(ADMIN NOTE: This was originally posted by Mars on March 17 — there was a site issue and the charts were lost. Site issue has since been fixed.)
The SPX reversed lower from my 1887 pivot (actual high 1883.57) and completion of its 5 wave advance. While the initial equity decline looked corrective, the USD/JPY declined impulsively from the post NFP highs warning of greater risks ahead. Bulls were warned…
“Friday’s post NFP pop and drop warned of exhaustion on “good news” while the USD/JPY rallied straight up to strong resistance and reversed lower.”
“My analysis suggests this push new to highs is a 5th wave of an intermediate degree and not the start of a new bull run. “
“Other markets such as Copper, Crude and USD/JPY are warning of a larger potential decline in the short term.”
My analysis focuses on the Elliott Wave structure of macro markets to determine the path of least resistance in the allocation of risk. Utilizing “context” of bullish/bearish sentiment, inter-market divergence/correlations and analyzing global market conditions are central to my work. Price is the final arbiter. Identifying key pivot points with complete EW structures and price reactions around those levels is a key ingredient in buy/sell decisions. This strategy has continued to be proven successful for me.
To the charts…
The most important chart to me right now as a reflection of global risk appetite continues to be the USD/JPY. The post NFP reversal and subsequent impulsive decline has increased odds of a continued decline in risk assets. This chart does not look bullish. As per EW guidelines for a triangle thrust 5th wave, the minimum expectation for the decline is back to the origin of the 4th wave triangle around 97.00 – This pair is warning of continued weakness for global risk assets. From a technical perspective, the retest and rejection of the green trendline and wave 3 high, coupled with a MACD zero line reversal and subsequent impulsive decline all point to a bearish resolution for this pair.
On a near term basis, trade below 101.20 would “lock in” a 3 wave counter-trend rally from the February 100.75 lows and open the door to 99.00 and then my 97.00 initial downside target. Near term, USD/JPY looks like it needs one more 4th and 5th wave below 101.20 to complete wave (i) down where I would expect a counter-trend rally of smaller degree from strong support at previous 100.75 lows. The trend remains down for this pair which is the canary in a coalmine for risk assets. I do not expect the post NFP highs (103.77) to be challenged. A break below the purple trend channel would warn of a 3rd wave decline.
The SPX reversed lower from trendline resistance and measured target (within 3.5 pts) to close below the 20 sma. There is a cluster of strong support in the 1827/32 area which should provide near term buying interest around the 50 sma. However, the daily chart ultimately suggests a revisit of the (ii)-(iv) trendline and potentially lower towards the 200 sma and previous 4th wave at 1740/50. The red count warns that this 5 year bull market rally is over and no further highs are required.
The SPX near term count is less clear but continues to stair-step lower as it begins to look more impulsive. There is a near term cluster of measured support around 1828 including the 50 sma, 0.382 retracement of the wave (5) advance and previous 4th wave so we should expect the buyers to step up there. The nature of the next rally (impulsive or corrective) should be instructive. Ideally, a drop towards 1828 would coincide with a small degree 5th wave decline on the USD/JPY to previous swing support, laying the foundations for a counter-trend rally.
One of the key risk-on tells of this bull market has been the Philly Semiconductors (SOX). Last Thursday, the SOX made a new rally high which quickly reversed lower, eliminating the prior week’s gains. This reversal was confirmed by significant RSI and MCD divergence at the highs. This key reversal of a long established trend is a warning of exhaustion and should be respected.
The 3 wave rally into the BKX and DJT highs suggests the structure is incomplete to the upside. It also suggests a “b” wave into recent highs as part of either an expanded flat targeting the 200 sma to the downside for wave c before wave 5 up begins OR a 4th wave running triangle of sideways chop prior to a 5th wave thrust to new highs. Either way, it’s difficult to get long term bearish where key markets (DJT and BKX) require further upside. Near term however, this chart supports the view of further downside for this correction.
The DAX has recently led the decline for risk assets and is at a critical technical juncture here with 200 sma support nearby. A strong close below the blue long term trendline (and 200 sma) would suggest a larger decline. So far we have 3 waves down nearing equality which looks corrective so bears should be careful about selling into the hole here. I would expect a back-test of the red trendline for any counter-trend rally.
The US Treasury market is also at a critical juncture and has NOT yet confirmed a larger correction for risk assets. A break lower in yields will increase confidence in the bearish case for equities. “Mind the gap” below in 30 yr Treasury Yields…
30yr Treasury Bond Yield Daily
The EUR/USD overlapping advance warns that this trend is terminating with an ending diagonal and at risk of reversal from nearby levels. With US$ bears warning that the end is nigh for the US$, this may be an opportune time to buck the trend with a long US$, short Euro trade.
The DXI has continued to hold the critical 79.00 support and has NOT made new lows while the Euro has made new highs. This intermarket divergence, while it continues, often occurs at key turning points with US$ pairs. Let’s see if the US$ can reverse course here…
Crude Oil declined as expected towards 98.00 in 3 waves reaching equality. The rally off the lows does not yet look impulsive but must hold last week’s low of 97.55 to retain its corrective 3 wave structure. Trade back above 100.13 would bolster the near term bullish case while above 103.00 would suggest significantly higher prices.
Crude Oil 120m
That’s all for now.