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.

Dow Signaling a Break Lower Out of the Range Soon

The market rallied this morning, lofted by the good RIMM and Oracle earnings. But after the cartwheels and riverdancing stopped at this "great" news the market sold off to new lows. The S&P is not that clear right now as to the wave structure and is sporting a similar garbled look that it has the past several declines that have been eventually completely reversed. However the Dow Industrials tell us a different story.

As you can see from the attached Dow Industrials 15min chart, the index has traced out a 5 wave decline, telling us that the short term trend is down, and that 10,264 will be broken before 10,510 will be broken. What's interesting is that this 5 wave decline led right to the bottom of the Dow's lower range then bounced (see Dow daily chart). This may be significant because it means that after a wave 2 or B corrective rally occurs, the Dow will charge lower beneath 10,264, and probably much further towards at least the 10,100 area, breaking down the lower end of the range. The significance of breaking out of the range to the downside will be examined when it occurs. A strong rally in the Dow right now would be a great risk/reward opportunity for the bears to get short with a stop above the 10,510 level.

As you can also see from the Russell 2000 chart, it too has declined in 5 waves and rallied in 3. The top of wave 2 at 612.81 should cap any rally attempt and 600.96 should eventually be broken.

Also notice the dollar has continued to climb. The series of higher highs and lower lows is still intact, so the short term uptrend is still intact. I drew a trendline that appears to be holding the rally up in place so far. A close beneath that trendline will break the series of higher lows, and the level that has hoisted the rally so far, so it would hint that the short term rally was ending.

Dollar Rally Smacks Precious Metals and Stocks

The dollar rallied hard yesterday through today putting great pressure on commodities and stocks. Gold and silver lost over 3% and equities tumbled on the stronger dollar; again showing the real fuel behind the stock market's rally and strength. When the dollar rallies, stocks buckle. As you can see from my previous post last night, the dollar has formed a major bottom and should rally for months. The stock market will have a very difficult time making new highs under these conditions. Let's look take a look at the charts I have this afternoon:

1) the daily S&P cash chart shows that yesterday the market again was repelled by the top-end of the range it's been trading in the past few weeks, suggesting that the bulls still don't have enough force to push it through to the upside to new highs. So now we must focus on the lower end of the range around 1085 and see if the bears can come in and take control. A close beneath 1085 would be a good sign that perhaps the range trading has broken to the downside.

2) the primary impulsive S&P count shown is my top choice for 3 reasons: 1. the dollar appears to have bottomed and precious metals have topped so a major stock market top may be at our feet right now; 2. the decline looks very impulsive and one of the strongest and most clear we've had in a while, and the wave (2) correction is quite shallow suggesting there is a lot of downside pressure to this decline instead of just the usual ABC decline; and 3. the fact that other indices are looking very toppish and have made solid closes to suggest their downtrends have resumed (i.e. Russell 2000 and XLF). Also, this is a great risk/reward opportunity for the bears. The count is wrong with a break above 1101, just 5 points higher from current levels, and the profit potential is huge.

3) the alternate S&P count chart shows the other possibility in that we are in an A-B-C corrective decline that will most likely be halted within the range above 1085 and then rally again towards 1120 and possibly higher.

4) gold and silver have sold off sharply, fitting well into the "blowoff top" scenario commodities usually undergo when making a major top, just like oil did into its $147 top before it reversed to around $30. Gold and silver should make similar moves to the downside now. The attached gold futures daily chart shows a triangle in the middle of the rally over the past several months. Triangles only occur in B, X and 4th waves. This is obviously not a 4th wave, and the entire rally looks a lot like a clear 3 wave rise, so it's probably a B wave. A break of the wave A high at 1010 will confrim that the rally was a 3 wave correction, and that 680 will be broken on the downside before a new high above 1220 is achieved.

5) the gold futures 10min chart is self-explanatory. I just wanted to show that it appears the next round of selling is underway as it appears to be declining impulsively since making a modest rally attempt this week. Look for gold to continue lower, capping any rally beneath the 1140 level.

