Principle Analysis: An Elliott Wave Blog

Intermarket Divergence in Place = Bearish for Stocks; Euro Pullback is Bearish

noreply@blogger.com (Todd) — Fri, 10 Feb 2012 20:14:00 +0000

The Dow's new high has created angst in the EWP community, and rightfully so I suppose. For EWP purists it's tough to explain it away and still try to justify a major top in the overall market. I am more flexible with my analysis and although I'll never violate an EWP rule, I use EWP as a basis for my overall analysis, not the be-all know-all form that must be adhered to as if it were an infallable law written in stone. The key is make sure we don't violate any EWP rules, and use our best objective judgment when using EWP guidelines. I will say, with the experience I've had in these markets, EWP is the most reliable out of all other forms of technical analyis I've tried. I can't tell you how many times when all technical indicators point to the market moving in one direction, but the EWP count suggests the opposite, the EWP count proves to be correct. It happens a lot.

With that little preamble out of the way, let's try to take a basic common sense look at the market. The Dow made a new high, suggesting that its Primary wave ((2)) did not end last may as previously projected. The Dow only has 30 stocks in it, and is the bluist of the blue chips for that matter. So I'm not sure it's the best proxy for crowd psychology as EWP is based on. This is why I follow the S&P, it has 500 stocks (or close to it), and is much more diverse and touches a much larger crowd than the Dow can. The larger and more diverse the crowd, the more reliable our EWP wave counts will be. The S&P has so far failed to confirm the Dow's new high, keeping the original wave count that its Primary wave ((2)) has topped already. And with today's modest decline, it leaves the potential for a major intermarket divergence to be in place between the Dow and S&P.

The bottom line is that the market rally is stretched, I think it's hard to argue that. So what are the plays here? 1) Getting long here at this point in the rally without any meaningful pullback? I don't think so. Not wise in my opinion. 2) How about getting short now with a stop above yesterday's high? This seems like a great risk/reward opportunity I'm jumping all over, despite it being a Friday. 3) And lastly, sitting on the sidelines doing nothing is another options. Certainly a viable option, at least until we get confirmation a significant top is in. Regardless of the choice, trading is all about probabilities, not certainties. So I make every trade with assumption that I'm going to be wrong, and manage my risk accordingly.

Do Low Interest Rates Power Stocks Higher?

Above is another possibility for the Dow. It suggests that it's in an Intermediate degree "flat correction". This suggests the larger trend is still up, and pretty much destroys Prechter's call for the past several years. So I'm not confident in this count at all. However, it's worth noting this count for at least the short term because even though the count suggests a larger bullish move is still underway, the downward correction still has to undergo a major Intermediate wave (C) pullback that will be fast and deep, about 2,500-3,000 points. And although it seems unlikely, it's still a valid wave count and therefore must be respected.

The bottom line is that I think the best plays here are to look for shorting opportunities with tight risk and then jump on them, or just wait on the sidelines until solid confirmation of a top comes in. But getting long here at this point, just doesn't seem like the risk/reward is on your side.

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The euro appears to have completed an A-B-C correction and is now pulling back. Whether a major top is in, or just a short term top is in, is still in question. For currencies, I usually don't jump in on a Friday since Sunday afternoon when the market reopens we often get a gap in price which is very tradeable. I want to get short so I hope we gap-up Sunday afternoon so I can short aggressively at a better price than today AND get the odds of a gap-close on my side. On the other hand, if the euro gaps lower I can simply wait to get short when it rallies to close the gap. Either way, I feel I can get the most optimal positioning on the short side if I wait until Sunday afternoon. Either short on a big gap-up, or if it gaps-down then just wait for it to rally and close the gap before getting short.

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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.

Line in the Sand....the Rubicon 1370.58

noreply@blogger.com (Todd) — Fri, 03 Feb 2012 23:38:00 +0000

February 9, 2012: I don't have anything new to add. The Dow made a new high while the S&P has so far lagged behind, failing to exceed 1370.58. If a reversal occurs with the S&P failing to make a new high above 1370.58, then there would be a major intermarket divergence in place suggesting a major top had formed. But entering short prior to that is purely speculation in my opinion. I'm waiting for a reversal pattern to form, and if it occurs before the S&P can exceed 1370.58, then I'm jumping in big on the short side. Until that happens, I'm simply waiting, doing nothing but trying to determine if it's possible to twiddle my thumbs long enough to burn off the two donuts I ate this morning, and to see if I can twiddle them fast enough to break the sound barrier.

Internals illustrate a typical Friday behavior where volume is fairly soft and a large majority of up volume accompanied the rally relative to down volume. Nothing conclusive here since price moved right in line with these internals as would be expected.

I thought today would be a great day for a nice reversal to the downside and hopefully leave a setup to either short today, or early Monday. But Mr. Market wanted to annoy me today, and he succeeded. The rally remains intact and I see no reason to "guess" and just short here unless you're a gambler. I'm waiting for evidence of a reversal, and will load up on the short side upon confirmation of a reversal if it's not too late when that happens. The market is moving higher, contrary to what the evidence I see suggests it should be doing. When this type of thing happens, I want to simplify things and focus on the bottom line. The bottom line is that 1370.58 is key to the bearish wave count, and the bearish case as a whole. The Dow came within just a few points of exceeding its wave ((2)) high today, so things are a bit shakey for the EWP bears right now.

But as along as 1370.58 in the S&P cash index remains intact, the bearish wave count remains valid and so any good sign of a reversal on the short term charts is worth taking a shot at the short side with a stop at the day's high, or just above "the Rubicon" level at 1370.58. A perfect scenario for the bears would be for the Dow to exceed its wave ((2)) high Monday while the S&P stays below 1370.58 and then a big reversal occurs. This type of divergence in two major indices would be deadly bearish.

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Although the euro has been able to make a new low and has not been able to make a new high, there has been no follow-through to the downside. As a result, there has been a net sideways action the past week or so. This consolidative pattern conveys a similar message that an EWP triangle conveys; which is that the euro is pausing from its uptrend before it thrusts higher in a sharp and deliberate move to new highs. Now since this is not an official EWP triangle the euro has formed, so I can't say the thrust to a new high will happen with any level of certainty. But I will say that the odds are slightly tilted toward the bullish side for right now.

Technical Indicators: A Love-Hate Relationship

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.

