First Signs of Top Forming....Tip of the Iceberg, or Another Fakeout?

Nasdaq 100 Trendline




Above is a screenshot of the Nasdaq 100 30min chart. It shows a not so perfect trendline that has held the market up the past few days as it's bumped down on it several times but failed to break through. Although I don't show it here, the SPY shows a increase in volume surrounding the trendline break in the NDX, but has since tapered off as the market has continued to fall. Also notice (blue circled) that the indices that led us to the upside the past week or so, the Nasdaq 100, Composite, and Russell, are all leading on the way down now as their percentage losses are about double the losses of the S&P and Dow. Also notice (blue circled) that the "market bellwether" Goldman Sachs is down over 2.5% today. When Goldman, the small cap indices, and tech all show signs of exceeding weakness than the Dow and S&P, it should be paid attention to.

This by no means is a signal to get aggressively short. I'm merely pointing out what I see that may snowball into something greater. No confirmation or five wave drops have occured yet, so I still remain neutral in the short term. But this behavior this morning so far has gotten my attention.


AUD/USD




Another thing worth noting is the breakdowns appearing in the majors. Although I don't see any completed 5 wave decline yet, I do see a rolling over of the EUR/USD and AUD/USD, and the GBP/USD appears to have topped and is completing a wave 4 and soon to be wave 5. The AUD/USD has lagged a bit to the downside so it might create a good opportunity to get short with a stop at the previous swing high above 0.9140. I would trail my stop down as new swing highs are made. As long as the series of lower highs is maintained, this pair is bearish, and I'd like to be short it. The EUR/USD also presents a good shorting opportunity but the risk is a bit wider. So this means I'm now short term bullish the US dollar, and that means I'm bearish the GBP/USD, EUR/USD and the AUD/USD.


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.

Still Waiting for Signs of a Top

The market remains quite buoyant despite the internals, momentum and oversold condition that have accompanied it the past few days. The market can certainly work its way higher, but I would say that the probabilities are not in line with that outlook. An ideal situation at this point would be for a vacuum to be created, sucking in the rest of the sidelined bulls into this rally with a surge of optimism that gets so extreme that even the most prudent ones that have missed the meat of this recent rally will throw "all in" and surge this market in a sharp spike higher. That will get my attention because it will most likely be a capitulation to the upside that will be followed by a sharp reversal. This should mark the top for the short term at least and will be the first signal that a top is in and that I should be getting short this market. But until we get signs of a top and reversal, I have to remain patient and neutral.


RSI Study





The RSI is a very basic and simple momentum indicator. But I've found that of all the momentum indicators I use, the RSI is the most reliable, especially on the 1hr and above timeframes. Above is a chart of the S&P cash index hourly chart showing two instances in the past where price continued with a new high(s) and yet the RSI did not confirm those new highs. This divergence resulted in modest declines in both cases. You can see that this scenario is now occurring on a much more elongated scale where price has worked higher while the RSI has lagged drastically. My experience with this type of action suggests that when the market does top and reverse, it will be very very sharp. But this is not a timing indicator. If I get short too early, the market can continue higher and snap back down hard, but only get me back to my entry point. I don't take trades to try and break even, so I think the best strategy is to wait for signs of a top and reversal to then get on board and enjoy the ride lower.


MACD Histogram Study




Above is another common and simple momentum indicator, the MACD histogram. Again I'm showing an hourly S&P chart which also shows a bearish divergence occurring as well. This chart supplements the RSI divergence above, because the MACD histogram at the bottom shows that the moving averages have steadily gotten tighter and tighter on this rally, and have recently spent a lot of time crossed down, despite the market's price grinding higher. Again, this extreme overbought exhausted rally condition usually will result in a sharp snap back decline. But when? This does not tell us anything about the timing, just that the rally has become quite extended and that the upcoming decline should be sharp.

So there it is, more evidence of an overbought extended rally. But without confirmation of a top and reversal, we have to allow the market more room to push higher.


