Bears Show Teeth, Top Looks Good Here; Euro Uptrend Broken

 I'm going to cut back my postings and saturate a few postings per week with the core elements to focus on. Since EWI's Short Term Update comes out Monday, Wednesday and Friday, I will post my core thoughts and charts Tuesday and Thursday to help fill in the gaps that many wavers might feel they have. On Monday, Wednesay, Friday and sometimes Sunday I will post internals data and brief comments on the day's action.

Internals were very weak today as you can see above.  There were 2049 more decliners than advancers on the NYSE, down volume was 87.3% of total volume, 463 S&P 500 stocks closed down, and total volume on the day was 1.34 billion NYSE shares, which is quite high for a Friday.  All-in-all, it was a very bearish day today and a lot of profit taking, and fear, entered the market today.  A solid bear victory no doubt, and it now leaves the doors open for some significant and sustained follow-through.  Whether this is just a mild pullback after hitting the round numbers yesterday (Dow 12,000 and S&P 1300), or whether it's the start of the monster Primary wave ((3)) many wavers have been waiting for will take a while to confirm.  But the odds are high right now that at least a significant top is in place and another 50-100 S&P points should be taken out in the coming weeks.

Basic Wave Patterns: How a Zigzag Differs from a Flat

Above is my intraday count of what might be transpiring.  After Subminuette wave i completed there has been little rallying from the low, and in fact, the market pretty much closed on its lows, another bearish behavior on the day.  However, if my count above is correct, then Micro wave ((C)) will give us a sharp rally to around 1290 on Monday-Tuesday before the next selling phase ensues.  If so, it would be a great shorting opportunity in my opinion.  The other scenario leaves Subminuette wave ii already complete at the Micro wave ((A)) high I have labeled, and Monday will bring about even sharper and deeper selling.  I doubt that though.  Mondays are usually strong and the buy-the-dip crowd should be back in force after thinking about all the "great values" they can get over the weekend after the declines today.  The one thing the bears don't want is a slow choppy grind lower we've called the "wolf wave" in the past.  Those are usually corrective and quickly lead to a monsterous rally as a result. 

So there's your setup for next week; the trend should be down at least for the short term, and if we're lucky enough to get a solid bounce on Monday then I'd be shorting into it.  I expect at least another 50-100 S&P points to be shaved off in quick order if a top is in place right now.

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The evidence for a top in the euro is strong (bottom in the US dollar).  The choppy grind higher clearly looks corrective and is a weak structure suggesting a sharp pullback is at hand.  The uptrend has been broken now and I expect the trend for the euro to be down against the dollar in the coming days/weeks.  That means I'm bullish the US dollar now.  I feel the euro is headed to parity with the USD eventually, so this would represent a great risk/reward opportunity for who feel the same way.

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.

Stock Bulls Remain in Control; Euro Looking Shakey

I'm going to cut back my postings and saturate a few postings per week with the core elements to focus on. Since EWI's Short Term Update comes out Monday, Wednesday and Friday, I will post my core thoughts and charts Tuesday and Thursday to help fill in the gaps that many wavers might feel they have. On Monday, Wednesay, Friday and sometimes Sunday I will post internals data and brief comments on the day's action.

Internals today show a boring and lethargic market. Yet, with no bears in sight, the exhausted and overstretched bulls can still chop the market higher like a heavyweight boxer trying to get through the 12th round. Volume was very light today as not even 1 billion shares traded on the NYSE. Up volume exceeded down volume but did so with a 59.5% advantage and yesterday it practically did the same on Fed day with 59% more advancing volume than declining. Yet yesterday at 1.12 billion shares traded yesterday, much more than today, and had 1169 more advancers to decliners while today had only 364 more advancers. So the ratio of bullish to bearish volume mirrored yesterday’s, but the ferociousness dissipated quite a bit today since total volume was much lighter and there were much less advancers today. Tomorrow is a Friday and should bring about even less enthusiasm internally, and three days in a row of flat-to-down internal strength would be a nice supplement to a 4th or final 5th wave. So we’ll see.

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The wave count is in line with the internals data the past couple days, and another declining day internally tomorrow would put this thesis on solid ground in my view. Notice that Minor wave 5 has diverging momentum (red lines) as seen through the RSI, and that even the latest push higher is also diverging so far (blue lines). This is typical 5th wave-like behavior. I’ve adjusted my long term count to a more probable scenario, leaving the entire rally from the March 2009 lows as a simple (A)(B)(C) correction instead of a (W)(X)(Y) combination correction. The reason I liked the combination correction is because there aren’t clear 3rd waves in the heart of the initial large move off the March 2009 lows, and dividing up the move as much as possible made it more likely I thought. But at this point, leaving the combination correction in place is getting too complicated and unlikely with a big flat correction in the middle of it which is now exceeding its likelihood of occurring with the long rally we’ve been having the past several weeks. And now we can see two clear 5 wave rallies off the March 2009 lows. So an ABC seems like the easiest and most likely scenario.

