Make or Break Time for the Bears; Risk/Reward Favors the Short Side

Just a quick note this morning; the markets have surged higher this morning sharply, bringing the major indices close to last week's highs, however none have exceeded those highs. The S&P is only 6 points from doing so, so it brings about a great risk/reward opportunity for the bears here whether to establish a short position or just add to it. I would place a stop at 1151 or higher. The possible profits of catching a major top here and risking only 6 S&P points is quite significant so I would think it's worth taking. A break above 1151 would get the index marching towards the 1200 level.

The EUR/USD has declined in 5 waves on the hourly charts but has not made a new daily low beneath 1.4217 yet, but I believe it will do so quite soon. Although the EUR/USD is tanking hard, the AUD/USD and GBP/USD have remained quite buoyant and have not followed the EUR/USD. Although the EUR/USD just completed 5 waves down, it may be the finishing 5th wave of a multi-month impulse decline starting in November, and the risk of sharp snap back rally in a wave 2 is too great at this point. Currencies are a bit "dicey" right now and not exactly clear where exactly we are in the wave count so I remain on the sidelines in the currency market right now.


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.

Sell Off in 5 Waves, but Beware of Another Fakeout

The market had some follow-through to the downside around mid-trading day, but at the close it found quite a strong bid to higher levels. This is the same behavior we've seen in past sell offs where the major selling occurs in one day, but is bought up at the close and then maybe another down day and then rally to new highs. I'm not saying this is happening here at all, as you can see it's possible on the attached Dow 5 minute chart to count the decline as a 5 wave affair. But I'd like to see a break away from the usually decline patterns before getting excited about a major top being in.

Next week will be crucial. Like I said in my post this morning, we need continuation and acceleration. We didn't get that today as the action into the closing hour was firmly bullish, so we'll look to early next week for it. Watch the 10,571 level in the Dow and 1132 in the S&P. A break below both those levels will make the rise a correction at this point, and open the door to more heavy selling in the near future after that happens. Until then, we wait to see if this was just another sell off where bulls sell off on options expiration and reshuffle their positions only to buy the market up elsewhere to new highs in the coming days, OR if this is truly the big sell off so many of us have been waiting for.

With at least a short term top occurring as projected, and the sell off today in 5 waves down, the evidence supports the fact that the market should fall further into next week, and possibly much more.

Have a great long weekend!


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.

We Got the Sell Off; Now we Need Continuation and Acceleration

The NDX and Russell 2000 managed to just stay under their recent highs before selling off sharply as you can see in the attached charts. This keeps their 5 wave impulsive decline intact and on course. The significance of this is that it may be the first signs of a major top and trend change. This of course cannot be confirmed at this very moment, but it's a starting point. Also note on the 5min S&P cash index chart attached that today's decline traced out a nice 5 wave impulse move. Again, the markets are telling us the trend has changed. Now whether this is just a short term trend change, or if it's THE trend change, will have to be answered later on as market movement plays itself out. One thing I will say is important for the longer term bearish picture is that we need to see continuation of this sell off into this afternoon and next week, and we also need to see some acceleration of the decline. Those of you who've been following this rally waiting for a top like I have for the past several months know real well how many times we've seen promising declines only to see them hit a wall, reverse, and rally to new highs. So if we get continuation and acceleration of this decline, it will instill confidence in use patient and bears.

In January 5th's post I listed key levels in the S&P I wanted to see broken to start raising those alerts to a possible major top being in (click here for that chart). The 1115 level is not that important anymore, but it will break the series of higher lows we've seen the past several weeks. Breaks of 1094 and 1082 are the real key levels. If the market can manage to continue and accelerate in this decline to break those levels sometime next week, it would be very promising in projecting that the big wave 2 or B top is in. But we have a long way to go to get to those levels so we'll have to wait and see. I just want to let you all know what I'm looking for at the moment so we're all on the same page.

If I were to have placed a short trade a couple days ago when I mentioned the great risk/reward opportunity after the 5 wave drops and rallies in the NDX and Russell, I would move my stop loss to at least the most recent swing highs that occurred either today or yesterday depending on the index, or even move the stop loss to break even if it's close to thos swing highs anyway. A break of 1115 in the S&P next week would probably allow me to lower my stop even more and lock the trade into a profit.

As for the EUR/USD, it declined nicely overnight but has found its footing this morning in the US session. Again, I'm looking for a drop to a new low for a 5th wave.