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.

S&P Extends Higher, When Will it End?

Well the market has grinded higher, despite what I've seen as a weakening topping structure. This is a good exhibit about how difficult it can be to pick tops or bottoms without any confirmation. But, on the flip side of that, if you wait too long then you miss the big move. So it's a bit of a art to get that middle-ground. I've obviously been wrong the past few days in saying the market should fall soon as the S&P has rallied higher and higher during that time. But that doesn't change my stance. I have to take an objective approach and apply my methods to the market and call it as I see it. And I still see this market as extended to the upside and would rather wait to get positioned to the short side when I get confirmation, or a strong hint, that a top is in. Despite the rally looking impressive, and strong, I cannot justify getting long at this point with the analysis methods I use. So I'll wait to try and get short when I see a good opportunity.

Just to give you an idea of things I'm looking at and why I never bought into this rally is the SPY (S&P ETF) chart attached above. In looking at this market I think it's amazing that the big decline we saw into February was on increasing volume, while the rebound was done on decreasing volume. Yet the market continued to float higher and higher to test the prior highs. In the short term, the bulls can be happy and continue to play the market's short term movements, no matter what the logic is. But for the medium and long term bulls, this data here cannot be encouraging to them. The market has yet to show signs of an actual top, and may just continue to float higher for days. But the methods and analysis I use to not support getting long here, but instead wait for an opportunity to get short. So that's what I'll do. When I identify an opportunity, I'll share it here. But for now, I'll sit and wait.



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.

Nothing's Changed

Well I've been dead wrong the past few days in projecting a top and reversal. But most people know calling an exact top or bottom is extremely difficult. There's no way I can get long this market right now, and there's no solid signs of a top yet to get short. So my stance remains the same, I see a top forming now, or very soon, and the structure and strength of the decline should tell me enough to become confident in establishing a position.

I was also quite wrong on the AUD/JPY position as I got blasted out of that position at a 268 pip loss. That was the first time, and maybe the last time, I've traded that pair. I'll be looking for other trades and post them here when they come up.


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.

S&P Rally Still Looks Extended, Should Decline Soon

I know I sound like a broken record, but the S&P rally looks tired and should be reversing soon. The structure and strength of the decline will help me determine the larger trend. There's nothing really new to add to the short term picture; I'm still looking for a top in the S&P any time now, and a decline to the 1120 area at a minimum.

Looking at the bigger picture the higher risk indices have been on an impressive rally the past few weeks. Below are daily charts of the Russell 2000 small caps, Nasdaq Composite, Nasdaq 100, S&P and Dow. I'm showing you these charts because it can turn out to be a great scenario for the long term bears if this holds. At major turns in markets often the higher risk indices will lag, or well exceed, the rallies of the more stable blue chip S&P and Dow. You can see that this is now occuring with only the Dow and S&P failing to make new highs on the year. Of course though, this means nothing unless a top and reversal occurs before the blue chips make new highs. And I do want to note that oftentimes in big bull runs, the higher risk indices do lead the blue chips higher. So we just have to wait and see if this S&P and Dow divergence holds. If a short term top and reversal occurs without the Dow and S&P making new yearly highs, it will be reason for the bulls to sweat bullets big time as this is a major non-confirmation of the overall market's rally, and the longer it's held in place, the bigger the possible decline may be. So watch this.

There's nothing new to add to currencies. All is the same from the last post.


Russell 2000





Nasdaq Composite





Nasdaq 100





S&P Cash Index





Dow Industrials





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.

S&P Poised to Decline; EUR/USD and AUD/JPY Looking Toppish

S&P 500 Cash Index 10min Chart and Count




The S&P did nothing today, perhaps it's exhausted as it should be if it's in a 5th wave at various degrees as projected above. Right now I'm counting the entire rally from 1044 as a 5 wave impulse rally. But my confidence in doing this is low since the initial move from 1044 to 1080 looks like a 3 wave affair. But the fact that the preceding decline barely looks like a 5 wave drop, but very easily looks like a 3 wave drop, makes me think it's possible that the current rally all the way from 1044is a 5 wave move. Plus a lot of the smaller indices have made new highs on the year, even though the S&P and Dow have not. So the bullish underpinnings are possibly there for the medium term, but in the very short term I think we're in for a pullback to 1120 at least.

