Into the Weekend

Options expiration gave us some volatility in the morning but it has since faded.  I don't expect much action the rest of this Friday but so far only the Dow has made a new high.  As I said yesterday, a new high in the Dow would gives us a "restart" on trying to get an impulsive decline which it had yet to achieve while the Nasdaqs and S&P appeared to already be in impulsive declines.  We got that today and the S&P and Nasdaqs haven't followed.  So this divergence remains in place, and a turn down from near current levels could be extremely bearish.  But we'll probably have to wait until next week to see if that happens.

As for the euro, it has rallied again and it appears it may be entering a blow-off type top.  It's still overbought and a bit choppy, so I'm not bullish the euro, and the US dollar is looking strong against other currencies so I'm still not convinced the euro will soar much higher.  But until we get some bearish action in the euro. a charge toward 1.4300 cannot be ruled out since the decline from that level could be counted as a 3 wave move.  The AUD/USD however is still weak and sports a clear and full EWP structure and doesn't appear to be flipping bullish anytime soon.  So it's a mixed picture here and we need to wait to find out which one of these gives way and follows the other unison like they usually do.  So I'm still cautiously bullish the US dollar, bearish the Australian dollar, but the euro worries me a little.  Have a good weekend!

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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.

Stocks Look Bearish but Dow Might Eek a New High; US Dollar Looks Strong

Internals today don't tell us much but that some extra volume hit the market today, probably explaining the volatility on the day.  Down vs up volume was slightly bearish but there were quite a few more decliners than advancers (721) on the NYSE.  Although the bears couldn't follow-through with more selling pressure this afternoon, the bulls were unable to get the main indices in the green despite the late day push.  The internals and price action still suggest a bearish market right now.

Again the higher risk tech stocks, as illustrated here through the Nasdaq 100, is outpacing the high caliber blue chip stocks in the Dow to the downside this week.  To me, this illustrates some fear in the market since folks are ditching their higher risk assets and moving into lower risk assets in the Dow.  The S&P, and pretty much all indices, are outpacing the Dow to the downside at the moment, suggesting at least a short term flight from risk.  That's bearish for the market moving forward through the next few days at least.

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The one slightly bullish piece of evidence I see is the choppy decline in the Dow.  The Nasdaqs and S&P appear to be declining impulsively, although it's too early to get married to a count on them yet so I won't bother posting them yet.  But to see my longer term wave count I posted a few days ago, click here.  But the Dow's price action is clearly corrective.  That suggests that at least the Dow will make a new high before the overall market continues selling off.  This is not a requirement, in fact today's push higher in the Dow that failed to make a new high may be a truncated 5th wave.  However those are extremely rare, so don't count on it, just be mindful of it.  The best case scenario for the bears would be to see the Dow eek out a new high tomorrow without the S&P and Nasdaqs following along, then the market reverses to the downside with that divergence in place.  But regardless, without over-projecting the technical movements of future price action, the market looks bearish right now and any rally in the S&P that's capped at Tuesday's high would be a good shorting opportunity in my view.

The AUD/USD held up to yesterday's expections in that it topped out at the 61% fibonacci level and then sold off hard.  I'm unsure of the larger wave count so please don't hold me to the wave degrees at this moment.  The euro, on the other hand, also held up to yesterday's expectations by doing its own thing and not tracing out any clear patterns in the short term at all.  So if we go to basic technical analysis we see the euro having trouble getting through previous resistance at the 1.3460 area.  And the latest short push to a new high has not been confirmed by the stochastics and RSI.  When you add this together with the structure of the AUD/USD, it still has a bearish picture for the euro.

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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.

Risk is Peeling Back, Stocks May Have Topped; US Dollar Mixed

Internals today were very bearish as you can see.  Down volume dwarfed up volume, and decliners on the NYSE far exceeded advancers.  The bears roared today, but they did so in small numbers with just above 1 billion NYSE shares traded, it wasn't a jaw dropping day.  But it may just mean it wasn't a compitulation-type selloff that often is just a one day event and reversed immediately after.  I think today was a sign of more selling pressure ahead.  We need more market action to unfold for me to be more confident in stating that a top is in, but I know I'd try to start getting short with a tight stop ASAP.  The risk/reward here in combination with the bearish evidence is too good to completely pass up in my opinion.

The above charts illustrate what I mentioned yesterday in that we may be seeing an exit from risky assets and an entrance into more conservative assets.  This may be way the Nasdaq 100 has dipped out of the rally early and sharply while the Dow has held up quite well so far this week.  The S&P also took a big hit today, probably because there are still a lot of fairly high risk and speculative stock in the index, unlike the Dow.  So two days in a row we've had this behavior.  Will it continue?  The longer it does, the more likely a significant top is in place, and not just a minor two day lasting top.  Also note the 5 wave decline I mentioned in the Nasdaq 100 this morning here.

