Euro Should Continue its Decline; Stocks May be Rolling Over

Interesting market day today as it basically declined all day and formed a “rolling-over” look on the 10 day charts.  Looking at the internals we see quite a bearish picture with about 80% of stocks trading down on the NYSE at today’s close.  Volume was decent but nothing alarming.  So it seems that the uptrend may be showing signs of exhaustion and some bears may be coming in to take profits.  Looking at my daily count from yesterday we are set for a Minute wave (iv) decline, so perhaps we’re seeing the early signs of that today.  And looking at the very bearish euro count below, and the fact that it looks like the XLF (financial ETF) has finished a thrust from a triangle, it strengthens the outlook of a stock decline coming in the next few weeks.

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The above 15min S&P chart shows the rolling over action I mentioned earlier.  If Minute wave (iv) has started, I’d expect a slow, choppy and sloppy grind lower to sideways over the coming weeks.  This fits nicely with the holidays coming up which tend to bring a general malaise to the markets anyway.  Perhaps early January we’ll get the final Minute wave (v) with the beginning of the year buying in order to finish off Primary wave 2 once and for all.  But that’s pure speculation at this point.  What seems more likely is the short term picture suggesting a decline or sideways grind for at least a few weeks.

The euro continues to look extremely bearish and the US dollar looks bullish.  The euro thrusted from a triangle after the QE2 announcement but has now retraced that thrust and is testing a new low beneath 1.3696, which is all typical behavior of a finishing move.  In this case we’re looking for a finishing move that will mark a major top in the euro, and a major bottom in the dollar.  The decline so far has been very impulsive-looking so I’m expecting lower levels for the foreseeable future with the highs of last week remaining intact.

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It’s key to not that if the euro has topped and reversed, and the dollar bottomed and reversed, and financials continuing to lag badly, it will put pressure on stocks over the long term.  The XLF appears to have thrusted from a triangle which is now reversing itself and is now outperforming the overall market to the downside again.  A long term euro decline and dollar rally, combined with a severely lagging financial sector, spells bad news for stocks over the long run.

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.