Stocks Remain Flat; Euro Prints Head and Shoulder Top

noreply@blogger.com (Todd) — Tue, 31 Jan 2012 23:11:00 +0000

Thursday, February 2nd note: I just wanted to touch base with a quick note to state that I see no new developments in the market since my last post, as seen below. The market continues to be "on pause" it seems and has been in this mode for quite some time. The general malaise in the market for the past few weeks still tells me a big move is coming soon. And the evidence suggests that this move will be to the downside. The euro has made a new low and although the recovery was deep, it still failed to make a new high. Now a series of lower highs are in place, which is the definition of a downtrend. Unfortunately, the moves are almost sideways and there's no follow-through to the downside at the moment. So it doesn't give me much confidence in calling a top at the moment. I'm currently short the euro, but I wouldn't doubt a sharp new high is around the corner with the action the way it is, so I'm managing risk accordingly. I'll be back with new info as it arises.

It's tough to write new blog posts when not much has changed since the last post. It's tempting to create drama where it doesn't exist, or to overthink simple setups. I'll spare you from both. This post is simply to add on to the previous post and mention the few new developments since then.

Today actually saw small spike in volume that's worth noting. NYSE traded just over 1 billion shares which is far from jaw-dropping, but certainly strong relative to volume the past few weeks. Unfortunately, the market closed mixed with some indices up and others down on the day. Since this behavior is occuring at the end of an uptrend, it's reasonable to think that this indicisiveness and volume is the result of a top forming. So we'll see. But volume possibly re-entering the market now means we should get some moves of significant - finally.

Technical Indicators: A Love-Hate Relationship

The daily stochastic I've been talking about the past few weeks has finally started trending down. Prices are now certainly free to follow. This is quite an elementary indicator, but one of many in the toolbox, and I'm using it strengthen the other bearish evidence I've laid out, as well as illustrate how momentum appears to shifting to the downside.

Credit Crisis: Are We Set Up for The Perfect Storm?

There is certainly a lot of evidence for a top and reversal at any moment, and there has been for weeks in my view. But unfortunately on a short term basis EWP does not support a top being in right now. This is because the recent pullback looks like a 3 wave drop, and it didn't get a chance to subdivide into an impulse move since today's rally broke above the previous high, which cemented the 3 wave structure in place. This is not a death blow to the bearish case, it's just a short term indicator that suggests a top may not be in right at this moment. So it keeps us honest, and as always, it keeps us managing risk appropriately.

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And lastly, and certainly not least since this is probably the most significant development of everything I follow. The EUR/USD appears to have formed a head and shoulders top and has broken beneath the neckline today. The uptrend has been broken and now the bears just need a little follow-through to the downside to be even more confident that a top is in. I've already entered a short position with a stop just above today's high. Any rallly that stays below today's high will only get me to short more.

If the euro has topped, it's most likely entering a very bearish phase and will move sharply lower from here. This also lends itself well to a top forming in stocks as well since the two often move in the same general direction.

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.

Stocks' Rallying in a Final 5th Wave into a Top; Euro Uptrend Well Intact

noreply@blogger.com (Todd) — Thu, 26 Jan 2012 15:25:00 +0000

The short term wave count suggests that price is rallying in a tiny 5th wave that should mark a long awaited top. I know, I'm playing the same ole' tune I have been for the past few weeks yet the market goes higher. But this is what I see and so this is how I call it. I've been establishing small short positions on every new high but won't get in heavy on the short side until a topping formation occurs. Right now, the stock uptrend is still intact, and fighting the trend is never a good idea in my opinion. The easiest money I make is when I identify the larger trend fairly early, then just keep looking for opportunities to take short term positions with that trend. Right now we don't have that. What we have is an overstretched and weakened uptrend that has yet to break. I feel there's too much risk getting bullish and holding that long position iin overnight trading. Day traders may want to continue on the long side until the trend has been confirmed to have reversed to the downside. But I'm a swing trader, and I'm not getting long right now because there's simply too much risk in holding overnight positions. Patience is key right now.

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Earlier in the week I said that the euro may rally to 1.3050 to form a right shoulder of a head and shoulders pattern before reversing lower. Well, that's what happened. Unfortunately it had no follow through and later rallied sharply to new highs surrounding the Fed action. It's clear the uptrend is still intact, and shorting is not wise here. Looking at the daily chart above you can see how choppy the decline was from 1.4200 and then how sharp the rally from 1.2600 has been. So the rally is much stronger than the decline, raising concern that this rally may get some legs and continue for a while. The key will be to watch for this rally to falter; either with some choppy price action, or a series of rallies and declines giving it a net sideways result for several days or weeks. But right now, I'm not getting short.

Lastly, notice how the RSI has come far out of oversold territory on this rally. Viewing this from bearish eyes it could mean that this rally is simply allowing the euro's downtrend to "recharge" by squeezing out a lot of shorts, moving sentiment out of extremes, and getting momentum geared up for another big decline. But this is all speculation for future action. This will only be important if we later see the euro rally faltering, or we get a solid reversal pattern. So right now, it's bullish or nothing in my view.

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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.

Strong Sell Signal in Place; Euro Slaps Me

noreply@blogger.com (Todd) — Tue, 24 Jan 2012 23:27:00 +0000

Comments from Friday's post remain in play today. Volume today was extremely light suggesting major market players continue waiting on the sidelines. News-watching seems like a good choice since the wave count and momentum indicators suggest a sharp reversal at any moment. Maybe some Fed news will shake this market up in either direction. So be alert.

And while you're waiting for the market to give you a reason to stay awake, check out Elliott Wave International's free 14-Page eBook, "How You Can Use Fibonacci to Improve Your Trading". I always take advantage of free tools from reliable analysts.

The projected wave count remains unchanged. The daily stochastic has been overbought for some time now, and needs relief, i.e. it needs to fall. The short term average crossed down today so it's possible a top in price is in, although I would definitely not put in a short position solely based on this indicator. It is quite primitive and not a good stand alone indicator. It's much better used in conjunction with several other pieces of analysis, to include the wave count and internals for me.

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I got so bored with this market I did not notice that the market's lethargy triggered and then executed a VIX sell signal. I only realized this after reading Steve Hochberg's Short Term Update from EWI. The daily close beneath the lower bollinger band, and then the later close above it, executes a sell signal. This is the most reliable timing indicators I know of. Usually a reversal in stocks occurs within 3-4 days suggesting a reversal will occur this week in stocks.

The euro stood me up, reached back, and laid a huge slap down on me.....I mean just a hard 5 across the eyes. I had a sell stop order almost right at the bottom this week which executed and then reversed sharply to a new high and stopped me out. I mean, I lost money and had the position closed before I even got up in the morning. Slap! But that's the game. There's a long reversal wick in place right now and 1.3050 should stop any rally attempt if a top is in and a head and shoulders pattern wants to unfold. My jaw still hurts though, so I'm waiting for more selling and a series of lower lows to get printed before I tackle this one on the short side 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.

