S&P Topping

1hr S&P Cash Index Wave Count



Not much new to add but it appears the rally is in its final throws. Volume has declined more and more on the up days suggesting little momentum building to any upside movement. The index also rallied to just above the 61% fibonacci retracement level which is right in my reversal zone and a common place for corrections to end. As you can see on the chart, the count for the waves composing wave C of 2 are looking complete, or near complete. Also momentum indicators are starting to pull down. But in this regard, we will usually see a divergence of new highs compared to momentum indicators before a top occurs. This means that price could make one more new high while momentum indicators like the RSI, stochastics, MACD, etc. do not make new highs with price. This divergence is typical in 5th waves, which we're probably in right now. So I wouldn't be surprised to see one more up-down movement in the S&P to complete wave v of C of 2. With that said, this rally is getting quite long in both price and time so my patience is running out for a top and reversal to occur and still have confidence in this wave oount. Wave 3 needs to get going early next week.


S&P MACD Momentum



I thought this MACD chart of the hourly S&P is interesting because it shows the MACD histogram of when the moving averages start to cross down over each other. You can see that for the most part, when the index was in an uptrend and the histogram showed the moving averages were crossing down, making the histogram blue, the S&P would sell off a bit in the short term (see red arrows in chart). We now have some blue bars showing on the histogram telling us the moving averages have crossed down which suggests at least a short term decline is coming. But since we're looking for a wave 3 to start, it may be more than just a small decline at hand.

My currency positions remain the same, please see my last post for trade details (click here for that post)

For those who trade global markets and currencies I don't discuss, EWI is offering a free Global Market Perspective packet right now for anyone interested (click here).



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.

I Closed Half of EUR/USD Short Postion; Lowering GBP/USD Stop Again

GBP/USD




In looking at the GBP/USD and EUR/USD charts to track my short position I noticed that the GBP/USD made a new low last night but the EUR/USD did not. These pairs trade pretty correlated to each other so when a divergence like this happens, it should be taken seriously. This divergence warns of a weakening downtrend and possible big reversal. So I want to tighten risk. The EUR/USD's structure is unclear and it's holding up better than the GBP/USD so I decided close half of my EUR/USD position at 1.3520, making a profit of 50 pips.

Now looking at the above 30min GBP/USD chart I see 2 five wave declines. Most likely it's waves (i) and (iii) that make up those 2 five wave drops. And we're currently in wave (iv). If correct, wave (iv) cannot enter into the territory of wave (i) per EWP rules, no exceptions. Seeing as that wave (i) ends at 1.5556, which is essentially right at my short entry level at 1.5555, I want to put a stop just above that at 1.5560 to get close to breakeven on this trade. If the pair rallies above that level it means a much larger correction is probably unfolding and I need to get out of the way anyway.

So to sum up my currency positions:

I exited half my EUR/USD short position at a 50 pip profit with my stop still at 1.5630 for the other 50% of my short position still in the market.

I lowered my GBP/USD stop to 1.5560 which is risking a total of 5 pips for the overall trade at this point.




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.

S&P Probably in 4th Wave, Then New High Should Form the Top

S&P Futures



The market did not follow through with the selloff in the EUR/USD, GBP/USD and Asia equity session. It appears this market wants to go higher. So we're back to the original count which needed another series of ups and downs to make the wave count look complete. That means that today's blip to the downside could be either part of a wave iv, or it was actually the entire wave iv and it's marching higher in wave v. Once complete, wave C of 2 should be done, and heavy selling should ensue for wave 3. I posted the S&P futures chart today because it's sporting the most clean EWP pattern I can see. As it makes new highs I'll be adding to my short positions.

I need more time to analyze currencies. I'm currently short the EUR/USD and GBP/USD and may take action on them in the near future. I'll post something if I make any changes.



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.

Dollar Rallies, Silver/Gold Plummet, Stocks Finishing Wave 2 Rally

EUR/USD and GBP/USD



My short trade on the EUR/USD was executed at 1.3570 and with the current sell off I want to lower my stop again to 1.3630. My short trade on the GBP/USD also executed at 1.5555 and I want to lower my stop again to 1.5640.