If the structure of the upcoming decline looks like an impulsive 5 wave drop, and the internals and technicals supporting it, along with other various markets, look like they can support a big down move, then I'll consider changing my medium term stance to bearish again. But I'll wait for the market to prove to me it's bearish before I jump on board. Right now I only see a high probability for a short term decline that should take us to at least the 1120 level no matter what the larger wave count and trend are.


EUR/USD Bearish Setup




The bearish side of the EUR/USD is looking nice as it made a nice 5 wave decline and has rallied in 3 waves before finding resistance. This makes a nice setup to short this pair with a stop around 1.3710 or 1.3740 depending on risk tolerance. I just thought this was a nice setup and wanted to share it with you all. I don't plan on tracking this trade, but if anyone has any questions or comments on it please feel free to email me (toddsblog@comcast.net) or just post a comment. My main focus is on the AUD/JPY trade at the moment.


AUD/JPY




The AUD/JPY has hit resistance and is now showing signs of weakness. Oftentimes this pair mirrors the stock market and the fact that it couldn't stop out my current position to make a new high above the start of the preceding 5 wave drop, and that the S&P is setup to decline in the next day or so, makes this trade look a little better despite how deep the correction has gone. With that said, there's little wiggle room to allow much more upside on this pair. If the count is correct, it needs to get moving to the downside now. My stop remains at 82.90.


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.

S&P Finishing a Thrust from a Triangle

The S&P did nothing to make me think I should take a bearish stance. But the rally from the 1086 area us looking a bit exhausted technically, and the triangle in the 1120 area suggests the current rally at the end last week was a thrust which will be reversed shortly (click here see my chart projecting the triangle thrust last Thursday). The subdivisions of this proposed thrust appear complete, or very very close to being complete. A return to the apex of the triangle around 1120 is in order once the thrust upward is complete. If we get some follow through with an impulsive decline beneath that level, then I'll look at other technical indicators and internal data to see if it supports a resumption of the larger downtrend, or if it's just a correction before charging higher. So again, I'm left with waiting to see the next decline phase start so I can better orient myself to where we are in the larger trend. I'm neutral in the short term at this point as the rally seems a bit too tired to start to get long, and there is no signs of weakness yet to encourage me to get long. So I'm standing aside, waiting...


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.

Half AUD/JPY Position Stopped Out; I'm ReShorting

AUD/JPY


I was stopped out of half my AUD/JPY position this morning at 80.90 which resulted in a 68 pip loss. The other half of my position is still in play with a stop at 82.90. Although the strength of the rally looks solid, and follow through to stop me out on the other half of my position is a decent possibility right now, the wave count suggests otherwise. This latest rally may just be a C wave, and the strength and slope of the ascent would support this. Plus, with it trading around 81.90, it's fairly close to my stop at 82.90, so I like this risk/reward for a possible reversal here. I'm risking about 100 pips to possibly make well over 300 if the trade works out to full potential. I like those odds so I'm re-entering the other half of my position at a much better price then where I exited.

So I'm again fully short the AUD/JPY with a stop at 82.90. I may be throwing good money after bad, but the wave structure and risk/reward make it a desirable risk.

S&P

In regards to the stock market, it may be thrusting from the triangle I laid out yesterday, but we need to see a reversal start by the end of the day. Volume picked up at the open but has since declined later in the session. I hold firm on what I said yesterday:

"If the S&P cash index makes a strong push higher on high volume and strong internals, and momentum on the intraday charts turns up and it appears clear it will close well above 1125, I will close all my short term short positions."