6) the XLF is a very telling chart. This is the most bearish market I can see right now next to precious metals. While other markets were churning sideways or making slight new highs, the XLF was actually grinding lower. Following a clear 5 wave decline back in October, the financial sector has made a modest rally and then chopped lower, capping all rallies beneath a descending trendline. Today's close was on the lows, and is the lowest close since the wave 5 bottom back in October. This sector should continue downward with rallies capped beneath that blue descending trendline marked in the chart.

7) the Russell 2000 daily chart tells a similar story to the XLF. After its 5 wave decline in October it has failed to make a new high, and actually has SO FAR rallied in 3 waves. Breaking beneath the wave "a" high is a good start in confirming that the rally was in fact 3 waves - a correction, but a print beneath the wave "b" low will ultimately confirm it.

So there you have it, a lot of bearish action occured today leaving the possibility for a major market top and reversal to be underway right now. However we still have a long way to go before confirming it as we've seen this type of action fool us many times before. But the table is set for the market bears to take over if they're ready.

The key things to watch for in the coming days are:

1) as long as the dollar uptrend remains intact, the stock market will be biased to the downside.
2) gold, silver and all commodities have been a big part of the stock market's rally, so continued bearish action in this sector will also be very bearish for stocks.
3) watch for the XLF to make a new low beneath it's October low.
4) watch for the Russell 2000 to break its wave "b" low.

Any of these things occuring will strengthen the short term bearish case for the stock market. As always, I welcome all your questions and comments on recent action in 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.

Asian Session Sparks US Dollar Short Covering Rally; S&P Futures Print 5 Wave Decline

The dollar spiked higher as we went into the Asian session following the Fed statement today. Perhaps the dollar shorts are getting a bit nervous now. This nervousness and short covering should be a contagious action that will build in momentum in a relentless spiral within itself, raising the dollar higher and higher for several months. Of course, with the short term wave count unclear, a snap back wave 2 type decline can occur any time though. But the evidence is quite strong that a significant US dollar bottom has formed, and surprises and the least resistance should be to the upside. Until the series of higher highs and higher lows is broken, the short term trend remains up. Any significant drop that stops me out will only have me looking to re-enter on the long side at a better price.

The dollar bullishness has put some pressure on the S&P futures tonight and has created a textbook EWP five wave impulsive decline as you can see from the attached chart. So it's possible the current decline may be the start of something bigger, but we'll have to see how the wave structure unfolds from here. The S&P bounced off the top of its range today, so with this 5 wave decline tonight it appears that at least in the very short term the trend is now down for the stock market.

So that's all for tonight. Just wanted to write a quick post on this interesting action I noticed.

Fed Statement Today; Dollar Uptrend Intact; Stock Market Still Consolidating

The market rally is coming to an end and the fractured nature of various markets is taking hold. First the financials left the rally as measured by the XLF, then the small cap stocks left the rally (Russell 2000), now with the dollar rally the commodities are leaving the rally as well. The core of the rally is getting thinner and thinner. It's like Alexander the Great charging up a hill with his army only to reach his enemy and turn around to see just a few troops behind him. Even Alexander would eventually retreat under these circumstances. But Alexander hasn't turned around yet. So we still have to wait. Or maybe someone can throw a rock at his head so we can get him to turn around and see how mad he his for still running up the hill :)

The key remains the dollar. The dollar rallied big against the Australian dollar last night, finally catching up to the other dollar pairs. The trend is clearly up for the dollar with constant higher highs and higher lows the past several days. I attached an extremely aggressive US dollar (using the USD/CHF) wave count. But this count does not instill high confident because whenever an elliotician has to count a move as a series of 1s and 2s, it usually means it's wrong. However, I cannot come up with another highly viable short term wave structure at this point, so I'll use this until it's invalidated. If correct, it will soon undergo a wave 3 at various degrees which essentially means a straight line up. Only a break of 1.0230 would invalidate this count. No matter how aggressive of trader I am, I would not short the dollar at all, I would only be looking to go long, on any timeframe.