Stocks Push Higher, But Still Look Weak; Euro Looks Strong

noreply@blogger.com (Todd) — Fri, 20 Jan 2012 22:51:00 +0000

Wake up everybody! Wake up!! I know the market is boring right now but we have work to do :-) The market has continued it's slow boring hump higher on weak internals and volume. Although this can continue even longer, the risk right now is with the bulls in my view. Momentum indicators are overbought, volume refuses to accompany the rally, and the price action is very choppy. All spell out that when this rally ends, the move down will be sharp, fierce and probably quite deep. Today's volume was a bit strong relative to the previous days, but that's because today was options expiration day which usually means we get a surge in volume. But relative to most options expiration days the past few years, today's volume was very light. We usually see well over a billion shares traded on options expiration.

When you're a bear and growing impatient with a sloppy rally, we can tend to over-analyze every little thing on the bearish side and read too much into it. I don't want to do that here. But it's worth noting that the overall market today was fractured with the Dow doing quite well, the S&P barely eeking out a gain, and the Nasdaq closing slightly negative. With options expiration out of the way, and the evidence of a weak rally the past few weeks, it's quite possible early next week could be the pullback we've been waiting for. Timing is very difficult, as you can probably see from the last few posts I've put up which practically say the exact same thing. So I simply want to be ready for a decline, but not be positioned as if the decline will immediately occur. This choppy sideways-to-up action can continue for a while longer. So keeping risk tight, and my finger on the sell trigger seems like a wise choice at this time.

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If all I had were elementary indicators like the overbought stochastic and a fractured Friday market to tell me the market is topping, then I might as well just throw my money out the window or burn it in a pile to keep warm because I'd be losing my money in the market anyway. But the fact that the wave count and internals support the outlook of a major top forming, these small indicators simply add to the bearish outlook and can help us get our timing down a little better. The stochastic has been maneuvering around overbought territory for a while now, and needs to come back to earth before another major rally phase can get underway. Oftentimes the stochastic will start moving down prior to prices establishing a downtrend. And since we don't have that yet, it certainly would not be wise to use this indicator to get short right now. But if the stochastic starts trending down and prices don't, I might nibble on the short side a bit even if there's no sign of a top. A long time overbought stochatic starting a downtrend after a weak rally in prices seems like a good shorting opportunity.

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The euro stopped me out a few times in the past week or so. So I'm on the sidelines again. With the previous swing high taken out this week, the short term downtrend has been broken so we need to look for higher levels until it proves to us it has reversed trend to the downside. There's a nice confluence of support levels in the 1.2875-1.2900 area that I'm watching right now. At 1.2875 you have the previous swing high, at 1.2885 you have today's low, and at around 1.2900 next week you'll have the base of an ascending trendline. So it's quite simple, a a close below 1.2875 would get me to short the euro again with a stop just above today's high. Until then, I think it's best the bears wait this rally out. The euro has been declining almost non-stop for the past several months now and a sharp and deep corrective rally would not be out of the question. Keeping risk tight here until the euro proves that the uptrend is no longer intact seems wise to me.

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 Pullback is the Next Big Move; Euro Rally Creates Good Shorting Opportunity

noreply@blogger.com (Todd) — Tue, 17 Jan 2012 22:24:00 +0000

There's nothing new to add to prior posts. Stocks continue to flip flop around with an upside bias on light volume and diverging momentum suggesting the next big sharp move will be to the downside. Ideally, 1356 in the S&P cash index needs to hold for the bears to still have a high probability trade in my opinion. I'm adding to my current short position as the market rises.

Five Fatal Flaws of Trading

On the hourly chart, the RSI is diverging drastically from prices. This doesn't signal when a turn is coming necessarily, but it does suggest underlying weakness and that a pullback is probably the next big move ahead. Also notice that the daily stochastic is starting to trend downward. Again, not necessarily a good timing indicator, but a suggestion that the next big move will be down. To me, the only question is whether or not the upcoming pullback is going to just be a temporary decline before moving higher, or if it's going to be a major top signaling the next major downphase has started. The wave count suggests the latter. But I can't say with any level of certainty when stocks will stop floating higher, so I don't want to just load up on the short side right now since I could encounter a lot of pain if this float higher continues much longer. And I don't want to wait for the decline to jump in short because it may decline overnight several hundred Dow points and I'll miss most of the move if it turns out to just be a short term decline. So I decided to simply just add small short positions as the market moves higher and average into the market on the short side. It's the best way to play this type of market and reduce risk in my opinion.

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Although stocks are boring me to death, the euro is moving around quite nicely, making it good to trade right now. The huge rally we got today was a good opportunity for the bears who may have missed the big previous move. I added short today at 1.2750 and put my stop just above today's high. The chance of a top here is solid, and the risk/reward for the bears here is excellent. So in my opinion, it's worth taking a shot at the short side here. If today's high is broken in the overnight European session, then I'll simply wait for another reversal pattern to reshort as long as 1.2877 remains intact.

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.

Stocks Putting us to Sleep......Before the Collapse? Euro Surprises to the Upside, Shorts Squeezed

noreply@blogger.com (Todd) — Thu, 12 Jan 2012 23:46:00 +0000

Stocks are putting me to sleep. Thank goodness for currencies which have been moving sharply lately. NYSE volume was a whimpy again today with only 768 million shares traded, and uppers vs downers slightly tilted toward the bulls' advantage. Nothing to really make of this though with such light volume and little price movement. Both the bulls and the bears appear to have better things to do, or they're all in room with a carbon monoxide leak. Either way, when volume re-enters, the downtrend should resume. Until then, try to stay awake.

The European Debt Crisis and Your Investments

The S&P continues to defy gravity and as a result, it's starting to concern me slightly as a bear. I would have thought the market would have tanked by now but it's been holding up fairly well, albeit without any volume which is still significant. Price is near the comfortable maximum retracement level of 78%, so a decline now would be nice. I still doubt the market will push much higher from current levels, a pullback of some kind is warranted before any further significant push. So the short term advantage goes to the bears to enter on weakness as soon as it arises in my opinion....especially if volume accompanies the move down. The count above remains valid and my top choice.

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Momentum indicators above slightly favor the short term topping outlook the wave count suggests. The RSI has a very slight divergence in place right now to where a decline from current levels would confirm the divergence and open the door to the possibility that a very large decline is underway, such as the wave count suggests. Also, the stochastic has been grinding away in overbought territory for a while. Another sign of at least a short term pullback is near.

With the evidence at hand, it seems quite clear that at least a short term pullback is coming soon. So if I were to play this market short term I would be looking to short on weakness any minute. And if high volume accompanies the move, I'd load up even more short. If I were to play this market more long term, I'd wait for the structure and strength of the upcoming pullback, mainly to see if volume consistently accompanies it and the decline is impulsive. If so, I'd get short for a longer term position. It's important for the longer term traders to be patient if a decline comes because the market may be simply "recharging" before surging higher again.

