Stocks Surge to Kick Off 2012, But Volume Doesn't; Euro Correcting Higher

The new year kicked off with a bang for the bulls as there was strength through most of the day with the Dow closing up almost 200 points.  Not a surprise really since many people engage in fresh buying to start off the year usually.  But volume is key here.  Volume remains very light on the rally the past few weeks and only 853 million shares were traded on the NYSE today.  So all-in-all, today's rally didn't have much teeth in my view.

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In addition to the light volume on the rally, the market is fractured at the moment.  The Dow has exceeded its October high, while the S&P has not (see below chart).  The Dow's structure fits well into a WXY "combination correction" for its Intermediate wave (2) which means a top will occur at any minute.  The ensuing decline will be massive, and fast.

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Here's what I mean about the divergence in the Dow and S&P.  You can see here that the S&P has failed to exceed its October high, so far.  And so the wave count for the correction is more complex than the Dow's.  A big reversal while this divergence is in place would be a great risk/reward opportunity for the bears in my opinion because it would suggest a major top might be in.  But patience is key.  The S&P may also want to continue higher to exceed its October high along with the Dow.  This would not negate the longer term bearish view, but it would just make it harder to get as aggressive on the short side.  So I'm simply waiting for the market action to unfold, and make it prove to me a top is in and that I should get short.

Looking at this hourly euro chart may be concerning for the bears.  The structure looks strong, and can even be counted as impulsive, suggesting that the larger trend is now up.  But.....

....looking at the daily chart above, you can see that the recent rallying is just another bump in the road on its way lower.  The reversal candlestick in the 1.2850 area along with the big daily candle yesterday suggest a temporary bottom may be in for at least a few days.  But all that means is that I lightened up my short position a bit, and will re-enter fully short when I feel the downtrend has resumed.  Until then, I'm shorting into rallies and waiting for a big reversal day to the downside.  The euro's larger trend remains down.


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.