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.

S&P Floating Annoyingly Higher; AUD/JPY Short Still in Place

S&P 500 Cash Index




The S&P failed to drop to a new low as I would have liked to see in order to create a small 5 wave drop. Instead the market treaded sideways and appears to have made a triangle. Triangles can only occur in B, X and 4th waves. Looking at the above chart, a 4th wave is the obvious choice. It also sets up well with tomorrow's jobs number because it suggests a sharp rally to a new high which will be immediately reversed. So tomorrow's jobs number can easily bring that type of volatility. So I hold the short term bearish view but am prepared for a sharp thrust upward from the triangle before topping and reversing. If my count is correct, it means the S&P will decline most likely to at least the prior 4th wave area of 1086 before even thinking about bottoming.

If the S&P cash index makes a strong push higher on high volume and strong internals, and momentum on the intraday charts turns up and it appears clear it will close well above 1125, I will close all my short term short positions.


AUD/JPY

1hr



My short at 80.22 on this pair was doing nicely last night as it fell to 79.17, but then New York jumped in and skyrocketed this thing higher to where it sits today which is pretty much right around my entry level. For the very short term, this drop and reversal is concerning for the bearish case because the drop looks like a 3 wave affair, and the ensuing rally is a much stronger impulsive looking rally. This makes me think that last night's drop might be a wave B, and the current rally is part of a C wave that will bust out to a new high above 80.90. This is also supported by the fact that it tends to track closely to the S&P, which I also am projecting to get a pop into tomorrow's session. So my stop at 80.90 is quite vulnerable from here. But a break of 80.90 is not certain and considering where the pair is trading now, and that only half my position will stop at 80.90, I'm holding short at this time.


4hr




Looking at the 4hr chart builds the picture of why I like this short trade on the AUD/JPY so much, and why I'll remain steadfastly bearish on it as long as it stays below 82.90. We have two clear 5 wave drops, the first one resulting in a correction that stopped near the 61% fibonacci level and then reversing in another 5 wave decline. The larger trend is clearly down so I want to remain short as long as the pair keeps trading underneath the most recent 5 wave decline.

My stops remain the same: half position stop out at 80.90 and the other half at 82.90


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.

S&P is Bearish in the Short Term

S&P 500 Cash Index 15min Chart Wave Count




Yesterday I posted two wave counts that had 5 waves completed yesterday, or the allowance of one more push to a new high to complete that 5th wave (click here for yesterday's chart). Well the latter occurred as we had a new high today but then the market faltered into the close. The further this rally has gone this week, the less buying interest there seems to have been as volume and momentum have declined as the market rose. Today's possible wave completion and reversal warns of further downside in the coming days.

As I said yesterday, I'm not sure of the larger trend and whether this decline is a resumption of the downtrend, or whether it's just a correction before new highs. The structure and strength of the decline will help me make a better determination of that. But no matter what the larger wave count is, the near term structure suggests the S&P is headed lower. There is some big jobs numbers coming out Friday so I do expect some wild moves the rest of the week which may throw a wrench in the exact short term wave count. But I would not be long right now, I'd be looking for shorting opportunities. The prior 4th wave is my first target around the 1086 area.


S&P Hourly MACD Histogram Crossed Down Strong




In and of itself, I know the MACD has little viable use in trading. But when combined with other indicators and a wave count, it has its uses. Above is the hourly MACD histogram showing that the moving averages have crossed down sharply. This has happened two other times since February and both times it coincided with moderate sell offs. The key is that the market has to be in some kind of uptrend with red bars on the histogram, then we'll get a "squeeze" and a sharp turn down into the blue. This signals a strong crossing down of the moving averages that are spread wide out, ready to run deep. Right now this behavior is occurring, and when combined with the other topping evidence, it's something to pay attention to.