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.

Make or Break Time for the Bears

Quite an unusual couple days for the stock market. It seems like the bulls should be tearing apart the bears here as they are virtually non-existent, yet the market just barely floats higher. Perhaps all the bulls have already invested what they've wanted to invest and now it's just a matter of time before the bears get out of hibernation and smack this market back down to reality. The wave structure does tell us that it's make or break time for the bears to wake up. The Russell and NDX did not make new highs today as you can see from the attached charts, but the S&P did make a new high and both the NDX and Russell are basically completely out of room to push any higher. If they do make new highs, it will mean the bears have to sit back and let this rally run its course until the next bearish signs resurface. One thing that gives me pause as to how much further, and longer, the rally would go is that the S&P made a new high today with a 5 wave rally. Normally we interpret that as the trend now being up. But in the case when we're looking for a major top, a 5 wave rally to a new high may mean that it's the final impulse move before reversing sharply. Tomorrow is options expiration day so perhaps we'll see some volatility so we may get the answer to the short term bull/bear question soon.

The bottom line is that as long as the NDX and Russell stay beneath their highs shown in my attached charts, I remain short term bearish. A break of those highs would only point me towards the S&P's 5 wave rally and keep me on the lookout for a quick reversal of the ensuing rally. Any signs of top and reversal would get me back short again. I'll try to post that here as soon as possible once I determine it if it's not too late. I would definitely not get long at all in this period as it's possible that a major top is forming right now. Be ready.

The EUR/USD did nothing and I have nothing new to add. If the stock market is about to form a major top and reverse sharply, it should take the EUR/USD down with it in a wave 5. But if the stock market continues to rally then the EUR/USD has probably already completed its first wave down and has been in a prolonged large wave 2.

Hopefully some more clarity will come tomorrow in all the markets.


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 Market Should Decline Immediately if Count is Correct

The stock market went on a sharp rally today, but this could be expected since the Russell 2000 and Nasdaq 100 both sported 5 wave declines coming into today (see attached charts). Notice that there is little room left to the upside in both these indices, so we all know exactly where I'm wrong and it isn't very far away. These two indices basically need to fall almost immediately from current levels for this count to remain on track, otherwise they are clearly extending their gains for the unforeseeable future.

Of another note is the action in the Dow. Notice that the Dow made a new high today but the S&P, and most other indices, did not make a new high (see attached charts). As long as this non-confirmation remains in place, and the five wave declines in the NDX and Russell remain intact, the market should decline immediately. Retail sales and unemployment data are coming out first thing tomorrow morning, as well as some earnings reports, so tomorrow is poised to be a volatile day perhaps. With the evidence I see right now listed in this post, I think that volatility will be a strong move to the downside. The risk of trading this is very tight and small.

The EUR/USD rallied to a new high overnight but is back to where it was yesterday. The 4th wave is getting quite extended in time compared to the wave 2 of the same degree. However 4th waves can tend to be long sideways affairs. A sharp decline in the stock market should coincice in a wave 5 decline to a new in the EUR/USD as well. But overall structure and risk is not that clear in this pair right now so I have no position in currencies at the moment.



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 Market Waking up, Showing Breakout Will be to the Downside

Yesterday I mentioned that the stock market has been a consolidative borefest and will break out soon. The fact that it didn't rally sharply the past few days severely weakened the wave 3 of C up scenario. Today's weakness appears to be the start of a larger decline that should last at least a few days. The attached Nasdaq Composite chart shows a clear A-B-C rally, finishing with wave C composed of a nice 5 wave rally. This of course can morph into an extension, but we'll make the market prove that before expecting it.

For very aggressive traders, it might be a good trade to short the S&P now with a stop just above yesterday's high of 1150 (cash index). I just put on a very small options put spread on the SPY with Feb expiration to try and catch a quick move to the downside in the coming days. Risk is tight and well defined so whether this trade works or not, it's still worth taking because the profits may really snowball into something big seeing as that we're looking for a major top to occur soon. Regardless, the very short term structure looks bearish.

The EUR/USD declined in the Asia and European sessions but has battled back in the US session. I'm looking for a wave 4 top of a double zig-zag as illustrated in yesterday's post (click here).



