Monday, October 31, 2011

Stocks Go Flat After Big Rally Last Week; Evidence of Euro Top Mounts

Nothing has really changed since my last post as you'll see the same daily chart above that I've been posting for quite a while now.  Stocks are in the targeted reversal zone between the 61% and 78% fibonacci retracement levels, a common place for second waves to top.  What's important, aside from stocks having trouble gaining ground inside my reversal zone, is that after Thursday's monster rally from europe "saving the financial world" is that Friday was flat, and today is so far negative........meaning there has been abosolutely no follow through to the great save the world news and big rally last week.  Now today's trading isn't over and we could sure see a monster rally into the close.  So I'm not getting too excited here, nor am I calling a top at this moment.  All I'm saying is that so far we've had no follow through to the big rally last Thursday, and stocks are stalling in the reversal zone I've cited, two bearish signs.

The action into the close will be telling.  And keep in mind, it's the last day of the month so end of month trading can make things a bit whacky.  I have a feeling this week could get pretty wild as November gets underway, and it's a month that has been particularly brutal to the euro in past years which could be reflective of what will happen to stocks.

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And speaking of the euro, here she is.  On the daily chart you can see the top from last week took place at a very convenient spot, the 78% fibonacci retracement level.  If the big bearish candlestick on the day holds into the close, I will definitely be taking another stab at the short side on this pair.

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In addition to the reversal right at 78%, the euro declined from the high in five waves.  This in-and-of-itself is enough to get EWP bears in on the short side in my opinion.  I'd like to get a nice bounce from here to give me better positioning on the short side though.  And when you combine this with the fact that November, and especially the Thanksgiving US holiday, tend to be very bearish for the euro, it definitely has me salivating to short this pair soon.

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.

2 comments:

Dave427 said...

Todd - I see many stocks are making outside bullish reversals on the monthly charts.  Isn't that type of action inherently bullish overall?

PrincipleAnalysis_Blogspot_Com said...

In and of itself, yes.  But the core of my analysis and outlook is on the wave count, which is bearish.  If the core of your analysis is based on those types of reversals then that should be your focus.  But for me, it's EWP primarily, and with 5 waves down from the high on the year - I'm bearish as long as that high is intact.  My opinion. 

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