With that said it leaves the question of wondering where we're at in the bigger picture. Well I'm not sure as of right now as it's too early to tell, but I'm in a good position either way with these GBP/USD and EUR/USD trades. One possibility is that this current dip to new lows is a 5th wave, which often occurs when the government intervenes in some way, which means once this selling stops, a sharp and strong multi-week to multi-month rally should ensue in both pairs. OR, the other possibility is that the pairs are in a wave 3 at various degrees. It's this reason why I want to stay short these pairs and not close out the positions too soon. If the pairs are in a wave 3, then the profit potential versus my current risk is very desirable and I want to take advantage of it. The behavior of the pairs throughout the night and tomorrow will tell us a lot.

Silver Futures



To help bring some clarity to the dollar picture I attached a 10min silver futures chart. If this count is correct, it means this metal should be headed down in a hurry. It also most likely means that the EUR/USD and GBP/USD are also headed down in a hurry since they tend to be correlated fairly well to this metal. Just another reason to not jump the gun and take full profits ont the GBP/USD and EUR/USD positions and let the market play out a bit here.

So the trades are in good positions now. With the drops to new lows I'm able to lower my stops to a much more comfortable risk level, and there is evidence to support the fact that a major declining phase is getting underway to where I can just sit comfortably with my stops and watch the market move.

S&P Cash Index



With currencies and precious metals moving like they are, it's quite in line with a top in the S&P. We've been looking for a wave 2 top the past couple days and although it appears there should be some more subdivisions higher, the fact that it came so close to the 61% fibonacci retracement level and that the US dollar is rallying hard right now and precious metals appear to be declining in a big wave 3, it would seem quite possible that perhaps the equity rally is over too. Also of note, yesterday's volume was very light, and today's even lighter on the NYSE with less than 1 billion shares traded. So the market has surged higher, but on lighter and lighter volume which is typical of countertrend moves. The rally is showing a severe loss of steam. It's a bit too early to get too excited about these moves because the Fed announcement just happened, and right now we're just experiencing the "knee jerk" reaction to the that announcement. What's really important is what happens to the US dollar and precious metals later tonight and tomorrow.

Although it's too early to know for sure, it seems quite possible that the wave 2 top in the S&P is in place at today's highs. Watching the action in precious metals and the US dollar throughout the night and tomorrow morning will help us determine if in fact the S&P did top at today's highs.

Poll Results




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.

I'm Preparing to Lower Currency Stops

The GBP/USD and EUR/USD are tanking faster than I expected so I want to be ready to lower my stops because they are very wide right now. I'm doing the following:

If the EUR/USD breaks below 1.3531, then I want my stop lowered to 1.3660.

If the GBP/USD breaks below 1.5533, then I want my stop lowered to 1.5682.



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.

Quick Morning Update: S&P and Currencies

S&P Cash Index

The stock market appears to be unfolding some 4th and 5th waves to complete wave 2. A break below the S&P 1077 level will be a strong indicator that wave 2 is over and wave 3 is underway. And a break beneath 1059 will ultimately confirm it.

GBP/USD & EUR/USD





My currency short orders executed in the GBP/USD and the EUR/USD. Unfortunately it did so as the pairs were bottoming in the short term, so I got short at the lows. My GBP/USD entry of 1.5555 is actually the exact low of the day according to GFT. So I'm not too happy about that. However I am happy that it appears that both pairs are tracing out 5 waves down, which means most likely the downtrend has resumed. My stops are wide for now, with the GBP/USD stop at 1.5820 and my EUR/USD stop at 1.3800.


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.

4th Wave Completing, a Few More Subdivisions Higher into a Top; EUR/USD Trade Setup in Play

S&P 500 Cash Index



The market traded very sideways all day making it look and feel like a 4th wave which fits perfectly into the wave count I have on the 15min S&P cash index chart above. If this count is correct, wave C has a few more up-down sequences to be complete. A poke above 1105, the prior 4th wave, is a likely target at this point. Today, and yesterday, had very light volume, just as most of the rally that started over a week ago has had. Again, the conviction of the market is to sell as declines have been accompanied with stronger volume than rallies have. And the fact that after yesterday's big rally there was very light volume today with little upside is not encouraging for the bulls. Now this can easily change with a very strong rally on big volume tomorrow, but as of right now the components of the market are telling us that this rally has little conviction from market participants.

I'm looking for possibly some further rallying to complete wave C, perhaps to around the 1105 area, before a top and reversal occurs. A rally above 1110 would make me consider adding to my short positions.