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With a high confidence euro count still eluding me, I have to rely on basic technical indicators. And for the past several months, despite their simplicity, these indicators have worked very well for me. The key element to the euro is the impulsive structure of the declines, and the series of lower highs and lower lows which has been the theme lately. Unfortunately for the bears. last night broke that pattern, and the bulls did so with strength. You can see the area where I marked the euro's bullish candles on the above chart. You have a long wicked bullish candle immediately followed by a long bullish candle. And what's significant is that this big strong move occured at the previous swing high. So the bulls broke the downtrend with conviction last night, at least for the short term.

I personally think this was just a short squeeze. I think there were just too many euro bears in the market and they got squeezed last night. But nonetheless, the basic trend following I'm using suggests a bottom is in for the euro for the time being. Until another big reversal pattern occurs to the downside, or an hourly close beneath 1.2700 occurs to negate the big bullish move last night, I'm on the sidelines.

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.

Stocks Float Higher, Should Reverse Sharply Soon; Euro Still Correcting Before Collapsing

noreply@blogger.com (Todd) — Tue, 10 Jan 2012 15:13:00 +0000

The S&P continues to float higher, but nothing changes from the previous forcast. There are numerous internal divergences to price occurring, along with momentum divergences like the RSI as seen above. Volume remains very light as well. There is really nothing behind this rally at all in my opinion. Those types of rallies usually end with a big reversal, so be aware in the coming days. With the evidence at had, it seems clear to me that this move is part of a correction, and probably the final stages of a correction. The bears are lying low and waiting for a good opportunity to strike. Meanwhile, the few people in the market are able to float it higher. Look for a sharp reversal at any moment, that will bring a good shorting opportunity in my opinion. I will get short as soon as I can and place my stop just above the top of that reversal.

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The euro has managed to get of the matt a bit here and push a little over 100 pips higher from its low. But you can see that after the initial push to 1.2780, the rally has lost steam and moved choppy and almost sideways. Today the rally appears to be faltering and is trading right at the top of that initial surge at 1.2780. A solid break below that level will be the first sign the rally MIGHT be at an end. A sustained break below 1.2720 would most likely signal another major top is in. But I'm not waiting for that. I'm already adding short right now, and if it rallies higher then I'll short some more. Nothing about the euro's charts or the overall European and US economies suggest a euro bottom (US dollar top) is in place. So I'm focused on the short side big time right now.

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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.

Stocks Trying to Breakout, But Still No Volume; Euro Tops

noreply@blogger.com (Todd) — Thu, 05 Jan 2012 22:10:00 +0000

Stocks have done nothing the past two days so I wasn't going to even post anything today but the action in the euro demands attention. Looking at today's internals you can see that volume is still declining and overall very light, and that there is a general malaise amongst market participants after the New Year surge. So the New Year kicked off with a typical bullish day, but there's been no follow-through to the rally. That's overall bearish in my view. When volume re-enters, stocks should fall soon afterward, if not immediately.

Why Choose the Wave Principle?

Nothing has changed from my last post, so see my comments and wave count below in the previous post for context of today's thoughts. Stocks have been range bound for a while now, albeit not perfect at all. I don't recommend trading off this since it is quite imperfect, but it is something to watch. On the daily chart you can even see what some call a "pennant", but we wavers call a "triangle". Only it doesn't fit EWP's rules for a triangle so I'm not posting it here. But it's still worth noting that this pennant formation has made it onto CNBC where some analysts have mentioned it looks like we're breaking out to the upside. The contrarian in me would love that. A sharp rally out of the "pennant" would most likely lead to a quick reversal, and probably mark another major top.

Stocks are trying to break out of the range they've been in the past couple months, but will have a hard time doing so without any volume to fuel the move. Like I said above, a sharp rally and reversal would be a welcome sign for the bears to jump in with a clear stop level just above the top of point of reversal. The action in the euro also lends itself to the near term bearish outlook for stocks as well.

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And speaking of the euro, it got a little sneaky the other day as it topped and sold off sharply before I had a chance to get in fully short. I added a small amount to my core short position yesterday around 1.2925, but only about 10% of what I wanted to add altogether. It may be tough to add shorts at this point, but if we're fortunate enough to a big bounce after what appears to be a nice 5 wave decline, I'll be adding shorts ferociously since it looks like another big top in the euro has occurred. And this bearishness also lends itself to the bearish outlook for stocks as well.

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.

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

noreply@blogger.com (Todd) — Tue, 03 Jan 2012 23:00:00 +0000

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

Preparing Your Finances for 2012

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

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

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

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

PLEASE NOTE: THIS IS JUST AN ANALYSIS BLOG AND IN NO WAY GUARANTEES OR IMPLIES ANY PROFIT OR GAIN. THE DATA HERE IS MERELY AN EXPRESSED OPINION. TRADE AT YOUR OWN RISK.

Stocks Float Higher on Light Volume; Euro Still Very Bearish

noreply@blogger.com (Todd) — Mon, 26 Dec 2011 20:50:00 +0000

I want to take a moment to thank you all for another pleasant year here on the blog. I feel I'm very fortunate to have such an intelligent and friendly group of folks here who read the blog and post their comments for all of us to read. Also, many of you have clicked the sponsor's links I post here, signed up for Elliott Wave International's free Club Memberships, and even ordered some of their high quality products. All of the above keep me motivated to continue posting throughout the year. Hopefully we can continue to get more high quality readers and comments through 2012, and if so I can assure you that I'll be here, posting my thoughts and engaging in discussions with you all so we can help each other navigate these markets better, and learn off each other. I wish you all a very happy and successful 2012!

Speaking of the holiday season, I hope you're all enjoying it as much as I am. I'm pretty much just sleeping 9 hours a day, stuffing my face with tons of leftovers which segues nicely into my noon time nap where I wakeup to watch football, eat again, watch a movie and then go to bed. My goal is to get so fat that I need to be rolled around the house to do basic stuff. Then, I get back into shape after the New Year.

The market action doesn't mean much to me right now since volume is so light and end of year maneuvering is occurring. The wave count remains the same with the option of one more new high to around 1300 to mark the end of Intermediate wave (2). This is not required although it would make more sense as far as the wave count goes. The move down from my first proposed Intermediate wave (2) high (1292 on Oct 27th) is clearly a 3 wave move, and the behavior since that move has been far from being "wave 3 like" since it has just flopped around sideways on light volume since then. Another new high around 1300, or just above it, to mark wave (2)'s end followed by sharp selling on high volume would be a much more ideal scenario. So I'll wait for that to occur to ramp up my short position again.

