Thursday, October 28, 2010

Euro Correction May be Complete, Aggressive Selling Just Around the Corner


Market internals were quite flat, well in line with the finishing action in the markets.  Nothing stands out to me here.  Again the bears tried to push this market lower but by the end of the day the bulls rallied the market back.  It seems that those in control of the market right now want it at current levels going into the important week coming up with the elections and Fed announcement on QE2.  I'm not sure we'll get much movement until those events are out of the way, but the market loves to surprise us.  There's a fair amount of economic data coming out tomorrow, but seeing as that it's a Friday, and the week ahead could be very volatile, I'm not sure we'll get big volume wild moves going into the weekend the way the market has been trading. 

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As far as the elliott wave structure goes, the S&P seems like it's in an ending diagonal or 4th wave correction since a series of 3 wave moves are ruling the market on an intraday basis.  I highlighted the 3 wave declines, but rallies have also been in 3 waves, or some combination of 3 waves, making it look like one big mess the past 10 days as the 15min chart shows.  To me, it looks and feels like the market is on pause, with neither the bears or bulls willing to let the market move too much in one direction until next week.

As a side note, financials continue to lag and are still moving sideways despite the major indices grinding higher the past couple weeks.  Also, the VIX is trying to shoot higher and is making higher highs and higher lows, suggesting it may have bottomed all the way back on October 13th.  This of course would be deadly for stocks.


The one thing that makes me hesitant in being so complacent about equities holding up until next Wednesday is the euro.  The euro traced out 5 wave decline recently, and has so far rallied in 3 waves to just above the prior 4th wave as you can see in the above chart.  There are bullish alternates, but I want to be mindful of the bearish ones here since the evidence suggests the next big move for the long term should be a decline to at least parity in the EUR/USD.  The above count suggests that a turn lower in the euro here would result in a very strong and aggressive move for Micro wave ((3)) coming soon.  With the stock market count unclear, I'm watching the euro for signs of a top in equities.  As long as 1.4079 holds in the EUR/USD, the bears have a great opportunity here to stick it to the euro, and as a result put a lot of pressure on equities.

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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.

Wednesday, October 27, 2010

All Eyes on the Euro (and US dollar)


Today's internals showed decent volume at 1 billion shares on the NYSE and uppers vs downers was what I'd expect from a day like this for the S&P and NYSE.  So nothing glaring out at us here.  The market fell hard this morning, in line with what the euro has been telling us should happen this week, but then stocks rallied hard into the close.  So the uptrend remains intact.

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The euro has continued to subdivide lower and has completed the minimum requirements for an impulsive move down.  It may continue to subdivide lower from here for wave (5), but it's not required.  Last night I cited that 1.3981 was key to the bearish euro case.  But with 5 waves down in the euro possibly complete now, we have to raise that key level to the start of the 5 wave decline at 1.4079.  If I were not able to have a stop that high on my short position here, then I would cover enough of my short position to allow me to place a stop just above 1.4079

The euro has declined impulsively, although it has been a far from stellar move from a major top.  I'd expect a much sharper move lower.  So I'm a bit skeptical here of the implications this 5 wave drop has.  But nonetheless, we use EWP to give us clues of market directions so with that in mind the euro looks poised to continue moving gradually lower. 

But just to keep us honest, we can't ignore the other signs of this just being part of a larger correction.  Remember that the original move from the top was a 3 wave move, suggesting all this declining action is just part of a correction.  I see it likely that perhaps a triangle is unfolding.  If so, then the euro cannot fall below 1.3695.  Doing so would make the triangle all but impossible.  It's also possible the euro is completing a combination correction with a flat occuring in the second position which would have a slight new low beneath 1.3695 before bottoming and reversing. 

So a solid break below 1.3695 would eliminate the highest probably bullish scenario (triangle), and a continued decline well beneath 1.3695 would put the last bullish count on very thin ice (combination).  The action in the euro should be telling for equities.  If the euro has topped, equities will do so soon.



The choppy 3 wave up, 3 wave down mess is not worth guessing on a wave count in my view.  I want to see a 5 wave move somewhere so I can get oriented better on this EWP map.  But with all these 3 wave moves, it's possible an ending diagonal or 4th wave triangle is forming.  If it's an ending diagonal, then the bearish euro story lately is very telling.  It means the euro has topped and stocks will soon violently follow.  But this is all high speculation here since there is no solid evidence to support this other than the euro's 5 wave decline.




