Stock Reversal MIGHT Have Legs; Euro Charging Toward Gap Near 1.40

Today's late day reversal was impressive as far as the price action goes and internally it was quite strong as well since with only 1 hour of rallying the NYSE had about 85% of volume trade to the upside and almost 1.7 billion total shares traded.  This rally got my attention.

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Yesterday I said I lightened up my short positions because with the new low in the S&P it satisfied EWP's requirments for a 5th wave in an overall impulsive move.  And with 4th and 5th waves being so unpredictable I feel it's too risky to get greedy here.  Today's early morning decline looked good for the bears and the wave count I've been tracking since it suggested an acceleration of the downtrend was underway.  But when you peeled the onion back deeper you'd notice that the euro was flat and the Nasdaqs were trading much stronger than the Dow and S&P, a bullish sign.  Two big divergences in the euro and Nasdaq compared to the blue chips is an important indicator since the euro and especially the Nasdaqs tend to lead the overall stock market..  Then when I saw the market rip higher at the end of the day it was enough for me to see to get me fully out of my short positions.  I'm all about reducing risk when in a profit and that's what I'm doing.  Sure the market can cascade lower like the wave count suggests, but the risk here of a major longer term reversal higher is too great, and so I'm neutral now.

I'm not posting the wave count today because it suggests major selling ahead, which may still be true.  But the theme of tonight's post is that of caution for the bears and I don't want to have a chart with a wave count that suggests major selling ahead while saying that I'm being cautious and have removed all my short positions.  That will only cause confusion. 

Tomorrow's action will tell us a lot.  If the market stays firm and even follows through to the upside on solid volume, then I'll be looking to get long soon since Intermediate wave (2) up might be underway.  But if today's big rally is completely reversed tomorrow, then it's game on again for the bears.  So tomorrow's action is important.  Right now, I have no equity positions at all.

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Yesterday I mentioned that the euro is getting oversold and that I lightened up some of my short positions and with today's rally I lightened up a little more.  The euro may be simply heading higher to close its gap just below 1.3400, or it may have put in a big reversal that will drift the euro higher towards 1.4000 during the next several weeks.  Either way, the euro was oversold and bounced sharply today which screams at me to reduce risk and take profits.  I do still have 50% of my original short position on, but that is more of a long term play.


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.