Stock Rally Shows no Signs of Reversing; But Euro Appears to have Topped

Internals today were flat, usual for a Friday, although I expected a little more volatility on a jobs report day.  Currencies certainly moved big this morning, and the euro declined in five waves, but it seems like most market participants went home early for Superbowl weekend because after the morning action, the markets were fairly flat.  Volume supports this theory since only 919 million shares were traded on the NYSE.  The market's rally has lost enthusiasm but that doesn't eliminate the possibility of another upward shot Monday, but it does mean that the risk is to the downside and the next big sustained move will probably be down from here, not up.  With no evidence of a top in place, I cannot get short yet.  I can only wait for evidence to surface.

Closing below the trendline I drew here would be a good start to calling a top and trying the short side.  The trendline hovers around 1275 early next week, so we'll see what the bears can do.  Momentum is still diverging from price during the S&P's 5th wave as seen by the RSI.  So the wave count and momentum suggest this rally is ready to turn.  A close beneath the trendline and/or a nice impulsive 5 wave drop with solid volume would also be nice for a bearish trade to be executed with confidence.

Enjoy the Superbowl!  I like both teams and believe both equally deserve the victory this year.  But if I had to pick a side I'd have to go with the Packers since I think they are playing superior defense right now, and they'll get to Roethlisberger all night making it very difficult for Pitt to get anything done on offense.  Cheers!

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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.

Euro Declined in Five

The euro declined in 5 waves and broke below the key level of 1.3569 in the process.  I mentioned the 1.3569 level as a key level yesterday.  A close beneath 1.3569 today would be very bearish in my view and any resultant rally next week would get me to pound the short side of this currency.  The rest of the majors look bullish the dollar as well, other than the AUD/USD which I think is in an ending diagonal and should drop in a dollar rally against it soon.  With a clear 5 down and breaking to a new low in the process, the euro is worth the risk/reward to short on rallies in my view.

More on stocks later if anything develops.


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.

Waiting for Unemployment Data Reaction; Euro Decline Shows Bears Still Have Life

Not much to report on a “do-nothing” day. Market participants appear to be waiting for the big unemployment number coming out tomorrow morning. So expect some volatility heading into tomorrow’s US market session. The internals today show a flat market on low volume and basically tell us we need to wait for tomorrow’s jobs report to get a better idea of short term direction. With the market so overbought and outstretched in price, optimism, the wave count, and momentum, the odds favor that volatility tomorrow will result in a downward move. However that’s just an educated guess at this point since there are no signs of the uptrend being broken in stocks just yet.

The wave count remains the same in that the S&P is in a Minor wave 5 that should be in its final stages. This is supported by the diverging momentum as shown by the RSI trailing downward while price continues higher, and the weaker internals on each rally with light volume mixed in, all suggesting the rally is tired. Now we’ve seen tired rallies before continue on and on and on upward for days/weeks, so jumping in short here is a risky move. I’ll leave that to the high risk speculators and day traders. But for swing traders like me, I’d like to see some evidence of a top with a clear and close stop loss level to control risk. I don’t have that yet, so I have to continue to wait. Perhaps tomorrow’s jobs report will give that to me.

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Amazingly, the Nasdaq Composite still has not yet made new highs like the Dow and S&P. Normally I would consider this a very bearish development for the overall market. But as it sits right now, if the Composite were to decline from current levels it would mean a triple top was in place, and triple tops are extremely rare and shouldn’t be counted on at all in my view. So I’m not counting on that happening. This suggests at least one more upward pop before a top and reversal can occur. A failure to make that new high and then declining below 2677 would be extremely bearish in my view and suggest there is so much weakness in the Composite that it couldn’t even resolve the triple top affect properly before topping.

So in summary, it’s a waiting game until signs of a top enter the market and we can control risk with a high confidence short trade. I’m going to wait for the market to come to me and play into my setups, not try to impose my will and impatience on the market and get in too early. So I’m waiting.

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The euro did exactly what it needed to do if the remaining bearish potential were to remain alive by declining hard today and closing near the lows on the day. The decline looks impulsive, but needs a few more new lows to make it more of a certainty. A daily close beneath 1.3569 would be extremely bearish in my view and get me to pound the short side Sunday night.

Let’s see what action follows the employment report tomorrow and see if there’s a play to be made…

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.

Markets Took the Day Off

New posting schedule:Monday, Wednesday and Friday - Brief summary posts
Tuesday and Thursday - In-depth posts

Stocks took the day off today and just flip-flopped sideways on very low volume (934 billion shares NYSE), although the bias internally was bearish since more declining volume hit the tables than advancing volume, and especialy in the S&P there were a lot more declining issues than advancing issues.  When you add it all together it fits well as a 4th wave at some small degree.  The Nasdaq Composite still has not made a new high along with the Dow and S&P which I mentioned yesterday, and it has been lagging the two big indices the past couple weeks.  I'm doubtful that divergence will hold though, and if the S&P is in a 4th wave then it all adds up to at least one more push higher to new highs for the market before we can even think about a top again.  Yesterday's big up day on solid volume and internals leaves me very cautious of being too aggressive too soon on the bearish side.  Oftentimes those types of days act as launching pads for the next week or so unless the bears come in and push the market down convincingly in price and internally.