As for the stock market; blog reader JD brought up a good point regarding the fractal nature of the market now and back into the March 2009 lows (see discussion here with JD, as well as with Rob regarding the dollar's impact lately). I attached charts illustrating their similarities. Last year we had a consolidation lasting about 4 months that eventually led to a sharp drop lower to new lows which was quickly reversed and never looked back into present day. Today we've had similar consolidation, and as I've said before I would not eliminate a "blowoff top" from occuring before the wave 2 or B top forms. If history repeats itself, only inversely, then we'll get a sharp rally from this range we're in now, targeting the 1200 S&P area which will lead us into a major top and reversal. If it occurs, the rally should be short lived and completely reversed quickly just as it did into the March lows inversely.

Trading Strategy: If someone were to be conservative, I would think the best strategy would be to wait to go short the S&P on a strong close beneath 1085, preferably closer to the 1075 level. If someone were moderately aggressive they could also possibly wait for a breakout rally out of the range and start shorting when a reversal occurs with a stop at the recently established high. This would probably take repeated attempts to catch the top, but once someone can catch one, the rewards should be big. If someone were very aggressive they could get long on any pullback with a stop loss just below 1085. So those are the possibilities I see at the moment to trade.

Remember, at 2:15pm EST, the Fed will issue its statement and there tends to be a lot of volatility in the markets surrounding this. So I recommend everyone double check their stops and limit orders are in place, and are the ones they still want in place. The actual Fed statement is not important to us ellioticians, what's important is the wave structure that surrounds the statement, and also the reaction in the following hours and days after the statement's released.

Good luck to everyone! I'll be back if something significant develops after the announcement.

Dollar Surges Higher; Stocks Remain Flat, Directionless

Yes, I did make up the word "directionless" from the title above. So what :) That's not important, what's important is the US dollar's continued surge higher. The rally appears a bit overbought and momentum waning but the dollar was so oversold and over-shorted on a long term basis that the current rally may be relentless, offering little opportunity to enter. I'm still cautious of a snap back decline in the dollar, but with such a significant change in trend to the upside, surprises will also be to the upside. The dollar strength will continue to put a lot of pressure on equities and make it difficult for them to sustain any kind of rally, if not outright make them fall off a cliff. Continue to watch the dollar rally, it is the stock market's biggest enemy.

The S&P appears to be finishing up a 5 wave advance, if it hasn't done so already. If so, it may mean its final rally has ended, or will at least correct a bit of the 5 wave rally. Tomorrow is the Fed announcement so some volatility later today and the rest of the week is highly possible as investors jockey for position around the fed statement. A sharp erradic rally in stocks would fit nicely into the "blowoff top" scenario I mentioned in earlier posts, so I'm watching for that. If that does occur, it would be a good signal that "the top" is probably forming and the rally will be quickly reversed. That final spike will be the market's last attempt to eliminate the last of the already severely battered bears before it tries to collapse without them.

So the bottom line is that the dollar rally is very bearish for stocks, and a continuation of the dollar's uptrend should lead to the stock market's top and reversal. With the consolidation of the past few weeks in the stock market, I wouldn't be surprised to see a sharp final rally into the wave 2 or B high that will be quickly reversed. The Fed statement tomorrow MAY be that catalyst. Above all else, I'm looking for reversal patterns and 5 wave declines to signal a top is in. Until then, I continue to be short term neutral the stock market.

My positioning remains the same as yesterday.

Waiting for Next Big Move...

The market didn't help me out much today in sending any signals as to where the market will move in the short term, however it does appear that the upside is the path of least resistance still.