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 Market a Borefest; EUR/USD Broke Key Levels to the Upside

I wish I had something interesting to say on the markets but I really don't. The stock market has done almost nothing the past week. It has not soared aggressively higher in the proposed wave 3 of C of Z of 2 (or B). But it also hasn't broken below the key levels I cited January 5th of 1115 or below (click here for chart from January 5th). It seems that the bulls are out of gas but yet the bears are still in hibernation, so the market just floats sideways or higher on mild buying interest. One thing of note is that the EUR/USD shot higher in what is probably a wave c within a larger wave 4. This rise allows the EUR/USD to now fall in a wave 5 for over 300 pips. When you combine this with the extreme complacency of the stock market, the fact that it's not shooting higher in the projected wave 3 I mentioned last week, and that the market has been awfully quiet the past week or so; it makes the market ripe for a sell off soon. A break below 1115 will open the door to an almost certain break of 1100. From there, we'll look at the structure to determine what might happen next.

So the evidence suggests that the EUR/USD and the stock market are setup to decline in at least the short term in a decisive manner sometime this week.

EUR/USD Fulfilling Wave Count Expectations; Stock Market is Not

The EUR/USD has fallen as projected in yesterday's post (click here for post). The pair has yet to break beneath its previous low at 1.4216 so it should continue lower in the short term. If I were to have shorted this pair at the 1.4405 level which was where it was trading at when I posted this count, I would move my stop loss now to break even right now, or at least to above the wave (2) high around 1.4450. Once this pair makes a new low beneath 1.4216 it will have satisfied all of EWP's requirements for a nice clean 5 wave decline from the highs a few months ago (click here for count), so it will be ripe for a sharp and deep corrective wave 2 rally. So I would not get too cute and greedy on this short trade right now, and make sure I protect my position aggressively.

As for the stock market, I had a count Tuesday that suggested the S&P would rally strongly in a wave 3 soon (click here for count). That obviously has not happened, but neither have any key levels I cited been broken yet either. Tomorrow has the all important jobs data that everyone clings to lately, so we should get some volatility and deliberate movement in the market either later today or early tomorrow surrounding the report. Once that occurs we should have a better idea of the short term wave count.

Just food for thought, I posted a daily chart of the S&P cash index to keep our eyes on the bigger picture. It shows that we are in a wave C of a triple zig-zag. There is no quadruple zig-zag, so once this count is complete, that's it, it's over; the market must selloff sharply in wave 3 or C to lows beneath those made in 2009. When we look at the close up of this structure on the 30min chart posted, we can see that it's possible that we're in an ending diagonal right now. This most likely will result in a pop to the upside trapping the bulls, then an immediate sharp reversal. So with the jobs number coming out tomorrow, the bullish wave 3 of C count as well as the ending diagonal bearish count are both viable as they both set up for big market moves tomorrow. Refer to the key levels made in blue that were cited in Tuesday's post for reference by clicking here.



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.

EUR/USD Declining Impulsively, Look for a New Low Beneath 1.4216 Soon

The attached 30min EUR/USD chart shows a 5 wave decline following a larger ABC correction I have as a wave 4. The recent 5 wave drop implies the downtrend has resumed and that a new low beneath 1.4216 will happen soon to complete the entire 5 wave decline from the daily highs (click here for yesterday's 8hr chart count)



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 Market Should Continue Higher; Key Levels Cited for Rally Continuation

The short term S&P cash index wave count is not clear, mainly because of the sideways consolidation pattern that stayed in a channel instead of adhering to the rules of EWP's triangle formation. But it's still a consolidation that has now broken out to the upside so I'm calling it a B wave. If the count is correct in the attached S&P chart, then we're about to embark on a strong wave 3 of C that will be quite strong and fierce. It should charge toward the 1200 level, although this is just an educated guess at this point, before finding a top and reversing. As I said last night, thrusts from triangles are sharp and quick; but they are also terminal finishing moves that are quickly completely reversed. But note that the recent consolidation is not technically a triangle, although it sports the same type of psychology, so watching for post-triangle type behavior is warranted. This count is quite simple in remaining top choice, as long as the S&P holds above 1115 then it remains my primary count. A break below 1094 would mean I'd need to readjust the count and that possibly a top was in. A break below 1082 would strongly signal a top is in and that strong consideration should be given to getting short term bearish again.

The bulls know they have to make new all time highs in all the major indices to convince the public, and mostly themselves, that the worst of the credit crisis is over and the road to Dow 30,000 is on the horizon. So I expect a sharp sprint to the finish line of this marathon as the bulls throw in everything they got to shoot this market to new highs. But it will utlimately fail........miserably.

