therefore I can't be confident in what direction it will breakout to.  But since it's made a lower high and lower low recently, it could be the start of another major downtrend phase, so I'm not abandoning the bearish outlook due to this currnet triangle like pattern.  I'm just ensuring my stops are in place at comfortable levels because if this thing breaks out against me I want to make sure I'm removed from this market as soon as possible.

The bottom line is that I remain short but have tightened my stop in preparation for the breakout possibly going against me.

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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.