Bulls Look Ready to Roar; GBP/USD Stop Remains the Same

S&P 500 Cash Index Bullish Wave Count



As I said in my early Friday post, the indicators are there that suggest a sustained rally in the S&P for the foreseeable future. The 3 wave corrective drops the past few days combined with the recent 5 wave rally that failed to make a new high suggest this market wants to go higher. It may tumble modestly in the near future to correct the 5 wave advance, but 1086 should hold. If 1086 is broken, then the 5 wave count is invalidated and we can flip back to the bearish outlook again. The impacts of the larger bearish view remain uncertain until we see how far this rally can go.

Two things to note:

1) A lot of the market action Thursday and Friday can be chalked up to end of month jossling of positions by fund managers. The first few days of March should bring similar jossling and perhaps may be the final legs of this short term rally phase we appear to be in.

2) The VIX declined to a new low and is at dangerously complacent levels in my view, yet the S&P did not make a new high in conjunction with the VIX's new low. So people are much more optimistic and don't feel the need to protect themselves as much as they did the last time we were near current levels. This optimism is a contrarian indicator and may signal a short term sell off. With 5 waves up possibly completed Friday, this VIX vs. S&P action may signal short term weakness in the S&P early next week. But staying above 1086 keeps the short term bullish view intact.


SPY Volume




The above daily chart is of the SPY (S&P ETF) with volume posted at the bottom. Notice the big bullish reversal candle on high volume that formed a major floor in the downtrend and lead to the current rise we've been in the past few weeks. Also notice that during the rally we've had a couple big volume spikes on up-days which has led to further rallying in the short term. Well although you can't see it on the SPY chart because it opened lower than the S&P did, the S&P made another bullish reversal candle on solid volume (click here for past chart of S&P with bullish candle). So with the 5 wave advance combined with a bullish candlestick and high volume, the evidence is strong that 1086 will hold and this market is headed higher.


GBP/USD


No change in the GBP/USD short trade. I exited half my position at a 175 pip profit and now my stop loss on the other half has been lowered to 1.5333 to lock in a 57 pip profit for now.


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 Looking Bullish; GBP/USD Stop Lowered

S&P 500 Cash Index



1106.42 was broken this morning, voiding the downtrend. What's more important is that there has been a clear series of 3 wave drops in the recent decline followed by a clear 5 wave rally on increasing volume. As long as the S&P trades above 1086.02, it's going higher.


GBP/USD




The GBP/USD worked to new lows while the EUR/USD worked to new highs. The reversal candle on the hourly charts at 1.5326 is a good area to lower my stop. So I'm lowering it to 1.5333 on the second half of my position, locking in 57 pips profit since my entry was at 1.5390.


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.

Short Term Bearish Outlook Severely Deteriorated

Yesterday I expressed caution in the aggressive bearish view and today I'm expressing even more caution for the bears. Today's big bullish reversal came on high volume and in what appears to be an impulse pattern to the upside, suggesting that the larger trend has turned up. The previously projected wave 3 down is taking way too long to get started, and we have a series of declines lately that all look like 3 wave drops followed by a strong impulsive rally today. This means that if the market doesn't tank hard early in the morning, most likely we'll have new highs to come soon, and perhaps even a 5 completed wave rally from 1044. A break above 1111 would be devastating to the bears at this point and probably signal that this year's highs will be broken as well. One thing I did notice is the expanding nature of the decline from 1111. This is very similar to what happened at the early stages of the big wave 3 that started in August of 2008. As long as 1106.42 remains intact, the series of lower highs will remain in place, the expanding nature of the decline lately will give some hope for the bears.

Unfortunately the bearish evidence and wave count likelihood have diminished severely at this point, and the inability of the bears to take control in wave 3 over such a long period of time is concerning. In order to make things back on track for a wave 3 down, and to get aggressively bearish in the short term again, I want to see a break and close beneath today's lows at 1086, which would erase today's impressive bullish move.


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.

GBP/USD Trade Update

The GBP/USD trade is tracking very well immediately after executing my sell stop order last night. The trade has me 175 pips in the profit right now and I want to protect that gain. So I closed half my position at 1.5215, and moved my remaining position to breakeven at 1.5393 (accounting for a 3 pip spread). I may want to re-enter that half position if a new low is acheived below 1.5185 but I want to see how the EUR/USD reacts today. 1.3500 has been solid support for this pair and it seems that the market doesn't want this level taken down as it has held up very nicely compared to the other majors.

In summary, I closed half my GBP/USD short position at a 175 pip profit, and move my stop loss on the other half of my position to breakeven at 1.5393 (accounting for a 3 pip spread).


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 Signs Mixed; GBP/USD Short Position Established

S&P Cash Index




As I stated in last night's post, we needed one more drop to a new low to complete a nice 5 wave decline from the highs in order to suggest that the trend has turned down again. That didn't happen today. The market gained almost everything that it lost yesterday, creating what looks like a 3 wave drop from last week's highs now. Also, the rally today looks like a 5 wave affair unfolding and will be confirmed with more high above the one established today which would tell us the larger trend is up and the sky's the limit until signs of another top emerge. Looking at the MACD histogram you can see that the moving averages have now crossed up by the red bars shown, suggesting that momentum is the upside, although it's quite muted. I'll be watching this indicator on the hourly charts again for a cross down which will give us a blue bar that should signal the next selling phase has approached much like it did at the start of this week. But right now, the market is left short term bullish until the market proves to me it's not. Tomorrow may do that, but it needs to get going.