The key in the stock market is the dollar, which the stock market should move opposite of. The dollar appears to have bottomed and is in the process of unfolding in a 5 wave sequence. It's tough to get a good count on the waves right now because wave 2 labeled in the attached 4hr US dollar/Swiss franc chart doesn't have a corresponding 4th wave of similar degree. Also, the last few days of trading appears be unfolding a series of 4th and 5th waves, but does not fit well into a completed EWP count at the moment. The next big move in the dollar should help clear this up and give us a better idea of where we're out in the short term. But it does appear that upside momentum is waning, so a corrective dollar decline would not be a surprise. But I would use any decline at this point as a buying opportunity. I'm bullish the dollar all around right now.

If the dollar pulls back, the stock market should continue to rally. Notice on the attached daily S&P cash chart that the infamous ascending trendline has been broken with all this choppy trading lately; just another sign of a significant waning of uptrend momentum. Oftentimes markets will retest the underside of an ascending trendline, after its been broken, before it starts the major portion of its downtrend. So we'll see how strong of a ceiling this trendline acts like. The underside of the trendline will be at about the 1130 area Tuesday.

So unfortunately there's not much more to report at this point, and we'll have to wait to get more decisive action from this market before getting a better idea of the short term trend. So I remain:

Stock Market
short term neutral
long term bearish

US Dollar
short term neutral (as I prepare for a pullback)
long term bullish,

Precious Metals
short term neutral
longer term bearish

Great Economic News Today!! Stocks Struggle, Nasdaq in the Red, Dollar Surges, Not Quite What You'd Expect...

Great economic news came out today on retail sales and consumer sentiment data that really blew away what economists estimated the numbers would be. So the Dow should be up 200 points right? The recovery is on track so it's Dow 30,000 in a few years right? Well the Dow has been trading up a meager 40 points all morning and the Nasdaqs have actually turned negative at this time with the XLF and Russell 2000 about to go red too. Why? It's all in the US dollar. The dollar rallied big this morning, which has put tremendous pressure on the stock market. Earlier this week I said in response to the stock market reversal and dollar strength after the great non-farm payroll numbers:

The stronger dollar and weaker commodity action is putting severe pressure on the stock market. This all started with the dollar rally after the good jobs report Friday. So if you follow financial news and feel it moves the market, then think about this: the stock market rallied primarily on dollar weakness as you can see from the inverse tight correlation to the US Dollar Index (DXY). This is all happening when the so-called "recovery" is getting its legs. Now a great jobs number comes out on Friday and the dollar rallies because investors fear the Fed will raise rates sooner than expected. This causes stocks to sell off. So the stock market is rising on the hopes that the recovery is on firm legs but sells off when things get too good because the Fed might raise rates. So if good news and a good recovery won't push the stock market higher, what will? Darned if it does and darned if it doesn't. The bulls are in a tough spot here. Click here for full post

Well today, similar action occurred. The retail sales and consumer sentiment numbers blasted estimates, coming out much better than expected. Yet the stock market is struggling to stay in the positive as a whole. Why? Because the dollar rallied again on this good news as you can see from my USD/CHF chart above. Most of the rally from the March 2009 lows have been on dollar weakness, so it was just that prices rose mostly on dollar weakness; not that any fundamental or intrinsic value in stocks occurred. So when the dollar reverses, so will the stock rally.

The dollar is surging hard against the euro and swiss franc, but isn't performing as well against the British pound and Australian dollar so I'd like to see to dollar make new highs against these other currencies soon. But as it stands now, the dollar bull run has resulted in commodity weakness; gold, silver and oil reversed sharply this morning; which will also put tremendous pressure on the stock market. So the market is set to fall on bad news, and struggle or fall on good news. Again, the bulls are in a tough spot here at this juncture. I spoke about this also earlier this week, click here to view that post.

With that said, on the 15 min S&P cash index chart attached you can see it traced out a 5 wave rally which was confirmed by the Dow, but not the Nasdaq Composite or Russell 2000. But with 5 waves up from the lows, caution is still warranted for the bears at this point. I'm still short term neutral (long term bearish) the stock market until we get solid evidence of a top, and I'm still short term and long term bullish the US dollar.