There are currently 2 competing alternatives for the EUR/USD here…
1 – The high is in for the Euro and this impulsive decline from the high was wave (i) down (black count bearish)
– Euro reversed from our target sell zone
– GBP/USD has already broken down below trendline support
2 – This impulsive decline was wave c of an expanded flat meaning new highs are directly ahead (red count bullish).
– The rise into the high appears to be in 3 waves which highlights caution for the bearish case
– This current decline found support at its rising trendline despite numerous attempts to push lower
– The DXI failed to break out of its downward sloping trendline
– USD/JPY and USD/CHF require another new low to potentially complete its decline
The nature of the rise here (impulsive or corrective) will provide us clues for the next trade here.
We have conflicting signals here
This is how I am counting the short term chart…
Well, that didn’t work out. Big stop run in the Euro took me out of the trade. New highs for this rally. I will await another 5 waves down to identify another entry point. A decline below today’s low of 1.3239 should lead the way for a larger decline. Patience is required here.
SPX had an inside range day, consolidating Friday’s advance from the lows. While the generals (SPX/DJIA) are leading this final advance higher, it looks like the troops (RUT/DJT/BKX) are reluctant to follow. When the markets are fragmented like this, it pays to look for exhaustion and a fast reversal lower. With liquidity running out on Wednesday (coinciding with the FOMC announcement), it looks like we may be setting up for a rapid decline post FOMC. Therefore we need to be on alert for a failed 5th or weak 5th wave here leading into Wednesday.
One alternate path forward here is a 4th wave triangle (shown in green) followed by a short and sharp 5th wave thrust to marginal new highs. These highs may NOT be confirmed by the secondary indices so bulls may need to be on alert for a pop and drop reversal here.
While rare, I believe that Monday’s attempted rally was a complete 5 wave impulsive 5th wave of smaller degree thrust from a triangle which “failed” to make a new high. EWT calls this a “truncated 5th” and while rare, the character of this wave is a rapid reversal to below its origin (as took place yesterday). The intraday structure of a triangle and 5th wave advance is clear. The decline from yesterday’s high looks impulsive and is consolidating at trend line support here. I expect the next decline to be a small 3rd wave trend line break that pushes down to next support at the previous 4th wave around 1.3166. Remember, I am looking for a large 3rd wave decline below 1.2755 which is 5 big figures away. The risk/reward here is too good to ignore so I remain short.
Contrary to my expectations, the AUD/USD fell impulsively from recent highs putting into question my short term bullish count from yesterday. I managed to exit my long position with minimal damage once I recognized the nature of the decline looked more impulsive than corrective (if in doubt, get out). Standing aside for now until the structure clears up.
It looks to me like risk appetite is turning down with HYG completing its 3 wave corrective bounce. The trend remains down… 94.01 is now the key point of ruin for the immediate downtrend.
Short update for today as not much has changed. Trade safe
Initiating small short position here
Well, that’s 5 waves down from today’s high. The bullish case says it’s a c wave lower, but I suspect it is a nested wave i of (iii)… 1.3296 now critical to the bear case. SL above this level.
Friday’s sharp drop and reversal higher opens up the doors for the bulls right here. The DJIA’s decline looks corrective and may have already put in it’s 4th wave low whereas the SPX looks less clear. The US$ continued its way lower and appears to be consolidating right here without a clear reversal higher. That gives me pause for the immediately bearish Euro and Pound positions. The USD/JPY achieved my defined target below 98.00 in 3 impulsive waves and needs another 4th and 5th to complete a potential c wave decline.
US equities may have completed their respective 4th wave retracement with immediate new highs on the horizon. DJIA once again shows the way with perfected retracement levels as would be expected for a 4th wave in an ongoing bull market. With 3 clear waves down from the highs to previous 4th wave support, the door is open to extend Friday’s rally to new highs. There is the possibility that wave (iv) is not yet complete and may develop into something more complex, but I have seen enough to exit my short ES position. I will give the bulls the benefit of the doubt here.
I have counted the DJIA’s retracement as 3 waves down from the triangle thrust for v of (iii) as wave w, followed by 3 waves higher to a marginal new high in wave x and 3 equal waves down for y completing the pattern. Wave (iv) ended at the previous wave iv support at a 0.236 Fibo retracement (measured objectives) while the wave higher on Friday afternoon overlapped the overnight high “locking in” a 3 wave decline. The symmetry and measured targets of this corrective decline cause me to believe the next move in the DJIA is higher. See below.
The SPX is less clear than the DJIA but holds the same bullish potential right here. The retracement reversed higher from Fibo 0.236 support as did the DJIA although it’s c wave was shallower than I would have liked. I have labeled a red alternative count for a more complex wave (iv) targeting 1670 support.