Once the market tops and reverses we should see at least a 100 point S&P decline so trying to catch the absolute top seems unnecessary and foolish to me.  Once I see a evidence of a top, and especially confirmation of a top, I can again try getting short.  Until then, I wait.

As for the euro, the rally haulted today but has not made a convincing decline to suggest a top is in place.  Although a top can happen anytime, until there's evidence to suggest it's in, I'm staying on the sidelines for now.

Full post tomorrow....

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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.

Dow and S&P to New Highs Means it's "Scotch Night"

It’s days like today that I end up curled up in a ball, underneath a blanket, on the cold linoleum kitchen floor sobbing next to a half empty bottle of scotch as my dog looks on at me like I need some serious counseling.  But I’m able to pull myself together and crawl out from under the kitchen sink and face the music.  Today’s new high in the S&P was very discouraging.  The evidence was quite overwhelming and promising that a significant top was in.  I’m not saying the Primary wave ((2)) top was called, but at a minimum a 100+ point S&P pullback looked good.  But no dice!  At least not yet.

I’m down, but not defeated.  Let’s get hookin’ and jabbin’ again.

The internals today were extremely bullish and basically matched the intensity of Friday’s selloff.  Although volume was very high at 1.09 billion shares traded, of those shares 87.2% traded to the upside and there were a whopping 1,943 more advancers than decliners on the NYSE today.  It seems quite obvious now that Friday’s selloff was probably mostly profit taking after a large and long rally to round number resistance (12,000 Dow and 1300 S&P) on the back of the Egyptian unrest.  Since the bears went back into hibernation, the bulls were able to come back to take control of the market again.  With internals like this it’s hard to call a top here with any evidence to support it.  Doing so would be a guess, and I don’t put my money on guesses outside of Las Vegas.  Barring an immediate, and just as strong, reversal to the downside tomorrow, today’s push suggests further upside in the coming days.  There are several possible scenarios for the next few days, and sharp ups and downs with little upside progress is definitely a possibility as it would represent  an ending diagonal which is quite common at the end of overstretched trends.  So today’s rally doesn’t eliminate the bigger bearish case, it just puts it on hold and hits the “reset” button to make us wait until the evidence suggests the bears might come in again.

The S&P count remains the same; it’s in the final stages of Minor wave 5 which, when complete, will lead to at least a 100 point S&P selloff.  I’m not going to try and pick a top in the heart of the rally, I’m simply going to wait for another sign of weakness for an opportunity to short when the evidence supports it. 

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Despite the strength in the Dow and S&P, and even the Nasdaq 100 that pushed them to new highs, the Nasdaq Composite has still failed to do so.  Now I doubt this will hold since it would mean a triple top is in place and as I’ve said many times triple tops are extremely rare.  But the lagging in the higher risk tech stocks supports the lagging RSI indicator, which all still supports the 5^th and final wave scenario. 

Interestingly enough, a VIX buy signal executed yesterday since it closed above the upper Bollinger band Friday, and then closed below it yesterday.  Stocks wasted no time at all getting their resultant rally underway telling me that the trend is still firmly higher.  Barring a sharp and just as strong reversal tomorrow, I’d stay out of this rally’s way for the time being.

The euro’s 3 wave looking drop has come back to haunt me.  The weak recent rally, the Australian dollar’s impulsive decline, and diverging momentum, all suggested the pairs would fall and the dollar would rise.  But that 3 wave drop in the euro on the daily chart always nagged at me and it looks to be the one signal I should have focused on.  After making a new high and taking out most viable resistance areas, the 1.4281 level looks vulnerable here.  As in stocks, I’m stepping aside and waiting for weakness to resurface before I make a move on the euro.

Trendlines: How a Straight Line on a Chart Helps You Identify the Trend



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.

Wave 2

New posting schedule:

Monday, Wednesday and Friday - Brief summary posts
Tuesday and Thursday - In-depth posts

Stocks should be in a wave 2, correcting the initial 5 wave decline I labeled in Friday's post.  I cited 1290 as a good resistance area and that still holds true.  I expect the rally to continue to at least tomorrow, but as long as it holds underneath 1302.67 I'd be shorting this rally regardless of how long it lasts.  In Friday's post I mentioned that it would be likely we get a rally today and perhaps tomorrow so the market is moving as planned.

Looking at the internals we see strong action backing today's move higher, but it doesn't match the ferocity of the bears' move downward last Friday.  For instance, there were 2049 more decliners than advancers Friday while today there were only 1139 more advancers than decliners, giving the bears an advantage of 910 NYSE shares.  Down volume was 87.3% of total volume while today up volume was only 67.6% of total volume today, an almost 20% bear advantage.  Total volume Friday was 1.34 billion (big for a Friday especially) versus only 1.19 billion shares traded today.  So the internal composition of today's rally is far weaker than the internal composition of the decline Friday, suggesting that today's move was merely correcting Friday's decline.  Look for new lows to come soon.

As for the euro, it snapped back sharply today but did not make a new high, neither did the Aussie, although the British pound did make a new high.  I'm very bearish the euro as long as new highs aren't established so the risk/reward is phenomenal here since I believe the euro is headed to parity with the US dollar eventually.

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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.