The uptrend lines remain intact, and so the uptrend remains intact.  The market has been having a tough time making gains lately, causing a real test of the trendlines in the Composite and S&P on the daily charts.  A solid close beneath the trendlines on solid volume that holds more than a day would be a good sign that some degree of top is in.  Again, the elections and Fed meeting (QE2 announcement) early November is on everyone's minds here.  I doubt any top will be as easy as selling equities on November 3rd, so I expect either an early selloff this week,  next Monday, or the second week of November to surprise us........that is, if the uptrend will be broken at all.  The bullish alternate I've been discussing here are still on the table and should be focused on until the bears prove they're making another move to take control of the market.

DJIA Priced in Gold: What It Means for the Long-Term Trend

Of the many forward-looking market indicators we at EWI employ, one of the most interesting tools (and least discussed in the financial media) is the DJIA priced in gold -- "the real money," as EWI's president Robert Prechter calls it. What implications might the present position of Dow/gold have for the long-term trend of the nominal Dow? In this video, Elliott Wave International's Steven Hochberg shows you several revealing charts that answer this question.
(Discover why deflation is the biggest threat to your money -- download your FREE 90-page eBook now.)

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Newly updated for 2010, Prechter's 90-page eBook reveals why deflation is the biggest threat to your money right now. You will learn how to prepare for deflation, survive it, and maybe even prosper during it, so you'll be ready for the next buying opportunity of a lifetime when deflation is over. Download your FREE deflation eBook 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.

Tuesday, October 26, 2010

Euro Declining Impulsively

Nothing new to report on the market since it essentially did nothing today, and still appears poised to continue its weak upward chop for now.  Until the uptrend is broken with a decline beneath 1159.71 in the S&P (for starters), then I have to conclude the market is poised to continue higher.  It's possible the bears will remain on the sidelines until sometime after the elections and Fed meeting early November, but we need to still be vigilant as a major top can occur at any time.

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Elliott Wave Forex

To continue with my euro count from yesterday, it has subdivided lower in an impulsive manner into today's US session.  The previous decline from the high at 1.4159 was in 3 waves so it makes me suspicious of the implications these current 5 wave declines bring to us.  But as long as they continue to unfold impulsively downward, I want to be bearish in the short term.  It may be tracing out a large triangle which would leave us with a series of 3 wave moves up and down that subdivide into impulsive waves like we see above, but we still need to see more action to put that at a higher probability.  Right now, 1.3981 remains the key level for the bears to hold.

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.

Monday, October 25, 2010

Market Again Sets up for a Slam Dunk by the Bears; Will They Step up?


So the market surged higher this morning as I expected, but then spent most of the day declining off the highs.  As I said late last week, we knew the market would surge higher this morning, but what happened after the rally was more important.  The action off the highs is not encouraging for long term bears.  Although the rallies continue, and are persistent, they continue to show signs of weakening internally that show the rally cannot be sustained for a long period of time. 

Today's internals were a little better than I expected them to be with the reversal off the highs and modest up close.  Volume was solid today relative to the past few weeks and advancers and up volume was quite solid as well.  So the internal picture is not a bearish one in my view at all.




I'm starting my wave count withe euro tonight because it leaves the potential for very bearish action in the AT LEAST the short term.  The euro did not make a new high against the dollar, and with the decline from 1.4159 being a 3 wave affair, it keeps me skeptical that a top in the euro is in.  However, with a major top coming at any time in the euro and equities, we need to be on high alert for any signs of topping action.  The 15min EUR/USD chart shows a 5 wave impulse decline suggesting the larger trend is down now.  As long as it continues to subdivide impulsively lower while staying beneath 1.4080, I'm very bearish the euro and bullish the US dollar.  This, of course, could translate to a very bearish picture for equities as well.  But equities have not unfolded in an impulsive manner from the highs though.  So watch the euro and the US dollar for signs!

Although not all momentum indicators are diverging as long as the stochastics, it's still worth showing what some indicators are doing with the current rally.  The daily stochastics on the S&P are ready to fall, and the weekly stochastices are overbought, waiting for a turn lower.  Today's smushed candlestick may be a signal of a top, but it's just a guess at this point.  With the uptrend still well intact technically, I have to expect the market to go higher.  The market will have to break that uptrend in order to prove to me it wants to move lower.  Breaking below 1159.71 would be a good start to breaking down the uptrend.

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And lastly, the XLF continues to diverge drastically from the S&P.  The XLF spent most of the day in negative territory despite the big rally in the S&P.  And so on the daily charts, you can see the massive separation continuing here.  The stock market cannot sustain a long term rally without the financials.  As long as this divergence continues, it paints a very bearish picture for the overall stock market.

So the setup for the bears to take control is again present.  We'll see if the bears can step up tomorrow and break the uptrend.

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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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