Yesterday I posted two wave counts that had 5 waves completed yesterday, or the allowance of one more push to a new high to complete that 5th wave (click here for yesterday's chart). Well the latter occurred as we had a new high today but then the market faltered into the close. The further this rally has gone this week, the less buying interest there seems to have been as volume and momentum have declined as the market rose. Today's possible wave completion and reversal warns of further downside in the coming days.
As I said yesterday, I'm not sure of the larger trend and whether this decline is a resumption of the downtrend, or whether it's just a correction before new highs. The structure and strength of the decline will help me make a better determination of that. But no matter what the larger wave count is, the near term structure suggests the S&P is headed lower. There is some big jobs numbers coming out Friday so I do expect some wild moves the rest of the week which may throw a wrench in the exact short term wave count. But I would not be long right now, I'd be looking for shorting opportunities. The prior 4th wave is my first target around the 1086 area.
S&P Hourly MACD Histogram Crossed Down Strong
In and of itself, I know the MACD has little viable use in trading. But when combined with other indicators and a wave count, it has its uses. Above is the hourly MACD histogram showing that the moving averages have crossed down sharply. This has happened two other times since February and both times it coincided with moderate sell offs. The key is that the market has to be in some kind of uptrend with red bars on the histogram, then we'll get a "squeeze" and a sharp turn down into the blue. This signals a strong crossing down of the moving averages that are spread wide out, ready to run deep. Right now this behavior is occurring, and when combined with the other topping evidence, it's something to pay attention to.
S&P 500 Cash Index Bearish RSI Divergence
Another momentum indicator I feel is much more reliable is the RSI, but mostly on a daily, weekly and monthly basis. Here I wanted to show the hourly chart to coincide with the MACD chart I just showed. Here you can see that price has steadily increased, making new highs, while the RSI has failed to confirm the last 4 highs.
Momentum indicators have crossed down, the market should follow soon.
SUMMARY
The S&P appears to have completed its 5 wave rally and momentum has begin to shift downward. I expect the S&P to decline to at least the 1086 area of the prior 4th wave soon. Whether the market flip flops up and down the rest of the week in conjunction with the jobs data or whether it charges lower from current levels, I expect a modest decline phase is on the horizon. The structure and strength of the decline will help me determine if it's just a correction before surging to new highs, or whether it's a resumption of the downtrend.
AUD/JPY
I shorted the AUD/JPY at 80.22. I half a stop for half my position at 80.90 and a stop for other half at 82.90. This pair looks bearish, and should decline with the stock market. See previous post for charts and further analysis.
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.
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