EUR/USD



The EUR/USD executed an interesting pattern the past couple days. As you can see from my 30min chart, the pair looks to have completed an ABC correction with wave B being a triangle. EWP states that after thrusts from triangles, which in this case was the wave C, the thrusts are immediately and completely retraced to at least the apex of the triangle. Well this is exactly what happened to this pair. The corrective nature of the EUR/USD makes me believe the pair MAY have resumed its downtrend. But only a break beneath 1.3533 would confirm that, which does us little good at this point. However, if the pair charges higher tonight or later this week toward the 1.3788 level, I would consider getting short with a stop at 1.3800.

EUR/USD Trade Setup



With the structure of the EUR/USD unfolding as it did, and the GBP/USD's rally extremely choppy, it's possible their downtrends have resumed and the US dollar is starting to rally again. I'm not totally convinced of this trade working as the stock market appears to have higher to go, so I'm playing these GBP/USD and EUR/USD trades a bit conservatively at the moment and am risking very little by entering with a small position size. As the EUR/USD chart above shows, I want to get short the pair at 1.3570 and will have a stop loss at 1.5800. This is a wide stop so my position size is very small and I plan to lower the stop loss as soon as possible. The logic behind this trade is that a drop to 1.3570 would confirm that the rally from 1.3531 was a 3 wave affair, which is a correction, and that the pair is probably chugging downward to new lows and perhaps much much further.

My GBP/USD sell stop is still in place at 1.5555.


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.

Market Probably in Larger Correction

Short Term S&P Cash Index



The market rallied all day, and strongly as practically only buyers entered the market today. This is discouraging for the bears because all last week the bears were taking down the bulls on most rally attempts, creating the ugly and choppy sideways action made on last week's charts. However today, the bulls came in and shoved the wore out bears aside and pushed this market higher. The bears appear worn out, and all the bears that wanted to sell have probably already done so. After 6 1/2 days of rallying, it's just too long in time, and by going above the 78% fibonacci retracement today it's also too long in price, to confidently say that 1105 will remain intact. I still think the larger trend is to the downside as the 1hr and 2hr charts show nice 5 wave declines in various indices and sectors, but the 1105 level looks extremely vulnerable at this point.

S&P Futures



The above chart is of the S&P futures which is a main reason I remain firmly long term bearish and thinking that a major wave [2] or B top is in. The futures have traced out a nice clear 5 wave drop telling me the long term trend is now down. I reworked the wave count to show what is probably transpiring now, considering today's strong rally. You can see that today's close was right on the 50% fibonacci retracement level. So it's possible today will market the top of wave 2, but I doubt it. The bears were still on vacation from the long weekend and I doubt they'll come roaring back tonight/tomorrow morning. Most likely the futures will rally up to the 61% fibonacci level around 1107, or the 78% fibonacci level around 1125, before topping and reversing (this would be 1110 and 1128 in the cash S&P index). Although I was probably wrong in thinking that 1105 would cap any S&P cash market rally attempt, I will say that I hold firm in planning to use any significant rally attempt as an opportunity to add to my short positions if my previous short term outlook did not hold. If this market gets to above the 61% fibonacci level, then it will bring an excellent risk/reward opportunity to short the market against the highs on the year; allowing someone to risk about 30 S&P points to possibly make several hundred points.

XLF (financial sector ETF)



In another piece of bad news for the bears, the XLF broke and closed well above the key $14 level proving me dead wrong in stating that this level would not be broken to the upside for a long time. However I'm not bullish this sector at all. By looking at the above 2hr chart of the XLF, the wave structure is quite clearly impulsive to the downside with 5 waves completed from $15.40 to the $13.50 level. Just like the stock market, this sector probably has further to rally, so I'm looking at the $14.60 level to offer some resistance to this rally phase seeing as that it's the prior 4th wave extreme.

Summary
With the evidence right now pointing to higher levels in the short term for the stock market and XLF, I see no reason to start any new short positions at this time. I would add to my short positions on a rally above 1110 in the S&P cash index, or on a break below 1059. And I will wait for signs of a top in the S&P before considering getting short the XLF again. So in the short term, I'm basically flat in regards to establishing any new positions right now, but am medium-to-long term bearish the stock market and the XLF as long as this year's high remain intact.

GBP/USD
Athough it appears I've been wrong in the short term view of the stock market, it did prove to be a wise decision to exit my GBP/USD short position at 1.5633 because the pair is currently trading almost 160 pips higher at 1.5790. I do not see a sign of this pair, or any dollar pair reversing right now so I don't want to take a position at this point so I'll keep my sell stop at 1.5555 in place.