S&P 500 Cash Index Bearish RSI Divergence




Another momentum indicator I feel is much more reliable is the RSI, but mostly on a daily, weekly and monthly basis. Here I wanted to show the hourly chart to coincide with the MACD chart I just showed. Here you can see that price has steadily increased, making new highs, while the RSI has failed to confirm the last 4 highs.

Momentum indicators have crossed down, the market should follow soon.

SUMMARY

The S&P appears to have completed its 5 wave rally and momentum has begin to shift downward. I expect the S&P to decline to at least the 1086 area of the prior 4th wave soon. Whether the market flip flops up and down the rest of the week in conjunction with the jobs data or whether it charges lower from current levels, I expect a modest decline phase is on the horizon. The structure and strength of the decline will help me determine if it's just a correction before surging to new highs, or whether it's a resumption of the downtrend.

AUD/JPY

I shorted the AUD/JPY at 80.22. I half a stop for half my position at 80.90 and a stop for other half at 82.90. This pair looks bearish, and should decline with the stock market. See previous post for charts and further analysis.


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/JPY Short Opportunity

AUD/JPY 4hr




I have never traded the AUD/JPY but I see a good opportunity in the pair so I'm going to roll the dice. Notice on the above 4hr chart the pair has traced out a nice completed 5 wave impulsive decline. Then the ensuing rally is retraced a fibonacci 50% of the preceding 5 wave decline. After topping at that 50% level, I see another nice clean 5 wave drop. We are currently correcting that recent 5 wave drop so I see a good opportunity to get short. Let's get a closer up look:


AUD/JPY 1hr




When we zoom in on the hourly chart we can see a possible topping formation here. We see a rolling over effect combined with what could be a head and shoulders topping structure combined with hourly reversal candle.

I currently have a full short position with half of the position's stop at 80.90 and the other half to stop out at 82.90.


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.

S&P Running out of Steam in the Short Term

S&P 500 Cash Index






The S&P climbed mildly today but then reversed into the close. Today was another light volume day, and since the big reversal volume spike last week, volume has failed to even come close to getting above the 13 day moving average. So there is little interest in the masses buying up this rally. We have jobs data coming out later this week so I expect some volatility. Lately, no matter what the jobs numbers have been, the market has rallied by the end of the day, or early the next week. But since we're now rallying into a jobs number, I'm not convinced that trend will continue.

As you can see from the above S&P 15min chart, the market may have completed its 5 wave advance and is ready for a corrective phase downward. Right now I'm counting the 5 wave move as bullish for the medium term, but want to analyze the upcoming decline to see if it is in fact a correction before charging to new highs, or if it's a resumption of the downtrend. Please refer to yesterday's post to get my primary bullish count and my alternate bearish count for the medium term outlook. Right now, the key level for the bullish case is 1045, which is so far away it doesn't really do us any good. But once the decline gets underway I should be able to get a better idea of the short-to-medium term outlook and then come up with better key levels to control risk.

My stance now is that the market is probably at the tail end of this current rally phase and we should see at least a short term decline coming soon. The structure and strength of the decline will help us determine if it's a correction, or if it's a resumption of the downtrend to where I want to get aggressively short 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.

S&P Completing Imperfect 5 Wave Rally

S&P 500 Cash Index Primary Bullish Count




Looking at the above S&P daily chart there is a far from perfect 5 wave rise from the lows on the year around the 1045 level. The reason this rally is far from perfect is mainly due to its clear 3 wave rally off the low that can be seen on the hourly chart (see rise from 1045 - 1080 in bearish alternate count below). So I'm not completely sold on this bullish count at all. The problem is that the bearish count suggests quite a long and extended wave 2 rally that is getting quite carried away from an EWP "right look" perspective in my opinion, so this 5 wave rally needs attention. Plus, in 5th waves, there are often divergences in price and momentum where price makes a new extreme but momentum does not. Well a turn down tomorrow would confirm this divergence as seen on the MACD histogram It could still be a 5th wave within a larger correction, but I would need the market to prove that to me before I assume it.