Needless to say, if the above count is correct, the next selling phase will be quite a sight to see. But we wavers have been waiting for this for what seems like an eternity, so I’ll wait for the market to prove to me it wants to tank hard instead of trying to pick an exact top of Primary wave ((2)) every day. But even if it’s not Primary wave ((2)), a 100-150 point pullback in the S&P to correct the 5 wave rally off the 1010 level would not be out of the question anyway. So the next big move should down, whether it’s 1000 points, or 100, it’s still a bearish opportunity.

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The above chart shows a wave relationship that is typical of impulse waves where wave 1 will equal wave 5 in price. Wave 5 actually equals wave 1 at 1290 and perhaps the modest push higher to the nice round number of 1300 is just simply to get the index to a nice round psychologically desirable number before topping. Keep in mind the Dow is also at a key psychological round number at 12,000. Will it top and reverse here? Probably not, it’s too obvious. Perhaps a flat market tomorrow and then another rally early next week will top this thing off. Those who took profits at 1300 hundred will not see a big pullback and then jump in to target 1400 with impatience. That will probably mark a top since most of those types of traders get fooled. But until we get signs of a significant top being in place, we need to be prepared, and expect, higher levels.

Lastly I wanted to show the MACD data above. I know that these basic momentum indicators are horrible for timing and don’t do us much good until it’s too late, but it’s worth noting in the larger scheme of things that the moving averages in the MACD are diverging from price in the S&P also in Minor wave 5, and they are hovering at levels that have marked where some significant tops have formed in the past year. Just look at the red circles on the MACD and their corresponding tops on the chart above. But as you can see, the moving averages remained at these levels for quite some time and they didn’t really tell us when the market had topped and reversed until it was basically too late. So this doesn’t tell us the market will top tomorrow. But this indicator, along with the wave count and RSI, tell me that the market is more likely to top and decline than it is to shoot to the moon higher from here in a long sustained rally. Once we get a break down of the uptrend, I’ll announce it here and the bears can look to attack again. Until then, I’m waiting.

Basic Wave Patterns: How a Zigzag Differs from a Flat

The AUD/USD is still posting the best waves for us to count and continues to show more weakness compared to the euro against the US dollar suggesting that it's leading the majors.  The euro may not be sporting a clear wave structure, but the choppy and sloppy rally with diverging momentum as shown in the stochastics and RSI tell us that this rally is probably coming to an end soon.  Now there is no evidence to suggest that a top is occurring right now, so the bears should still be patient.  I'm also concerned at the 3 wave-looking decline from 1.4281 that suggests the euro needs to rally above it before establishing a major top.  But with the AUD/USD sporting a good wave structure and excessive bearishness compared to the other majors against the USD, I remain a bear, which means I'm bullish the US dollar.  I'm not ready to get short the euro just yet though.  Still need to see a break of the uptrend.



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.

Fed Out of the Way, Bears Ready to Roar? (Note: new posting schedule)

The past few months I've found it more and more difficult to convey a thesis of the market that's different than the day before.  Well this is the nature of a bull market I suppose, slow and boring.  So instead of gettting to the point where I feel I'm just creating stories where there aren't any, I'm going to cut back my postings and saturate a few postings per week with the core elements to focus on.  Since EWI's Short Term Update comes out Monday, Wednesday and Friday, I will post my core thoughts and charts Tuesday and Thursday to help fill in the gaps that many wavers might feel they have.  On Monday, Wednesay, Friday and sometimes Sunday I will post internals data and brief comments on the day's action.  I'll also take requests to post things or discuss things from readers during that time as well.  Just email me at waver2011-1@yahoo.com. 

Today was another wild day with little changed at the end as far as price is concerned.  However Tech managed the best, and the internals were quite bullish at the close.  We had decent volume at 1.12 billion shares traded on the NYSE, but up volume was quite higher than down volume, and there were a whopping 1169 more advancers than decliners on the day which is quite high considering the modest gains in the indices.  Again, the bulls are showing that they are still in control. 

It may seem likely that a top is at hand since this market is well outstretched, but there are no signs of the bears coming in to take control at the moment so we should expect higher levels.  One piece of bearish evidence we had was the lagging behavior in the S&P compared to the Dow, but today the S&P made a new high, erasing the bearish divergence in the indices I've been discussing lately.  The Nasdaqs are still lagging, but nothing supports a decline from here that would be needed to confirm that divergence, and the Nasdaqs well exceeded the Dow today making up some solid ground.

So although the wave count, sentiment and momentum measures suggest a top is near, there is no confirmation or evidence that a top is at hand.  So again, we wait for Minute wave ((v)) to complete. 