The bottom line is the market's recent rally is overextended in price, sentiment and momentum, and the 5 wave rally on the daily charts and now the small 5 wave decline on the intraday charts suggest at least a fairly large pullback is in the cards now; if not a total market collapse for Primary wave ((3)).  I would at least be nibbling on the bearish side right now.  The risk/reward is too good to pass up in my view.

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The US dollar picture is mixed when looking at the euro and Australian dollars.  The euro is not sporting a clear impulsive decline and I see a big 3 wave drop on the daily chart staring right at me.  That suggests we need a new high at least above the 1.4200 level before thinking a major top is in place.  The euro broke above my key level of 1.3465 but did not sustain it, and the price action and momentum look weak.  In addition to that, the Australian dollar vs. the US dollar is sporting a textbook EWP structure with a 5 wave decline and a 3 wave rally stauling at the 61% fibonacci level.

My bias is to the short side here for the euro and Australian dollar, and therefore I'm bullish the US dollar.  But I'd still be cautious and make sure risk is managed tight here.

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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.

Brief Morning Update; Bears Can Start Nibbling

With the Nasdaqs being the higher risk of the major indices it's always important to watch what they're doing as part of the analysis process of the overall market.  Yesterday and today the Nasdaqs have been weak, and the internals are the same.  The strongest index which holds the bluist of the blue chip stocks is the Dow and it's fairing the best this week, suggesting people are moving out of risk and into "safety".  This behavior often acts as a precursor to a selloff phase.  Also, notice the amount of down volume relative to up volume on the NYSE as well.  Some fear and profit taking is coming into play here, another bearish sign for the upcoming days/weeks.  And when you take into account the high level of optimism, the overstretched rally, overbought momentum indicators, and the VIX sell signal that executed yesterday, it makes for a good setup for the bears on the short side here.

Another good piece of evidence for the bears is the 5 wave decline in the Nasdaq 100.  The evidence is strong that a top may be in place and it's worth it for the bears to at least start nibbling here, in my opinion.

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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.

Stocks Float Higher; Euro Big Picture Foggy, but Good Short Term Setup in Place

The Dow can take the credit for the market looking so bullish today since it was the only major index showing strength.  But peeling back the onion shows a more flatter market.  Volume on the NYSE was moderate at 1.22 billion shares but what’s really interesting is the volume ratio on the NYSE.  Notice that there was a bit more down volume to up volume today, despite the positive closes and seemingly bullish day.  Could people be dumping their riskier stocks and moving their money into more conservative stocks that compose the Dow?  One day doesn’t tell us much, but it’s something to watch closely for continuation of this behavior later in the week.  If it continues, it would probably mean and shift to being more conservative which usually results in a selloff eventually.

The wave count remains the same, click here, so no sense in me relabeling the same stuff everyday when not much has changed in price, and nothing has changed in the count.  We remain in a 5th wave, probably at multiple degrees, and when complete we should see at least a 100 point S&P selloff over the following weeks.  But unfortunately for the bears, the market shows no signs of reversing, only exhaustion.  But without any reversal signs, most of us know the market can continue higher with extreme readings for a long time.  So look for higher levels until the market shows that it’s had enough and needs to pullback.  It should be unmistakable.

Looking at a different chart we can see that the RSI on the daily chart has reached overbought again.  This doesn’t mean a top will occur right now, but it is just another indicator telling us this market is overbought.  The risk is to the downside, and I’d rather be looking to short than holding long at this point.

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Although the VIX sell signal failed us miserably last time, we find ourselves with an extremely overbought market and the VIX sell signal in place again.  This occurs when the VIX closes below the lower Bollinger band one day and then closes back above that lower Bollinger band.  Usually a top in stocks occurs within 10 days of the signal executing, but in this market I’d say it should be shorter than that.

The euro is flip flopping all over the place with 3 wave moves all over the place.  I’m not certain that the larger downtrend is still intact so I’m cautious here for the longer term bearish view at the moment.  And when the wave count is unclear, it’s usually because I’m looking for an impulsive move but it’s usually in a correction and therefore causing confusion.  But I still see a possibility that the larger trend is down based on other indicators so I’m still going to be cautiously bearish the euro for now.  Looking at the action the past few days I think the bears have a good opportunity here. 

There appears to be a lot of resistance at the 1.3400 level as you can see from the long wicks on the candlesticks there.  And we got two real long ones just recently.  What I love about this price action is the break above 1.3400 which was sharply repelled and reversed, then later another break above 1.3400 is attempted and even more sharply repelled and reversed, and the move wasn’t confirmed by the RSI either.  So this sets up as a nice shorting opportunity with a stop just above today’s 1.3465 high.  The risk/reward here is outstanding so I really like this trade.  A solid and sustained break above 1.3465 (more than 2 hours in core trading) would probably open a door a longer and more sustained rally over the coming days/weeks.

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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.