"Market Manipulation" Is Not Why Most Traders Lose

Looking at the S&P's SPDR you can see how volume has fallen off a cliff during the recent rise. The market can continue to do this for a few more days into the New Year, but I wouldn't be piling up on the long side here. Once volume re-enters the market after the New Year, stocks should fall. Until then I wait.......and eat......then take a nap....eat again.....and roll over to the TV to watch the football games.

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The euro has been a cash cow for the bears the past couple months, again not failing me for the bearish November/December scenario I've talked about the past few years. The trend remains firmly down. There is a nice long reversal candlestick wick at the 1.3200 area that suggests strong resistance at that level. I have my aggressive short position set to stop out on a move just above that level.

Happy New Year to you all!!

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.

Stocks and Euro Should Continue to Work Lower (Also, Prechter Talks About the Safest Banks)

noreply@blogger.com (Todd) — Wed, 14 Dec 2011 15:15:00 +0000

The wave count and internal structure of the decline is not ideal for the above wave count to hold true. But just because it's not ideal doesn't mean it's not accurate. Markets do not like to unfold into perfectly well rounded packages that fit our anaysis methods 100%. And there are several factors that can explain away the fact that wave (ii) is much bigger than its larger degree wave ((ii)), volume overall is still light, and the market is holding up quite well for what should be a wave 3 at various degrees. And those factors are that there was a lot of European government interference in the markets the past month, and December tends to be a light volume month anyway. Now I don't want to try and fit a square peg in a round hole here by imposing my own personal biases onto the market instead of just viewing the market objectively. So I'm still cautiously bearish here with stops firmly in place at comfortable levels should this wave count be wrong.

Despite volume being so light, you'll notice a slight advantage for the bears in volume action. The S&P SPDR's (SPY) volume decreased in the early stages of the previous rally, and now volume is slightly increasing as the market moves lower, with volume exceeding the 20 day MA left by the rally. Perhaps another sign that a sharp selloff is just around the corner. So volume is light, but it's all relative. Also note that the action in the euro is very bearish, and should be very telling of what stocks should do in the near future.

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Above is the daily EUR/USD chart. I see nothing here that is bullish. The structure and behavior of the euro is very bearish here, and I'll continue to be short this market until it proves to me a bottom might be in, i.e. a big reversal day, new daily swing high, etc. You can see that a major support level in the euro has been broken, and closed beneath, with a daily bar yesterday. It's possible we'll get a test of the underside of this support level, which is now resistance, around 1.3150 in the near future, but I'm not betting on it. Only a strong close above 1.3150 would get me to cover some of my short positions and start looking to see if a bottom might be in. But for now, this thing is pointed lower.

One last note, I said weeks ago that I was bearish the euro and one of the reasons was that a gap up was made, and left wide open, on a Sunday. Those gaps almost always get filled within a few weeks, if not a few hours. The euro's gap was left open for several days, only strengthening the bearish view in my opinion. Well it finally closed that gap Monday, just as expected. Okay, here's my Hannibal from The A-Team line, "I love it when a plan comes together."

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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.

Stocks and Euro Topped

noreply@blogger.com (Todd) — Mon, 12 Dec 2011 23:55:00 +0000

I'm short on time today and can't do a full post, but I wanted to say that it looks like a top is in and a major selling phase is underway, i.e. wave (iii) down is just getting started. To recap from last week, I was looking for a decline Friday and/or today which would be either corrective or a resumption of the larger downtrend, depending on its strength and structure. I said I'd probably need to see Friday's and Monday's action to get a better idea of which of the two options it was. Well today's action and internals suggest that the downtrend has resumed, putting my top count way up front, suggesting that wave (iii) down is now getting underway (see prior post below for chart and details). Keep in mind that oftentimes when I make bold predictions like this the market likes to make a fool out of me and move in the opposite direction hundreds of points. So as always, I'll be managing risk appropriately.

The euro is in the same boat as stocks and appears to have topped and is heading lower as well. Last week I said the euro's bearish outlook was a big reason why I liked the bearish stock count since stocks often follow the euro, and today we can see why I put so much emphasis on the euro. Look for the euro to continue lower, with bumps along the way.

Hopefully I can get a full post in tomorrow.

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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.

The Stock Decline Begins, is it Corrective or Impulsive?; Euro Reversed - Heading Lower

noreply@blogger.com (Todd) — Thu, 08 Dec 2011 22:57:00 +0000

Volume was light relative to normal trading days throughout the eyar but it did kick up a bit relative to the volume that accompanied the recent rally. It's also some decent volume for a December. In addition, an overwhelming majority of the volume (96.7%) was to the downside. So today was a bearish day internally, and in the price action.

Today's action was in line with the projection I gave in Tuesday's post in that a decline was real close, but unfortunately there's not enough evidence to determine whether this decline is just a correction before moving higher, or if it's the start of the next major selling phase to new lows. The volume and intensity of today's move coincides with either a C wave, or a larger wave 3. Since today's decline might be a C wave in a flat correction before moving higher, the bullish outlook still remains just as likely as today's decline being the start of another 3rd wave down. So we're still mixed here in my view, and need to at least see Friday's and Monday's action before getting a better idea of the larger trend. But I think a slight advantage lies with the bears because there is still a series of lower highs in place, the euro looks very bearish here, and the risk/reward is very appealing to the bears right now.

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Earlier in the week we saw that the declining volume, mature wave structure, and long candlestick wicks on the daily charts suggested at least a short term pullback was coming soon, and today it came true. If the above count is correct, the market should be selling off with little rest for the coming weeks. That may be a tough task to expect for a market heading into a normally positive time of the year. But we'll see.

Although the evidence for the bears and bulls are almost even here, there is one piece of evidence that lends itself to the bearish camp for stocks. And that's the action in the euro. If stocks continue to track the movement of the euro more or less, and the euro has some serious selling pressure on it right now as it seems, then the bearish stock count above looks more likely at this point. After Friday, and maybe Monday's action, we should have a better idea of the larger trend and wave count.

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The euro was able to sneak in a new swing high on the hourly chart during the European session but was immediately reversed and sold off to a new swing low. That type of reversal is extremely bearish. What's even worse for the bulls is that on the US session's rally later in the trading day, the bears again pushed the bulls down with some heavy money as you can see with the second long wick on the above chart. These long wicks may mean that some big money is coming in and hammering the euro, preventing it from making any real progress or gaining any momentum. The bottom line is that the trend remains down and the I remain bearish the euro. And that's bearish for stocks most likely.

