“There is however a more immediately bearish case which I prefer given the heavily skewed risk/reward and similar probability… That the initial 5 wave decline from ATH’s was merely wave i of (c) and this rebound is a counter-trend wave ii rally as part of a larger 5 wave decline (red count). I just like the r/r profile up here for short positions. My analysis continues to point to limited upside and significant downside risks so I will continue to trade it that way…” enough said
We are in the 11th inning of this bull market ballgame. The leaders are now laggards (RUT/NDX/SOX) and the momo stocks are getting thrown out in exchange for income. In Fed we trust and ECB we hope… hope is not a strategy. Volume is the footprint of the herd and right now every down draft is supported by out-sized volume. Key moving averages are being sliced through at will and with Friday closing on its lows, I expect continued follow- through to the downside. I am particularly encouraged by the complete lack of fear with the VIX remaining below 20 following an 80 pt decline in the SPX. Complacency prevails and downside risks remain. I am NOT in the BTFD camp until I see evidence of fear and capitulation.
The daily SPX chart has been warning of rally exhaustion with multiple momentum divergences since the May 2013 highs as each subsequent new price high is accompanied by deteriorating internals. While the count suggests more 4th and 5th waves are still to be unwound before this rally terminates, I continue to maintain that this is not the time to be picking up pennies in front of a bulldozer. Given the late stage of this 5 year rally, risk remains to the downside as there is a lower probability alternative count which suggests the entire rally may be over. However, no structural damage has yet been done to the bull market rally so strength should be respected. I think it was Keynes who said, “markets can remain irrational a lot longer than you can remain solvent”, so I will let price determine the path forward .
The near term SPX chart has continued to provide an excellent roadmap. My preferred count remains unchanged and counter-trend rallies should continue to be sold. With all equity indices closing last week on Friday’s lows, I expect continued downside follow-through. Trade back above 1873 will significantly weaken the immediately bearish case. The alternate (lower probability) count has the SPX finding support in the 1810/15 area for a small wave c (red count) as part of a more complex correction. There is no evidence of a tradable low.
The daily DJIA chart would look best with one more marginal new high to complete an ending diagonal 5th wave setting up a great risk/reward shorting opportunity. The overlapping 3 wave rise nature of the rally looks terminal. Near term strong support resides in the 15700/750 area of the 200 sma.
Importantly, the BKX has reversed lower from my long awaited 74 target in what may be a harbinger of things to come. Without the banks, this market will not continue higher.
One of my favorite shorts right now is the French CAC40. It appears to have completed its 5 year counter-trend rally in 3 waves of equality, terminating in an ending diagonal. While we must allow for one more marginal new high, it is not required and the r/r for this short setup is great.
The ASX200 (Australian stock market) also appears to be on the cusp of a major decline after completing an Ending Diagonal 5th wave. Once again, there is room for one more marginal new high but it is not necessary.
There is a common theme here. One by one, the leaders appear to be rolling over. There has been no confirmed change of trend as yet but the bulls ought to be careful up here, we’re in nosebleed territory.
The US Treasury curve is warning of a continued decline in yields in the near term to partially correct the 5 wave rally from the July 2012 lows. My long term analysis suggests the lows in yield will not be revisited and US yields will rise. The structure looks clear to me.
The US$ continues to get sold off aggressively. It appears that most traders have been caught on the wrong side of the US$ on the expectation of QE taper and ECB initiating QE. The US$ cannot get a bid which is worrisome for risk assets. I posted this chart some time ago and even though the DXI hangs on to shelf support it is still trading poorly, unable to achieve even minimum upside targets. This is worrisome as a break of my often stated 79.00 critical support suggests a swift decline to 75.00…
The DXI chart conflicts with that of the EUR/USD which suggests a fatiguing overlapping ending diagonal. When I have two competing, diametrically opposed structures, it is best to stand aside until the market tells us which interpretation is the correct one.
The USD/JPY continues to provide the cleanest count, targeting 100 and below. There is nothing bullish about this chart and any counter-trend rallies should be sold aggressively against 104.15. The more charts I look at, the more bearish I am on equity markets…
Risk remains to the downside. That has been my consistent theme for 2014 and it has served me well. Risks are increasing with markets aligning for a significant fall. That’s all I have for now so take care. 🙂
Addendum: The April Liquidity Schedule is very strong but the charts do not support this. I believe signalling and market reaction is more important than the $ amounts but we should be mindful of the liquidity support this month.
Be careful what you wish for… that’s my advice to Janet Yellen. Despite the Fed tapering, the dovish tone set by Yellen is crushing the US$. This is a double edged sword. The US exporters (and China) will no doubt benefit from a weaker US$ but at what cost? Commodity price (cost push) inflation and a potential flight from US$ denominated assets. I’m not buying what she’s selling because I believe the US$ is the canary in the coalmine warning that all is not well in the state of Denmark.