Despite this bullish count being my primary view, I am not getting long quite yet. I want to see the speed, strength, and wave structure of the upcoming decline to determine if it's a correction before surging higher again, or if it's a resumption of the downtrend where I need to make my bearish count the primary view. In other words, right now I'm neutral as far as actually taking a position anywhere in the market.




S&P 500 Cash Alternate Bearish Count




Above is my 1hr bearish count that has a WXY combination correction in its last phase. Although I see no signs of a top yet, once it does top and reverse we should see an extremely strong wave 3 decline with increasing volume and almost all sellers in the market creating nice 5 wave impulsive moves to the downside. Without those pieces of evidence, I will assume the decline is just a correction before surging to higher levels as long as the market stays above 1045.

In summary, I want to wait until the market declines again so I can review the structure to try and determine what the larger trend is. Until then, my slight preference is that of a bullish count that will be looking for the market to eventually charge higher in the coming weeks. I do not have enough certainty to take a position at this point though, so I'm neutral as far as trading goes.

GBP/USD

What a slap to the face I got this morning by closing this pair a bit early. The pair tanked this morning after I closed my short position last night, making me leave a lot of money on the table. But that's the trading life I guess. I still was able to make a nice profit on the overall trade, so in that respect it was a success, and with the open gap and 5 wave decline looking complete, I can't fault myself too much for booking profits at that juncture. But hindsight's 20/20.


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.

I Exited the Rest of my Short GBP/USD Trade

The GBP/USD gapped down big this afternoon and those gaps usually get filled within a few days, if not hours, and seeing as that we have a nice proportioned 5 wave decline possibly complete, and a nice profit at the moment I'd like to close the position.

I closed the first have of the position at a 175 pip profit, and since my entry was at 1.5390 and my exit was at 1.5141, that makes a 249 pip profit on the second half of the position I just closed. Click here for the original trade setup.


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.

Bulls Look Ready to Roar; GBP/USD Stop Remains the Same

S&P 500 Cash Index Bullish Wave Count



As I said in my early Friday post, the indicators are there that suggest a sustained rally in the S&P for the foreseeable future. The 3 wave corrective drops the past few days combined with the recent 5 wave rally that failed to make a new high suggest this market wants to go higher. It may tumble modestly in the near future to correct the 5 wave advance, but 1086 should hold. If 1086 is broken, then the 5 wave count is invalidated and we can flip back to the bearish outlook again. The impacts of the larger bearish view remain uncertain until we see how far this rally can go.

Two things to note:

1) A lot of the market action Thursday and Friday can be chalked up to end of month jossling of positions by fund managers. The first few days of March should bring similar jossling and perhaps may be the final legs of this short term rally phase we appear to be in.

2) The VIX declined to a new low and is at dangerously complacent levels in my view, yet the S&P did not make a new high in conjunction with the VIX's new low. So people are much more optimistic and don't feel the need to protect themselves as much as they did the last time we were near current levels. This optimism is a contrarian indicator and may signal a short term sell off. With 5 waves up possibly completed Friday, this VIX vs. S&P action may signal short term weakness in the S&P early next week. But staying above 1086 keeps the short term bullish view intact.


SPY Volume




The above daily chart is of the SPY (S&P ETF) with volume posted at the bottom. Notice the big bullish reversal candle on high volume that formed a major floor in the downtrend and lead to the current rise we've been in the past few weeks. Also notice that during the rally we've had a couple big volume spikes on up-days which has led to further rallying in the short term. Well although you can't see it on the SPY chart because it opened lower than the S&P did, the S&P made another bullish reversal candle on solid volume (click here for past chart of S&P with bullish candle). So with the 5 wave advance combined with a bullish candlestick and high volume, the evidence is strong that 1086 will hold and this market is headed higher.


GBP/USD


No change in the GBP/USD short trade. I exited half my position at a 175 pip profit and now my stop loss on the other half has been lowered to 1.5333 to lock in a 57 pip profit for 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.