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 Retracement Deep, Maybe Too Deep; Euro Consolidating Before Breakout

noreply@blogger.com (Todd) — Tue, 06 Dec 2011 23:23:00 +0000

I was hoping by now the market would be tanking hard as projected and I could give my A-Team Hannibal line of how "I love it when a plan comes together." But unfortunately, I can't. I'm not putting much emphasis on the market's internals until after the New Year since volume should be light the rest of the month and there's usually a positive bias right now. You can see that today's 800 million NYSE shares shows you exactly what I mean. The interesting note here is that volume was slightly tilted to the negative side, despite the Dow posting a decent gain of 52 points at the close. When you combine this weak internal structure of the rally today to the wave count and daily bars I discuss below, it tells us that at least a short term top might be nearby. If nothing else, it's a great risk/reward opportunity for the bears since the retracement is so deep and has now come closer to my stop level just above 1277.55.

Single- and Multi-Bar Price Analysis: Could It Help You Forecast the Markets?

This wave count has become more and more doubtful the past few trading days for two reasons: 1) the smaller degree wave (ii) is much larger than its larger degree wave ((ii)). This does not violate any EWP rule, but is certainly contrary to EWP guidelines; and 2) the retracement of wave (ii) is very deep, deeper than the usual comfortable level of retracement at 78.6%. Again this doesn't violate an EWP rule since corrective waves can retrace up to 100% of the preceding move, but the excessive depth of the rally is contrary to EWP guidelines. So since no rules are violated, the above count is only down, but not out.

One reason I still hold this count as top choice though is that the rally involved governmental interference. This may interupt the short term gyrations and wave count in the market, but it won't prevent the original larger trend from taking over in the end. So the two guidelines I mentioned in the previous paragraph have more forgiveness on my part since the wave had government intervention in it. I know that many wavers disagree with me when I say that external events such as government intervention have an impact on the wave the count at level, but this is just my opinion developed over the past several years of using EWP. I don't think external influences, such as government intervention, can change the long term trend, I just think it can complicate the short term wave count at times.

If the above count is correct, the market will stay capped at 1277.55. A move above this level probably means Intermediate wave (2) is not finished and that I'm going to step aside until I see signs of a top again.

One thing to note as we move forward in the coming days. Looking at the recent rally which I labeled wave (ii), it looks impulsive on the daily chart above. This of course would mean the labeling in my chart is wrong and that the larger trend is now actually up. There are some candlesticks with large wicks on the daily charts that have formed the past few trading session which suggest there is strong resistance at current levels so at least a short term pullback is likely coming. The reason I wanted to mention all this is because we may get some weakness this week but it MAY not be because the downtrend has resumed but actually just a correction of a 5 wave rally. So it will be important to get a good definitive wave count on the decline to determine if the decline is impulsive or corrective so we'll have more certainty as to the larger trend.

So a lot of "ifs" and "buts" today which is unfortante. But I try to just write these posts as objective as possible with all the relavent thoughts I have on the market at the time. And ufnortunately, the past few days has left some uncertainty. So managing risk, not maximizing profits, is paramount for me this week.

The euro has obeyed my forecast from last week...........wow, I like how that sounds, it "obeyed my forecast".........anyway, it fell lower after that big reversal candlestick on the 4hr chart I pointed out in last post. However it has been a bit flat since the initial drop. Nothing concerning at this point for the bears at this point though, but I'd like to see the euro sell off in the near future to be more comfortable with assuming a top is in.

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The euro is consolidating on the one hour timeframe. This means that there is probably going to be a breakout pretty soon, i.e. a sharp and deep move. Since the euro is not giving us a high confidence wave count, I'm not sure how a consolidation or a triangle would fit in here, and therefore I can't be confident in what direction it will breakout to. But since it's made a lower high and lower low recently, it could be the start of another major downtrend phase, so I'm not abandoning the bearish outlook due to this currnet triangle like pattern. I'm just ensuring my stops are in place at comfortable levels because if this thing breaks out against me I want to make sure I'm removed from this market as soon as possible.

The bottom line is that I remain short but have tightened my stop in preparation for the breakout possibly going against me.

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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.

Reversal Bar Put in Stocks Today; Euro Reverses as Well

noreply@blogger.com (Todd) — Fri, 02 Dec 2011 22:31:00 +0000

With the holiday season upon us for the next month, internals data will probably be skewed, confusing, and not as reliable as they are most of the year. So I'm not going to depend on them as much, unless we see a huge spike in volume.

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Overall there's not much to add to my last post other than today printed a nice reversal bar on the daily chart. Since the central banks saved the world for the hundreth time earlier in the week, the market has been hard pressed to mount any follow through to the rally. I suspect this is very discouraging to the bulls and will lead to a big selloff soon. With volume so light and the holiday season here, I'm not sure how quickly it will be for the decline to materialize, i.e Monday? Two weeks? But regardless of the exact timing, financial media is boasting about this week's massive stock gains as if it's bullish, while the technicals suggest the action this week is actually bearish for the weeks ahead. The market can certainly float higher in light holiday trading, but that's a guess, what's more certain and supported by technical evidence is that the market looks poised to decline hard soon.

Today's high seems like a good place to put a stop loss for aggressive bears. For all others, above 1277.55 remains a very solid stop level.

Prechter: "The Trend Is Exhausted"

The euro appears to be in a lot of trouble here. The gap from this past Sunday is still open, the RSI is diverging on the 4 hour chart, and today's selloff looks like a top is in. I'm aggressively bearish the euro with a stop just above 1.3550 for my short term trades.

The Trend is Exhausted

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.

Fading the Rally - Stocks and Euro

noreply@blogger.com (Todd) — Wed, 30 Nov 2011 15:37:00 +0000

I was hoping the market would move as planned so I could go another day without posting something, but the market likes slapping me in the face every chance it gets, so here I am. If today's rally were just out of the blue, or based on some change in overall sentiment, I'd be concerned about the wave count and longer term bearish outlook. But the fact that it's due to some government bankers coming up with some nonsense plan to save the world for the 1000th time, I'm not concerned about the longer term bearish outlook at all. This rally is temporary and I'm fading it (shorting it), but will probably wait until today's close, or sometime tomrorow.

The rally does create some problems for the short term wave count though. Breaking above 1225 eliminates the wave count the way I previously had it. And I feel the best way to count the decline now is how I have it above. The problem is that wave (ii) is larger than wave ((ii)), and since wave (ii) is of a smaller degree then it should also be smaller than larger degree waves. But it's not. This structure does not violate any EWP rules, but it is a guideline and one that has served me well in the past to follow. But the fact that the break of 1225 was due to human banker/government manipulation does make the above count more likely since we can't assume a nice fluid and natural EWP pattern is unfolding when unnatural influences and manipulation have now interfered. So the fact that the waves are not unfolding perfectly in the face of the intervention today does give me a little more confidence in the above count, despite the guideline being violated. 1277.55 is my stop. Breaking above that level won't turn me bullish, it just means I have to wait a little longer to short again.