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THE EURO

As for the euro, the rally lately has been relentless, but has gotten more and more choppy lately.  The RSI is diverging now from price up to the 4 hour charts.  Both suggest this rally is getting tired and stretched.  Once something occurs to suggest a top is in I will announce it here and we can try and catch a big wave down toward parity.


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.

Stock Bulls Still in Control; Euro Bulls as Well

A lot of volatility today, but in the end nothing really happened as the market closed about flat on the day.  The weakness in the morning looked like a nice start to some bearish control and perhaps solidifying the call for a top.  But obviously the bears lost their footing and gave up to a big rally into the close.  Internals don't tell me much as it's all pretty normal and in line with the closing prices in the indices.  So as far as the internals go, it tells us nothing as to what the short term trend may be.  However, price action does lend itself to the bullish side at the moment.

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I've been showing this chart above comparing the Dow with the S&P and Nasdaq 100 the past few days to show the diverging behavior.  My thesis is that when investors flee higher risk assets in the S&P and Nasdaqs and go to safer assets that are in the Dow, it's often a warning sign of fear re-entering the market and that a selloff about to come.  So far the market has held up real well and it doesn't appear it's done rallying for the moment though.  So I don't know how much longer this chart will be worth showing.  But at the moment, the divergences are still in place, so this chart still has value. 

As for the wave count, today's rally in the S&P was strong and closed on the highs again today.  However it is still below last week's high of 1296.06, unlike the Dow, so as long as that divergence is in place we should keep an eye out for a top.  The wave count is unclear as a series of 3 waves have been flopping all over the place and last week's high is in shouting distance of being taken out, negating the call for a top already in place.  Aggressive traders might want to consider getting short now with a stop just above 1296.06, but I'd rather short on weakness here, so I'd put a sell stop just beneath today's low.

I know this post may seem confusing when looking for solid direction of the market.  But I don't see it right now.  It's a mixed picture and I'm just calling it as I see it.  And the bottom line is that the stars were lined up for a top to be in place for the past week, and a couple times it appeared the bears were entering to take down this market.  But they have failed SO FAR.  At the moment, it feels like the market wants to go higher, despite the bearish evidence to the contrary.  We'll see if the volatility surrounding the Fed hype clears things up.

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Nothing has changed with my outlook on the dollar.  It's still a mixed picture with the AUD looking very weak and declining impulsively on the 2 hour chart, but the euro seems indistructable and keeps surging higher.  The euro is not sporting a clear wave count in either direction, but the AUD is, so I'll focus on it.  If the wave count above is correct, the aussie should be headed much lower and real fast at any moment.  This should also result in a euro decline (US dollar rally). 

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 Surge, but Indices Still Diverging; Euro Still in Rally Mode

The bulls came in and surged the market higher, held it up all day, then pushed to close at the highs.  Advancers well exceeded decliners both on the NYSE and the S&P as you can see above.  Up volume was bullish, but not as impressive as I though it would be for such a big up day.  And total volume was sad at not even 1 billion shares traded today.  With the Fed announcement coming later this week, perhaps we'll get some volatility and volume entering the market, but for now the bulls have flexed their muscle and will try to control this market.  We'll see if they have anything left in the tank.

As for the wave count, the S&P looks like it may have topped, and the Nasdaqs look even better in that respect.  However there is little room left for this count to remain valid, and with today's strong surge and close on the highs, it's hard to think we'll selloff first thing in the morning.  But as long as 1296.06 remains intact, the count remains on the table.  We'll see what happens tomorrow and if the bears can push back these overconfident bulls.  The Nasdaqs still have a long way to go to confirm the Dow's new highs so even if the S&P does break above 1296.06, the Nasdaqs non-confirmation of those highs is still bearish as long as it's stays in place.

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Above is a comparison of the Dow, S&P and Nasdaq 100 indices illustrating what I mentioned above.  You can see that the Dow, holding the safest stocks on the market, is well exceeding the S&P and Nasdaq 100 which hold higher risk stocks.  This is usually bearish behavior and shows a mild flight from risk that usually precedes tops.  As long as this lagging behavior remains in place, especially in the Nasdaqs, the more likely a significant top is at hand.  But as usual, these tops tend to take forever to occur.  So be patient, and stay solvent.

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The US Dollar took a hit today and the euro benefited and rallied strong again today.  The rally appears quite choppy, like an ending diagonal, but the wave count is unclear at the moment.  There are a lot of 3 wave moves all over the place which means some type of corrective behavior occuring, yet the Australian dollar vs. the US dollar is unfolding in clear EWP waves, and adhering to fibonacci retracement levels.  As long as this continues in the AUD/USD, I'll remain bearish (so bullish on the US dollar).

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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.