Nothing has changed for the EUR/USD and the US dollar. The EUR/USD should be on its way to a break beneath 1.4200 to complete its wave 5, and a complete 5 wave decline. From there we should get a sharp wave (2) rally. It is on that rally that I intend to re-establish my short EUR/USD positions again.


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.

EUR/USD Should Drop in a Wave 5 Soon; Stock Market in Blowoff Top

Short update today as I'm fighting a cold and want to crawl back into bed. The above 8hr EUR/USD chart shows that the move is incomplete, and that a wave 5 is due soon that will draw the pair to a new low before rallying in a longer and deeper rally. This pair is the practically the mirror opposite of the US Dollar Index, so just flip this chart upside down to get a picture of the dollar as a whole.

The stock market's surge to a new high today looks like the start of a "blowoff top" to me. We had several weeks of sideways action, not quite looking like a triangle but the same concept. We are now thrusting from this consolidation which is a terminal move. Thrusts tend to be sharp and quick, but are quickly completely reversed. The wave count is not clear right now in the short term, but I think the bulls are getting impatient and want to push the S&P to 2000 soon to fulfill their prophecies that the worst is over and the bull run is back on. The past several weeks of sideways action has frustrated them and they are now going to throw everything they have left in on this final thrust upward. But it will be the final sprint of a marathon that the bulls will lose. I'm practicing patience now and am waiting for signs of a reversal. Until, I think the best thing is to get out of this rally's way and wait for the market to give up the goods to the downside in a manner thought would be very opportunistic for the bears.



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.

Dollar Decline was a 4th Wave; 5th Wave to New Highs Coming Soon

In earlier posts I said that the US dollar should retreat deep in a wave 2 correction before charging higher. Today's action makes me think that I was wrong. Observe my attached EUR/USD 1hr chart; it shows that today's break beneath 1.4349 makes the entire rise from 1.4216 a completed 3 wave affair. Also, if you look at the attached 8hr chart of the EUR/USD, the "right look" guideline of EWP also applies well to this current posted count that the recent really was just a 4th wave, with a 5th wave to new lows on the horizon.

Now it's possible the EUR/USD is in an X wave right now, and will rally again in an A-B-C fashion to complete a "double zig-zag" correction. So if I were to short the EUR/USD, I would place a stop loss just above the wave C high of 1.4458. However I don't think this will happen for two reasons: 1) notice the power and speed of the current decline to beneath the wave B lows in the 1hr EUR/USD chart. It appears that the strong downtrend over the past few weeks has resumed, and that it's a bit too strong to be an X wave, which is a countertrend wave; and 2) as you can see from the attached GBP/USD 1hr chart, this pair has already made a new low suggesting that in fact the downtrends in dollar pairs have resumed.

I personally am not trading the dollar right now as the risk of a huge and strong snap back wave 2 is too high, so I have no position in any dollar pairs yet. I'm going to wait until I can catch the wave 2 move, which should be quite deep. Also, the Dow rallied above the key level I cited earlier which negates the 5 wave decline I illustrated several times. Until the holidays pass, and volume re-enters the markets, equities should continue to float sideways or higher.

I hope you all are enjoying your holiday season; I'll be back when something significant develops.

Cheers!



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/US Dollar Correcting Upward

The dollar's trend has changed to down for the short term. I attached the chart of the euro vs. the US dollar, which basically moves opposite the to the US Dollar Index. The EUR/USD is sporting a clear 5 wave rally. Most likely it's a wave A in at least an A-B-C correction. I'm waiting for it to reach the 1.4540 - 1.4700 range I mentioned yesterday before I start shorting the EUR/USD. But, because the rally off 1.4216 is in 5 waves, it cannot be a "flat correction", therefore if the pair breaks below 1.4216 then that would hint that the downtrend in the EUR/USD has continued and that it should fall much further. So currently I have a "sell stop" order placed at 1.4210 so I can catch a collapse if it occurs. Aggressive traders can look to go long the EUR/USD right now with a stop below 1.4216, however I don't recommend that. The EUR/USD downtrend is too strong to play against it in my view. I'm merely looking for opportunities to get long the US dollar by buying the USD/CHF and shorting the EUR/USD, AUD/USD and GBP/USD.