The SPX reversed lower like clockwork (as per last week’s chart), trapping the newly initiated longs which is what (b) waves tend to do. This is why I trade EWT, it gives me an edge for excellent r/r probability based trading. Yet another expanded flat and 3 waves into recent highs. As I’ve said before, this market just loves expanded flats. This week’s decline met the minimum conditions for the (c) wave of a textbook expanded flat (terminating below the extreme of wave (a)) and implies new ATH’s immediately ahead (black count) after finding strong support at the 50 day sma (near term bullish case). Even if we make new highs, I expect limited follow through given where we are in the longer term count as these 4th and 5th waves unwind.
There is however a more immediately bearish case which I prefer given the heavily skewed risk/reward and similar probability… That the initial 5 wave decline from ATH’s was merely wave i of (c) and this rebound is a counter-trend wave ii rally as part of a larger 5 wave decline (red count). I just like the r/r profile up here for short positions. My analysis continues to point to limited upside and significant downside risks so I will continue to trade it that way. Both counts are detailed below…
The primary reason I favor the near term bearish count for equities is the USD/JPY which has begun a 3rd/C wave impulsive decline. I tweeted last week that once 103.77 was exceeded, I remained strongly bearish with a 104.00/104.20 sell zone target. The post NFP high was 104.13 which quickly reversed lower, confirming my bearish count. I do not expect the 104.13 high to be exceeded in the near term before 100 is breached and more likely much lower towards 97.00. I remain strongly bearish this pair.
The AUD/JPY count I’ve been following for some time is now in its long term sell zone. While minimum requirements for wave c of 2 have been met (above wave a), the structure doesn’t yet look complete. My ideal sell zone is 97.50-98.15 to get short this pair and stay short.
Occasionally, I like to post this DJIA chart for a bigger picture perspective… just to drive the bulls crazy LOL
That’s all for now. Take care 🙂
Until then, and maybe this time is different, but this is what I see for the SPX near term…
Take care 🙂
The equity markets are fragmented with the SPX holding key near term measured support identified last week (1840) while higher beta indices such as the NDX and RUT broke lower. The SPX has remained range bound for 3 weeks now in the 1884 – 1840 region while buyers and sellers search for direction and conviction. While the declines appear corrective in nature, there is a risk of further breakdown here as low volume rallies are sold aggressively in cash hours. Until that behavior changes, I continue to believe the near term risk is to the downside for US equity markets as they have been unable to rally despite a strengthening USDJPY and European equity markets. Correlations provide valuable information when they stop working.
As I have been maintaining, the near term SPX count shows 3 waves into recent highs which suggests these highs will ultimately be exceeded. The price action down from the ATH is choppy and overlapping with no clear direction. The EW options continue to be numerous at this juncture and we need a clear break from this congestion to provide more clarity. Key support levels to watch at the 50 sma at 1834 and 100 sma at 1819. Below this and we head to the (2) – (4) trendline support at 1785. A strong decline below the 50 sma before trade above 1876 will imply the lower targets will be reached. I expect the recent highs to provide strong resistance. Sometimes it’s best to stand aside until the markets provide a clearer direction. I will update the near term charts during the week as we get more price information.
The Nasdaq Composite H&S chart I posted last week had a measured target of 4120 while last week’s extension lower bounced off the 100 sma at 4131 (close enough?). Friday’s opening push higher ran into strong resistance for a back-test of the green long term trendline and reversed lower. Important near term support remains at the 100 sma.
The USD/JPY appears to be completing a 3 wave counter-trend rally into 103.15/25 sell zone. I am looking for a strong 3rd wave reversal lower from these levels which coincides with my bearish near term outlook for US equities. This count is invalidated above 103.77
The EUR/USD may have completed 5 waves down from recent highs but the near term count isn’t as clear as I’d like. I’m still a seller of Euro rallies in the 1.3876 area. While the bigger picture count allows for one more marginal new high above 1.3967, I remain a seller around these levels as the risk remains for much lower prices for this pair.
The DXI however has not completed a 5 wave advance and requires trade above 80.36 to confirm a potential change in trend. Prices are compressing within a potential 4th wave triangle and I’m looking for a 5th wave thrust higher.
