Stock Market on Track with Recent Projections; Look for 5th Wave to New Lows Soon

The stock market finally had some continuation and acceleration after an initial sell off. We haven't had that in a while. However this only leaves us with a 3 wave drop as you can see from the attached S&P chart. So we need to see at least a new low beneath today's in order to call the count complete for the short term, and to add further evidence that a major top is in. The VIX spiked big today creating a set up for a short term buy signal. Once the index closes beneath the upper bollinger band on a daily basis, the actual buy signal will be issued. So this sets up a couple scenarios for the bears:

1) the market will tank again tomorrow to new lows, completing the 5 wave drop from the highs earlier this week, and then reverse in a strong wave (ii) rally either late tomorrow or early next week causing the VIX to close beneath the bollinger band issuing a buy signal, and allowing for some more corrective rallying in the following days;

or

2) the market will just continue to fall off a cliff, causing the VIX to spike higher and higher to where it doesn't close back underneath the bollinger band for a long time.

The bad situation for the bears would be if the market does not make a new low and rallies enough to drop the VIX to close beneath the top bollinger band, leaving a 3 wave decline in the S&P and a short term buy signal issued. So tomorrow might prove to be quite important.

I see the S&P in a wave iv now, or just completed, and we're heading down in a wave v at the moment; or we'll have a pop rally early tomorrow morning to complete wave iv which will then quickly reverse to beneath today's lows. If the market pops in the morning, it can only be a wave iv by the count I have here if the market stays beneath the wave i low at 1129.25. So if the market does not break beneath today's lows and then rallies above 1129.25, then my count is wrong, and if the market rallies above 1141.58 then it will leave a 3 wave drop in the S&P and probably mean that new highs for the year are coming soon.


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.

Market Continued, and Accelerated, this Week's Downtrend; The Bearish case is off to a Good Start

So today the stock market finally showed some continuation to the selling pressure from the day prior, and has accelerated that trend, unlike previous fakeout sell offs we've had in the past. It will be interesting to see the market action into the close though; about an hour from now. I'm looking for a strong close in the S&P cash index below the 1131.39 level I cited in a previous post (click here for chart). A strong close beneath that level today would strongly suggest that a significant top is in.

One thing I wanted to point out is that after Steve Hochberg with EWI pointed out the bullish island reversal in the VIX a few days ago, the "fear index" has been pushing higher and has really surged today; so much so that it's piercing through a 15 month descending trendline held since the October 2008 collapse. If the VIX closes above this trendline as shown on my attached chart, and holds it in the coming days, this indicator combined with the island reversal would suggest that the VIX is going to soar higher, and therefore stocks should tank lower.

My AUD/USD and GBP/USD sell stop orders executed so I'm now short both pairs with very wide stops. It's my goal to exit this trade if they don't act like I think they should, or I'll at least significantly lower my stops as soon as possible. Since my risk is so wide here, I'll little patience in holding on to these pairs for a long time if they don't perform. As you can see on my wave counts for these pairs, it seems they're completing 5 wave drops. Now this can morph into an extended 5th wave, or subdivide into various fractals leading the pairs lower, so I don't want to lower my stops now. I plan to let stocks show their hand a little more at the close here and see how these currencies react in the coming days and then take action to reduce risk.

I should have more later on the stock market after the close.


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.

AUD/USD and GBP/USD Currency Trades

Just wanted to let everyone know that I'm currently flat on currencies, but just put in two orders to get short the AUD/USD and the GBP/USD if they break beneath today's lows. My thinking is that I want to get long the US dollar, and I usually do that by shorting the EUR/USD. And seeing as that it's possible that the EUR/USD is about to tank hard along with equities in an extended 5th wave, or even possibly a 3rd wave, I want to make sure I'm long the US dollar in some way. But the EUR/USD pair has fallen too much at this point to jump in right now. But by looking at the the GBP/USD and the AUD/USD, it's evident that they have not fallen nearly as much as the EUR/USD so perhaps there's a good trading opportunity there because risk is well defined and not as wide as that of the EUR/USD.

I don't want to enter short these pairs right now because of the late day strength we had in the pairs and the stock market; it may mean that another rally phase is underway. So I just decided to get short if weakness continues because it may accelerate aggressively soon. So I put sell stop orders in for the AUD/USD at 0.9060 and for the GBP/USD at 1.6235. My stops are listed in the attached charts, and I will look to lower those stops as soon as I can if my orders execute.

A Top is in...

What an exciting week this has turned out to be in the markets. The S&P cash index made a new high by .04 points according to OptionsXpress, but the S&P futures fell short of a new high by .50 points according to OptionsXpress. Like I've said many times before, and as many of you know, the market will do everything it can to shake you out before it forms a major top and reverses. The Dow made a new high, but the Nasdaq Composite and Nasdaq 100 failed to do so. We also have break-away gaps from the major indices at this morning's open while all the major indices broke last week's lows. The Dow has been making new highs the past several days while other indices, especially the Nasdaq Composite, has failed to do so. This type of action, along with the break-away gaps this morning, are signs of a severe exhaustion in the uptrend. Although it appears that a major top is in, we've seen this market do crazy things to shake out the weaker hands, so I'd like to see the S&P close beneath last week's lows at 1131.39 today in order to confirm that a major top is in. Continuation and acceleration of this downtrend will strengthen the case that THE top is in of wave C of Z of [2] or [B].

Adding more pressure to equities is the collapse in precious metals today with silver down well over 4%, as well as weakness in the EUR/USD (US dollar strength). As you can see from the attached chart, the long term EUR/USD trend is now officially down as last night the the pair made a new low completing its 5 wave drop from the November highs. The pair should be at the beginning of a multi-month decline which means the US dollar will be on a multi-month advance. This will bring about tremendous pressure on the stock market and precious metals and other commodities, which also lends itself to the projection for a top in equities as well.

Many of you subscribe to and follow Bob Prechter and Elliott Wave International's newsletters, educational materials, and forecasts. I don't want to reveal any proprietary information they have for their paid subscribers, but they have been nailing this wave count and technical analysis for a long time now. And although they certainly are not perfect, no one is, they have been excellent giving average traders like myself a significant advantage in the market. I'm not just saying that because I'm an EWI affiliate, I'm saying that because credit is due where it's deserved.


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; 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.