In summary, I currently have a "sell stop" order on the EUR/USD at 1.4210, but will remove that order and start getting short the EUR/USD immediately once it enters my resistance range of 1.4540 - 1.4700.


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 Running out of Room to Rally and Keep Impulsive Bearish Decline Intact

The Russell 2000 index made a new daily high, confirming the other indices' new highs, which is very disappointing for the bears. The fracturing of the market was quite deep and with various indices and sectors a few weeks ago, but the Dow Utilities and Transports, and now the Russell 2000 have all confirmed the highs of the Dow, S&P and Nasdaq. The only main lagger is the financials, the XLF, which is still trailing badly.

As for the Dow count, it still remains intact but has exceeded the normal level of retracement of 78.6%. The only rule for wave 2 is that it cannot exceed the beginning of wave (1) at 10,511. So the attached count remains valid until that level is broken, and offers a great risk/reward opportunity for the bears.

The dollar measured in the USD/CHF has formed a double top and reversed sharply and broke to a make a lower low beneath the 1.0385 level I mentioned in my last post which breaks the short term uptrend. So extreme caution is now warranted for short term dollar bulls as the dollar might have formed a short term top, and should reverse for the next several days. The long term trend for the US dollar is still up, so I will be looking to buy again when the USD/CHF gets into the 1.0175 - 1.0270 range, and for the EUR/USD I'd be looking to sell when it reaches the 1.4540 - 1.4700 range.

With the holiday season in full force now, and light trading in place, I'm not sure how often I'll be posting before the new year. If something of significance occurs I'll be back, otherwise enjoy the holidays with friends and family and remember that the markets are just a game, but good health and relationships with good friends and family are what's really important.

HAPPY HOLIDAYS!!

Dow 5 Wave Decline Intact, is the Dow Telling us a Top in Equities is in?

In my last post I illustrated a clear clean 5 wave decline in the Dow Industrials (click here to see that post for context). Other indices didn't follow suit last week though, and today we see why. The other major indices, especially the S&P, have made new highs yet the Dow has not, so this explains why the other indices did not decline in 5 waves like the Dow, it's because they were correcting and were going to charge to new highs, while the Dow has possibly topped and reversed. Observe the 15min Dow cash chart attached. It shows the 5 wave decline from last week and today's 3 wave rally right into the fibonacci retracement level of 78.6% where it reversed at. So this suggests the Dow has topped and is in a downtrend. If not, I'm easily proven wrong with just a few Dow points higher above the 10,511 level. So the risk/reward at this point is desirable for the bears.

The Dow was the leader higher a few weeks ago when other secondary indices were lagging, i.e. the Russell 2000 and XLF, so it's possible the Dow is telling us that it too has finally reversed trend. Regardless, as I said in Friday's post, because of the 5 wave drop in the Dow, any significant rally will bring a great risk/reward shorting opportunity for the bears. That opportunity has arrived as it currently is trading at 10,430 and one now short with a stop above the 10,511 level (the start of the 5 wave decline).

In addition to the Dow's wave structure, gold and silver appear to have topped. Observe the daily gold futures chart attached and notice the blowoff top and reversal, which is typical of major commodity tops, just look at oil's surge higher to $147 last year where it reversed to around the $30 range in short order afterwards.

Also, the dollar uptrend remains intact and the series of higher highs and higher lows remains solid. However it does seem to be trading a bit sideways at the moment and losing some steam, but that may just be its way of correcting itself. The uptrend momentum may be so strong that it will correct sideways to alleviate its overbought condition, instead of actually declining to alleviate the condition. As you can see in the USD/CHF chart attached, I'm placing the 1.0385 level as the key level for the short term uptrend to remain intact. A drop below there would break the series of higher lows, and therefore warn that a larger correction was occuring. But any significant drop in the dollar would just bring about a good opportunity for dollar bulls to start establishing new positions.

So the dollar has bottomed and reversed, commodities have topped and reversed, the XLF and Russell 2000 appear to have reversed, and now possibly the Dow has finally topped and reversed. Slowly but surely market after market is reversing. Eventually it will catch up to all equities, and the reversals in stocks will be just as fierce and relentless as that seen in the current precious metals decline and dollar rally. If 10,511 is broken in the Dow, it will invalidate the 5 wave drop and suggest that perhaps a final blowoff top in stocks is occuring if the upper end of the range is solidly broken. I'll deal with that occurance when it happens. But for now, my focus is on the dollar and the Dow's wave structure.


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.