That’s all I have for now. The market has us on standby until we can get a clear break from recent ranges. I continue to look lower but it is a tough call right here. We are in the middle of the recent range. The USD/JPY is warning of a potential trend reversal in risk assets and a 5 wave decline would add further evidence… Take care 🙂
Wednesday printed bearish engulfing candles for SPX, DJIA, NDX, SOX, RUT, BKX and DJT… never a positive sign for a retest of recent highs. SPX targets remain as per my weekend update with the 100 sma firmly in sight on a break of the 50 sma. Only trade above Wednesday’s high would negate the near term count. This has been a volatile week with every gap higher open being sold off aggressively which is NOT bullish. Caveat Emptor…
Near term, the SPX continues to count best as yet ANOTHER expanded flat (3-3-5) targeting 1812/17 although we should expect the bulls to strongly defend the 1840 area. Sometimes H&S patterns align strongly with the wave count which increases the odds of the pattern “working” which is the case now. The measured target for the H&S of 1815 aligns with a cluster of Fib targets and 100 sma. The red count would be materially more bullish if the 1840 area is successfully defended but this is NOT my preferred count.
The USD/JPY is now in its 3rd inside week, trapped within its 103.77 – 100.75 trading range. I am still expecting this range to break to the downside. Trade below 101.20 and then 100.75 will likely see a 3rd wave accelerated decline towards my initial 97.50 target.
The near term count of the USD/JPY is less clear. The green count implies a re-test of the top end of the range while my preferred count is for an immediate decline below support as long as 102.50 holds to the upside.
The Nikkei 225 paints a similar picture of counter-trend rallies within an ongoing bear market…
While I have been looking for a bullish reversal for the DXI, we have NOT yet seen a complete 5 wave impulsive rally to indicate a change in trend. Near term, I am looking for a triangle thrust higher in wave (v) towards 80.50 to complete 5 waves up before a bigger picture rally to “at least” 81.50. Below 79.75 and the count gets messy once again. The lack of follow through is concerning for the US$ bulls.
In conclusion, my SPX roadmap continues to track well as we look lower in the near term.
Trade what you see and not what you believe 😉
The SPX reversed again from my 1887 pivot (new ATH 1883.97) as warned in Friday’s pre-open update. As this new high was achieved in 3 waves, it is best counted as part of a larger corrective structure which implies new ATH’s are to be expected following a deeper correction. The Nasdaq indices reversed down hard on Friday warning of the air pockets below. The US$ FINALLY reversed higher on Fed day as expected with the DXI holding critical 79.00 support to maintain the intermarket divergence with the Euro and opening the door to a significant change of trend. The US$ was supported by higher yields across the US Treasury market with 5 yr and below leading the charge higher following Yellen’s first FOMC Meeting. As I’ve been maintaining for the last few weeks, this is not the time to be initiating long positions in equities as I continue to expect deeper corrections in this overlapping advance. The charts are overstretched and over-loved and risk remains to the downside.
The daily SPX chart continues to warn of a fatiguing bull market with multiple RSI and MACD divergence at each new high. Friday closed above the 5/10/20 sma’s but the structure suggests this support will likely be broken near term with a direct test of the 50 sma at 1833 and measured cluster of support at the 100 sma around 1815. Below this and strong support remains at the (ii)-(iv) trendline which crosses at 1780 this week. Expect strong overhead resistance to remain at my 1887 pivot. The 3 wave structure into Friday’s high tells us that new ATH’s will ultimately be revisited, complicating the structure.
The near term count posted on Friday provided the ideal roadmap for a reversal with my short term (B) wave target of 1885 (HOD 1883.97). Initial measured targets for wave (C) of an expanded flat are 1840 (1.0x wave (A)) and 1813 (1.618x (A)) with the secondary target being more likely near term corresponding to a larger cluster of support. I have outlined my preferred count here but with 3 wave corrective structures, there are a myriad of alternatives (Triangle, Ending Diagonal, etc) so we’ll have to track the near term count for additional clues. Just as the 3 wave rise from 1840 – 1874 warned of a “correective” move higher and not the start of a bull run, the 3 wave rally to ATH’s warns that there will be new highs to come.
The ES also shows a clear 3 wave decline and 3 wave counter-trend rise warning of a C wave decline to the 1820 area for equality…
The Nasdaq indices printed a strong bearish reversal candle on Friday warning of lower prices to come. The failed breakout of the prior “inside” day warned of a lack of buyers at these elevated levels. The Nasdaq Indices remain s/t bearish while Friday’s high remains in place. A break below 4240 for the Nasdaq Composite has the potential to trigger a measured H&S decline to 4120.
I have been focused on the BKX for the last few weeks as it has been my “tell” for continued higher equity prices to the expected. Last week’s push to new highs satisfied the minimum requirements for a complete upside EW pattern. Importantly, the BKX also satisfied my long term measured objective where wave (C) equals (A) since the 2009 lows. While there are no signs of a downside reversal yet, I am now alert to a 5 wave decline of smaller degree indicating a potential change in trend. The recent euphoria around Bank of America on CNBC is also telling of a nearby top.