Prechter: "The Trend Is Exhausted"

In the short term 1 hour chart the euro rally looks amazing and it looks as if we should try to get long any chance we get. But looking at the daily chart you'll see that it looks more like just another bump in the road on the way toward lower levels. The fact that this rally didn't occur right at a bottom, and that Sunday's gap is still left open, have me wanting to short this rally. It should be fully reversed soon.

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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.

Stocks Bounce to Relieve Severely Oversold Condition, then will Fall to New Lows; Euro Gap is Bearish

noreply@blogger.com (Todd) — Mon, 28 Nov 2011 16:14:00 +0000

I had a nice week off with family and friends, gobbling up turkey all weekend and I hope you all did too. And speaking of turkey, I feel like one now.....boy did I eat a lot. I better hit the gym again to train for the next upcoming holiday season gorging I'll be doing in just a few more weeks.

Stocks declined last week despite the fact that it's usually a positive week for stocks historically. Volume was light, of course, but just the fact that the market declined and couldn't hold a rally is a strong sign to me that there is a strong larger downtrend in place. But after such a long and slow downtrend it has left the market in severely oversold territory, which has led to today's bounce. Again the bounce appears to be tied to "hope" of better days in Europe. And we wavers know this will not result in any sustained rally, so it merely presents a good shorting opportunity. The count is posted above, the bottom of wave i is my stop level just above 1225.

Prechter: "The Trend Is Exhausted"

The euro popped hard at the open Sunday but has left a huge gap open as a result. Gaps are usually filled, and there is no reason to doubt that the downtrend is still intact for the euro. So I'd be shorting rallies, especially until that gap is filled.

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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.

Bye-bye Mr. Triangle, Stocks and Euro Headed Lower

noreply@blogger.com (Todd) — Thu, 17 Nov 2011 22:57:00 +0000

I have said that I'd like to see the market pick up in volume, to at least 1 billion NYSE shares, and the 1225 level in the S&P be broken in order for me to remove the triangle count and put the aggressively bearish top count up as a far out first choice. Well, we got both of those things with today's action. There's still some risk to the short term bearish view with Thanksgiving week right around the corner, but I listen to the charts and internal behavior of the markets more than a loose historical seasonal bias. The typically bullish week we are about to embark upon should be considered as a part of the overall trading strategy, but in my opinion it shouldn't be the sole reason for making a trade.

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Above is the top count and it is aggressively bearish and means the market should unfold sharply lower in the coming weeks. Yesterday I eluded to Elliott Wave International's "Short Term Update" bringing an issue related to the triangle. At the time I didn't want to divulge proprietary information, but now that the triangle is broken I'd like to explain further. The Short Term Update brought to light an issue that contradicted the likelihood of the triangle scenario playing out. They (Steve Hochberg) stated that yesterday the Wall Street Journal published a story that an extremely bullish triangle formation was in place. So of course, the contrarian method of thinking is that if the Wall Street Journal is reporting a bullish triangle is in place, then that means it's a pretty mainstream thought and therefore it most likely will NOT occur. In yesterday's post, I eluded to Hochberg's statement because I thought it was the strongest piece of evidence against the triangle interpretation. It turns out Hochberg was very wise to post that analysis yesterday. The triangle scenario has been eliminated, and the EWP structure suggests the market will head sharply lower soon.

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The euro rally has been very flat and filled with 3 wave moves as it only progresses sideways as you can see from the above chart. This is clearly corrective and suggests the euro will head lower soon. And remember, the last few years I can remember, the euro has been sold off hard during Thanksgiving week. Like I said for stocks, I don't think these types of historical seasonal biases should be traded on solely, but they should definitely be considered.

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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.

Thursday Should Eliminate One of the Two Top Counts; Euro Trend Remains Down

noreply@blogger.com (Todd) — Wed, 16 Nov 2011 23:17:00 +0000

Internals flipped bearish with the declines today and volume increased as well. 915 million NYSE shares traded today which is a strong increase from when the market was pushing higher, however in the big picture this is still fairly weak. It instills confidence in that in the longer term picture, the trend is still down, but for the short term I'm not sure this lends itself to the start of a wave 3 at various degrees. But we'll see.

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Again, the top count above is very bearish. It suggests wave iii of (iii) of 1 of (3) of ((3)) is underway. Unfortunately, I wouldn't expect to see such deep and long lasting corrective rallies for this structure, and I'd also expect volume to be surging with the declines. Perhaps the holiday season malaise is already kicking in, but who knows. The alternate triangle count comes in a very close 2nd but could be eliminated early tomorrow on a break below 1225. If the triangle is eliminated, then this count above holds strong footing and will be used as a basis for all my trades for the foreseeable future.

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The alternate triangle count is listed above. You can see that it's fitting quite nicely into a good consolidative triangle pattern that should be finishing up right now. The result of this triangle is of course a sharp surge higher to a new high which will then be quickly and completely reversed. Another strong piece of evidence for this count is how prices reacted to the news that came out about US banks worried that European problems might affect them. The market sold off sharply in conjunction with this news. EWP states that E waves of triangles often are the result of some news event, but are the last move of the triangle and result in sharp reversal thrusts to new extremes. Well the news event about European and US banks led to a decline that fits well for wave ((e))'s placement in the triangle count and it means that early tomorrow the market will undergo a large and sharp thrust higher to above 1300 at a minimum.

A sharp move higher on solid volume would put this count as top choice and give wavers a good opportunity to start establishing short positions above 1300 in my view since thrusts from tirangles are finishing moves are quickly and completely reversed.

A break below 1225 would pretty much erase this count from contention and put the first bearish count post at the top as the best viable count. For those of you who subscribe to EWI's Short Term Update you saw what Steve Hochberg had to say about the triangle scenario and I feel it's very compelling myself. It's also a big reason I have the two counts listed the way they are.

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After a nice clear ABC rally with a B wave triangle in the middle and a C wave that stopped around 78% fibonacci, the euro did what was expected, it fell to a new low. The euro continues to decline impulsively and rally correctively (3 waves). I see no reason to abandon the bearish stance here. I remain short this pair.

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 Triangle PIcking up Traction; Euro to Correct Higher, then Fall Hard Again

noreply@blogger.com (Todd) — Mon, 14 Nov 2011 22:11:00 +0000

Internals suggest that the usual market participants had better things to do today. Only 709 million NYSE shares were traded today, surely one of the slowest trading days of the year. When you combine this with the price action it lends itself more to the triangle alternate count I mentioned yesterday. With Thanksgiving coming up next week, a week that's typically good for stocks, it's possible we might just float around in a net sideways-to up market for the next couple of weeks.

