Key Levels in Stocks and the Euro

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Stocks continued their correction Friday as a Minute wave ((iv)) takes hold.  According to elliott wave principle's guideline for alternation between correcting waves, since Minute wave ((ii)) was a sharp correction, then wave ((iv)) should be more of a sideways correction.  So I'm projecting a "flat" or triangle correction now.  The timing of a sideways correction here is good too.  As the Thanksgiving, Christmas and New Year's holidays approach, less and less market participants will be in the market, usually bringing a general malaise to the markets.  If we're forming a triangle, a good guess is to move sideways into the new year, then thrust higher from that triangle in early 2011, only to complete Primary wave ((2)) and reverse sharply to the downside for a long long time.

Only a break below 1129.24 would suggest that perhaps a top is already in.

Just an update here on the XLF vs. the S&P.  Financials made a valiant attempt surrounding QE2 to catch up to the overall stock market, but as you can see, once the QE2 euphoria dissipated the financials continued to aggressively decline again leaving a lot of separation from the S&P.  A long term stock market rally cannot be sustained without the financial sector participating; at least that's my opinion.

The euro failed to pick up speed to the downside which it should be doing since a 3rd of a 3rd wave is likely the next move if a top is in.  But Friday we got a very sharp rally off the lows, making me slightly concerned for the bearish outlook here.  What's of even more concerning is the 5 wave rise off the lows, then 3 wave setback.  A break above 1.3728 would confirm that late Friday's decline was a 3 wave correction and that at least one more impulsive rally should be in the cards.  That may complete a 5-3-5 zig-zag correction higher for some degree of wave 2, but it also may be the first signs that the euro has not topped and it may continue to rally impulsively to new highs on the year.  So we need to watch the action in the euro carefully here.  With stocks looking to be in a correction for several weeks/months, and silver look to have just completed a blowoff top, I still think the euro's bearish potential here is quite high.  So I remain bearish on the euro in both the long short term until it proves to me otherwise.



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.