Stocks Punished After Hitting Resistance; Euro Poised to Fall Hard

Stocks took a pounding today with the Dow losing almost 300 points and S&P losing over 30 points and closing on their lows.  It was an across the board selloff as all the major indices/sectors were punished with exception of the safe haven sectors Staples, Utilities and Health Care down the least.  Internals in the overall market were also bloody as declining stocks, and declining volume, well exceeded the advancers.  Normally there is a relief rally after such a bloodbath internally, especially since today is the first day of a new month.  But seeing as that the downtrend was held intact yesterday by failing to make a new swing high, and today's S&P close was right at support, it's quite possible we'll get some good follow-through to the downside tomorrow, especially in the morning.

Yesterday the market's rally came dangerously close to making a new swing high which would break the series of lower highs, and therefore put the overall downtrend in serious jeopardy.  After that failed new high, the market sold off sharply today.  Those of you who took advantage of the bearish side for a short term risk/reward trade like I mentioned yesterday did real well.  And I think the market will continue lower through the current support level at least through tomorrow morning.  From there, getting an over 300 point Dow drop in less than two days would be good enough for me to exit at least some of that short term trade.  Since the longer term trend still seems to be up since we don't have an impulsive decline yet, I'm still leary about getting too aggressive on the bearish side too long.  So very short term, I'm still bearish, but longer term I'm cautiously bullish.

I changed the degrees of waves up one notch since the flat correction I've been tracking has really expanded here.  I mentioned yesterday that I wanted to see if the euro followed through higher, or reversed and broke down lower, in the overnight session.  Well it didn't really do either last night, but today it showed some shakey legs before finally falling late in the trading day.  Other counter US dollar pairs like the AUD/USD and GBP/USD were punished much more than the euro, so looking at the EUR/USD alone for overall US dollar action wouldn't give you a comprehensive picture.  Looking at the big picture, the US dollar appears to be getting its legs back again and poised to rally hard here which means the euro should fall hard.  And looking at the euro's wave count here it suggests that a wave ((ii)) top is in.  This means heavy selling directly ahead for wave ((iii)) down.  I remain firmly bearish this pair as long as yesterday's high remains intact.

How to Put the Wave Principle to Work

In the video below, EWI Senior Commodity Analyst Jeffrey Kennedy walks you through a basic checklist of how to put the Wave Principle to work. This clip was taken from The Wave Principle Applied webinar, originally recorded for Futures Junctures subscribers.
Get 45 pages of FREE practical lessons in Elliott Wave International's Best of Trader's Classroom eBook



Would you like to learn more about trading with the Wave Principle? Get 45 pages of FREE practical lessons in Elliott Wave International's Best of Trader's Classroom eBook . Taken from Jeffrey Kennedy's renowned Trader's Classroom series, this FREE 45-page collection offers 14 actionable lessons that will help you determine entry points, stop levels and price targets for the markets you trade.

Download The Best of Trader's Classroom 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.