A break to a new high may not be significant if it's immediately reversed with a clear impulse pattern and weak internals. But a rally to new highs with follow through in the days after would probably mean this year's highs are in jeopardy of being broken as, in my opinion, the wave 2 rally will have gone on way too long and too high to consider it a high probability. So the action the rest of this week should prove to be quite important for the medium term picture.


GBP/USD




My sell stop order executed for the GBP/USD at 1.5390 so I have a protective buy stop at 1.5485. The break below 1.5394 confirms that the rise from the 1.5350 area was a 3 wave correction and that new lows will probably be acheived. It's possible that the current rally from the 1.5350 area is going to morph into a WXY correction which would have wave Y surging higher in the coming days. But I will make the market prove to me that's going to happen before I assume that it will. The correction upward can count nicely right now as complete so I want to be short. If the pair rallies to take out my stop I'll simply wait for signs of a top again to re-enter short. This pair is head lower in the short to medium term in my view and I want to be positioned to take advantage of that move.


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.

GBP/USD Shorting Opportunity

The GBP/USD has traded very heavy compared to the other majors and I see a good shorting opportunity. The rise from the 1.5350 area looks like a correction as it's a 3 wave affair. In order to confirm this, and eliminate the possibility that a flat correction is ending, we need to see a break below 1.5394. So on a break below that level, I want to get short because it probably means the downtrend is resuming. What's also nice is that the previous swing high is less than 100 pips away at 1.5476.

So my trade is to place a sell stop to get short at 1.5390. If this trade executes, I want to have a protective buy stop in place at 1.5485.


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.

Wave 3 of (1) of [3] or C Appears Underway; But Still Need Some Follow-Through to Confirm

PRIMARY S&P Cash Index Bearish Hourly Count




The S&P turned lower hard this morning as it really needed to do if the wave count calling for a wave 3 is correct. Time is really running out in my view for wave 3 to get started, so today was quite encouraging. Unfortunately we couldn't quite get a completed 5 wave decline today, and instead are left with a 3 wave drop so far. But all that's needed tomorrow is a break below 1092.18, which is just a little more than 2 points away from current levels, to make the decline from Friday's highs a 5 wave drop. A 5 wave drop will put us on the right track to calling a wave 2 top. This weekend's post discussed the MACD histogram rolling over on the hourly chart (click here for chart) and the siginificance of this event according to similar past setups (click here for entire post). Although it's not a great timing tool, today's action proved that at least this time it was a reliable indicator in identifying weakening upside momentum. In addition to this, NYSE internals were fairly bearish as total volume barely broke above 1 billion shares, but did finally make it to the 13 day moving average which is something the bulls could not do through most of wave 2, and 86% of today's total volume was to the downside. So if the market is turning lower in wave 3, the wave evidence, timing, and internal strength are all there for it to do so.

So where is the confirmation? Well a break beneath today's low at 1092.18 will make 5 waves down from the highs, so that's step one. Step 2 would be for it to break below the wave i high at 1080 to eliminate my bullish alternate count (see below) so I can feel better getting a bit more aggressively bearish. But ultimately, an impulsive break beneath 1062 will confirm that wave 3 is underway. So those are the levels that will steadily increase the evidence that wave 2 has topped, and wave 3 of (1) of [3] or C is underway.


ALTERNATE S&P Cash Index Bullish Hourly Count




Above is my less likely bullish count. The reason it's less likely is that if correct, it's going to be such a long and wide wave C of 2 compared with the proportions of the other waves of the same degree. But it's still a possibility so I want to keep it on the radar to keep myself honest while trading. Even if this count is correct, it suggests just one more new high above 1112.42 before topping and reversing anyway. So this count is bullish in the short term, but still medium and long term bearish.

A break beneath 1080 will eliminate this count from contention because it will creat overlap between wave iv and wave i which is not allowed in EWP.

Currencies

Unfortunately today I was stopped out of my GBP/USD short trade at a 5 pip loss. What's more frustrating is the fact that both the EUR/USD and the GBP/USD stopped and turned lower almost immediately after I got stopped out. I guess that's the price to pay to reduce risk sometimes. I currently have no currency positions in at the moment. But that may change shortly.


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 Exhausted, Will Bears Come in and Take Advantage?

S&P

Nothing new to really report tonight as the markets did essentially nothing. However this may actually lend itself to supporting the idea that the wave 2 uptrend is severely running out of steam. It seems that volume and momentum are receding every day at this point, while optimism as seen on CNBC rises. It's just a matter of whether or not the bears will come in and take advantage of this exhausted uptrend or not. I believe they will. I remain short term bearish the S&P; wave 3 is just around the corner, and starting from around current levels is likely.

EUR/USD

Unfortunately the last half of my EUR/USD position was stopped out at 1.5630 at a 60pip loss. Earlier I closed half the position at a 50 pip profit, so that makes the entire trade a net loss of 10 pips.

GBP/USD

The GBP/USD short position remains intact with an entry at 1.5555, and a stop in place at 1.5560, risking a total of 5 pips 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.