To the FX markets and the EUR/USD broke down post FOMC following completion of a larger Ending Diagonal highlighted last week. IF this interpretation of the current wave structure is correct, we can expect a larger degree decline for this pair while the 1.3967 highs hold. I am bearish the Euro here against recent highs.
The near term structure counts best as an impulsive nested decline which requires additional 4th and 5th waves to complete to the downside. Expect near term resistance in the 1.3820/1.3845 area to hold any counter-trend rallies.
The DXI has also reversed higher from critical support maintaining the inter-market divergence I was looking for as I expect prices to break back above 81.50. Key support now resides at 79.26 for this bullish reversal. I am bullish the US$ against most pairs, consistent with my Euro count…
The USD/JPY has been supported by broader US$ strength but I expect this to be short lived. Expect resistance in the 102.80 area. Price needs to remain below 103.77 to maintain a bearish bias near term. What concerns me about this count is the recent rally from the 101.20 lows appears impulsive in line with other US$ crosses so I am on the sidelines for now.
The Nikkei 225 is not a bullish looking chart with impulsive declines and corrective counter-trend rallies since the 16240 highs. I am in the “sell the rallies” camp for the Nikkei expecting a decline below 13000 which would be in line with my bearish USD/JPY count.
The US Treasury Yields have spiked higher following Yellen’s first FOMC meeting but the near term count is unclear. What IS clear is the 5 wave impulsive rally in the US 5 year Treasury Note since the 2012 lows which tells us the long term trend has changed. Ideally, a near term decline towards 1.40 would present a great shorting opportunity for the 5 year. While I would “expect” a deeper retracement for wave  / [B], given the long term structural decline in yields and the MAJOR turning point, there is no reason why yields can’t continue immediately higher. I just don’t like the r/r here.
That’s all I have for now 🙂
Most equity indices had an inside day following the NFP whipsaw so we are now looking for a breakout. Importantly, the 3 wave rally from 1840 to 1874 is guiding my thoughts here. Not clearly impulsive so the highest probability options are…
Option 1 Flat: IF trade above 1875 then measured target of 1885 for wave b before c down towards 1800. This market just LOVES expanded flats so watch for a failed new high around my 1887 pivot. The red count is immediately bearish while below 1874.14
A closer near term count of this potential structure…
Option 2 Ending Diagonal: Choppy overlapping wedge-shaped rally to complete (5)
As mentioned in prior updates, the BKX and DJT required new highs and the BKX has followed suit while DJT lags. The SOX however has once again reversed a large bearish reversal candle to break to the upside again. Tough to be immediately bearish given these conditions
(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.
“Warning signs, warning signs, I hear them, but I pay no mind” Talking Heads
Equity markets have been unable to exceed Friday’s post-NFP highs but the near term price action looks corrective. Remember, I continue to believe we are in a 5th wave of intermediate degree so this is not the time to get bullish. Various other indicators are warning of increased volatility ahead so caution should be the watch word. Dr Copper has been hammered (as warned on the weekend), Crude Oil has reversed lower and USD/JPY looks to be at the crest of a 3rd wave decline unless it can regain Friday’s highs.
SPX – My 1887 pivot target has held the market’s advance so far and while the decline looks corrective, this is not the time to be adding fresh longs as risk is skewed to the downside. While Tuesday’s decline caught support at the 10 sma, it also printed a bearish engulfing candle reversal warning of greater potential risk to the downside. The daily chart below gives some perspective as to where we are in this rally, bumping up against a long term trend channel with multiple momentum divergence.
The near term SPX chart clearly shows a 5 wave impulsive advance followed by a 3-3-5 Flat correction allowing for new ATH’s. The main argument for new ATH’s is the structure of the DJT and BKX highlighted in the weekend with 3 waves into new highs which means the advance is not yet complete. Other markets such as Copper, Crude and USD/JPY are warning of a larger potential decline in the short term. If the equity markets can shake off these China and Ukraine concerns, the door remains open for new ATH’s. There is no clear evidence yet of a reversal so the benefit must be given to the bulls at this stage while trade below 1860 would threaten more downside follow through.
On Friday, the USD/JPY tagged the 0.618 Fib retracement with a retest of the long term trendline and reversed lower. With 3 waves up from the 100.75 lows, this count looks very bearish unless the bulls can reclaim new highs above 103.77
Crude Oil has broken down below 100 as suggested in my weekend update with initial targets in the 98.00 area where (a) equals (c).
Dr Copper has broken long term support threatening significant downside as it has now triggered my breakout levels with expanding volatility. A close below $2.893 would add confidence to the downside breakout.
One common theme of these charts is the recent decline across separate risk assets with correlations approaching 1 is a clear warning of liquidity risk. Take note and don’t be complacent.