America's First Deflationary Depression: Is a Bigger One Ahead?

With volume so light on today's move, it would seem more likely that today's weakness was corrective, and that a new high is still on the way. But seeing as that the correction from the Wave i low would be getting quite elongated, along with the unorthodox look of wave (iii) down that's supposed to be underway right now, it means this count is losing steam. If this count is on track still, I'd like to see a sharp and quick pop to a new high tomorrow followed by a sharp reversal, or the market just fall hard with solid volume (above 1 billion NYSE). Anything other than that would lend itself more to the below triangle scenario, or perhaps something else entirely.

The sideways action over the past month or so, along with decreasing volume numbers, fit well into the triangle scenario shown above. If so, this would fit somewhat nicely into the upcoming holiday malaise we should see for the next week or so. I think tomorrow's price action and internals will be very telling on which of the two above counts are most likely in play.

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One of the reasons the more bearish count is still my top choice at the moment is the wave count in the euro. The euro appears to have topped and reversed again aftern an exhaustion gap up from Sunday. The resultant decline looks impulsive, again furthering the case for a top and bearish reversal. Yet stocks did not follow the euro's intensity to the downside today. This tells me that perhaps the upcoming corrective euro rally with fall short of making a new high, yet stocks might make a slight pop up to a new high before reversing, creating an intermarket divergence I would see as very bearish. So I still think it's better to be short the euro here. And aside from stocks, the past few years the Thanksgiving holiday has been very bad to the euro and great for the US dollar. If that holds true again this year, it means heavy selling is just ahead for the euro, and the wave count above supports this outlook.

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.

Volume Numbers Continue to Suggest the Stock Rally is Corrective; Euro Topping

noreply@blogger.com (Todd) — Mon, 14 Nov 2011 01:03:00 +0000

From an EWP perspective the rally is getting very deep. After a nice top and reversal for wave (ii) at the 78% fibonacci retracement level of the previous decline we got a very nice and sharp selloff which was encouraging for the bears. But the ensuing rally has gone quite deep, yet has not made a new high. Therefore the above count remains valid. But I expect a top to be in now, or with just one more quick pop higher tomorrow morning before the heavy selling returns. But that "pop" higher is not necessary, looking at the euro we may get immediate weakness right at the open tomorrow. Either way, the risk/reward favors the bears here.

The count on the back burner is the possibility that a triangle is forming which means Intermediate wave (2) is not complete, and that the larger downtrend has NOT resumed. This would also be another explanation for the decreasing volume the past few trading days. I don' t see this count as top choice right now though, but with the holidays approaching and the weak volume right now and sideways price action, this count is gaining traction as a strong possibility. A break above 1277 would put this triangle alternate on the table.

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Volume supports the EWP count in that last week's rally has been on severely weakening volume. As I hinted in my last post, the Veteran's Day holiday Friday brought the market a nice rally but did so on weak volume at only 745 million NYSE shares. So the masses aren't taking part in the rally, at least not yet. So for now, price action relative to volume gives a bearish outlook for stocks right now.

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The euro looks to be topping here. Using basic EWP analysis it appears a nice ABC correction is complete with wave B being a triangle. Although I don't have a longer term count that's reliable, it doesn't mean we can't us EWP basics to get a good idea of the shorter term action.

The 78% fibonacci retracement of the previous decline has been reached and slightly exceeded, making it the preferred maximum retracement possible to still reliably count this rally as a correction. The fact that the RSI and stochastics diverged on the recent new high at today's gap open, and that it looks like an exhaustion gap since it was immediately reversed after a big rally, the euro may be topping here. I'm looking for the euro to head sharply lower now and the risk here is tight, i.e. either at today's high or 1.3860.

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 and Euro Rallies are Weak, Larger Trend is Down

noreply@blogger.com (Todd) — Thu, 10 Nov 2011 23:08:00 +0000

Today's price action was strong in that we got a triple digit Dow rally, but other than that, the move today looks quite weak. The S&P lagged the Dow slighty, but the Nasdaq lagged big time as it struggled to just close in positive territory. Also, the rally never really got any legs to push higher and hold itself higher, and as a result it so far looks weak and choppy on the hourly charts, which is corrective. But this is subjective I suppose, but what's hard fact is that the internal composition of today's rally was quite weaker than what accompanied the decline yesterday. Here's what I mean:

Today's up volume was 71.8% of total NYSE volume while yesterday's down volume was 98.5% of total volume. Total NYSE volume today was 895 million while yesterday's was 1.1 billion. Today had 409 S&P stocks closing higher while yesterday had 499 stocks close lower. And today, the NYSE had 2.3 advancers for every one decliner while yesterday had 9.6 decliners for every one advancer.

So clearly, the data we have from the last two days suggests today's action is simply just correcting the extreme bearish move from yesterday. The larger trend is down.

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The wave count supports the internals' analysis above. Minuette wave (ii) ended right at the 78% fibonacci retracement level of the previous decline and sold off sharply after doing so. Today's bounce is choppy and internally weaker than the previous decline, and when you combine it with the fact that the price action looks choppy and weak so far, it has me concluding that today's move high is corrective.

Tomorrow is Veteran's Day so volume will probably be light. And looking at the price action is seems there is a little more work to do to correction Wednesday's massively bearish selloff. So I can see tomorrow being an up-day on light volume. But that is fine with me, just another opportunity to add to my shorts with tightened risk at 1277.

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I'm getting close to developing a confident wave count for the euro, and it is aggressively bearish as you might guess. There is no reason to think the euro's larger trend is anything but down at this point. After the last large euro decline it could only manage a weak 38% retracement while US equities made a 78% retracement. So I'm not expecting fireworks to the upside for the euro in the coming days either. Regardless, the 1.3850 level should act as a solid ceiling to cap euro rallies, leaving a good clear and somewhat close stop loss level for the bears.

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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.

Stocks and Euro Top, Look out Below!

noreply@blogger.com (Todd) — Wed, 09 Nov 2011 23:49:00 +0000

Judging by the internals and price action today, all signs point to another significant top yesterday. Adding to this is the fact that the S&P cash index topped and reversed right on the fibonacci retracement level of 78%, a common place for second waves to end.

Today's internals were extremely bearish with only 1 S&P stock closing higher, 98.5% of NYSE volume to the downside, and 9.6 decliners for every 1 advancer on the NYSE. When you add everything together, the market is tracking the wave count well and it means that heavy selling to much lower levels is ahead of us. The only "question mark" out there for the short term is how the Thanksgiving and Christmas holidays will play on the markets since they tend to be composed of light volume rallies for the market. Yet the wave count suggests aggressive selling in the coming months. We'll see.

For my charts and wave count see yesterday's post below.

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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.