Aug 302013
 
 August 30, 2013  Posted by at 5:29 am 6 Responses »

So far, the proposed wave (v) low has held in all equity market indices but the rise to date is in a clear 3 waves with the leaders (SPX/DJIA) looking weak and higher risk indices (NDX/Comp/RUT) looking stronger. Last night’s lows now form important support to determine the strength of this counter-trend rally. Is it a completed a-b-c rise for wave (ii) of 3 down, or just the start of a more complex or stronger advance? A strong Friday close will provide more impetus for a larger wave 2 advance next week to the 1670 – 1685 area while a weak Friday close will likely set up additional downside follow-through next week. Friday closes are important, especially at the end of the month for longer term players.

The bears definitely have the ball right here and a break below Wednesday’s lows will likely bring strong selling pressure with a break of the 2-4 trendline and potential wave (iii) of 3 decline (red count). My expectation is that we are more likely in a wave 2 counter-trend rise (black count) but I’m not discounting the risk of further declines right here given the market turned down at the short-term MACD zero line. See below.

SPX 30m

SPX 30m

The DJIA shows the same setup as the SPX but remains trapped within its declining trend channel (bearish). A break out of the trend channel to the upside should provide strong follow through for a wave 2 bounce.

DJIA 30m

DJIA 30m

The Nasduck Composite and NDX look stronger with last night’s rise looking more like a small degree 3rd wave up and 4th wave consolidation. The jury is still out as to whether the Nasduck indices have topped or require one last push to new highs (red count) to coincide with a larger wave 2 correction in the SPX/DJIA. The reason I favor the red count is the equality reached for waves A and C of the proposed 3-3-5 Flat correction for wave circle 4. Trade below Wednesday’s low will likely bring in strong selling pressure for wave (iii) down. This is why the next move here is important…

Nasduck Composite 15m

Nasduck Composite 15m

As I like to see inter-market confirmations of larger degree changes in trend, I am encouraged to see that JPM (the bull market darling and savior of the world) has potentially completed its larger degree rally and subsequently declined in a clear 5 waves. Β This chart increases my confidence that this 5 year bull market may be over and sets up a great shorting opportunity on a 3 wave corrective recovery higher. The monthly candle chart shows a nice big bearish engulfing candle at these marginal new highs which provides a key reversal for the bigger picture.

JPM Daily

JPM Daily

To the FX markets… The EUR/USD finally broke lower from its congestion and has now declined in 3 waves (so far). The bears must now keep any counter-trend rises below 1.33 which was previous shelf support. Expect near term support here around 1.32 (previous 4th wave and 0.382 Fibo support). The bigger picture remains unclear but the bears have the ball with the confluence of trendlines broken (shown below), a complete 5 wave structure to the upside, failure at the new highs, RSI and MACD roll-over and potential Double right shoulder H&S…

Personal Note: I just wanted to share my trading experience over the last week with regard the Euro… I went short @ 1.3394 against the 1.3452 highs in anticipation of “at least” a wave C decline of 150 pips. I covered at BE when the price action got messy, didn’t immediately confirm my bearish view and opened the door to immediately bullish 4th wave triangle options. Watching the Euro then subsequently trade down as I expected obviously agitated me as I wasn’t short. This is called hindsight trading. It just creates a lot of “coulda, shoulda, woulda” and is not helpful in making money. I made the call to get out at the time based on what I was seeing, the fact that my initial idea was correct and the market traded down doesn’t matter. All that matters is the next trade, the next opportunity to make $$$, it’s not about being right. My wife had to remind me of this as I was beating myself up for covering my shorts… The next question to ask myself is why didn’t I just give the trade more time given it hadn’t actually done anything wrong and I’d already accepted the risk? Had I truly accepted the risk? This is an ongoing question for my trading for the next time. Do I give the trade time to prove itself or fall back on my conservative nature, minimizing losses but also minimizing profit opportunities??? Another lesson learned or not? How do I incorporate this learning into my trading plan?

EUR/USD Daily

EUR/USD Daily

I often look to the DXI and CHF for confirmation of what I’m seeing in the Euro. So far, the DXI rise is looking more like completing a corrective C wave higher before the decline re-establishes itself with measured targets here at the 82.07 level where C = A. The same is true of the CHF so we need to watch this area closely for the next move higher or lower.

DXI 20m

DXI 20m

So far, the USD/JPY rise off the measured support level I previously stated is in 3 waves of small degree. Failure here could mean that was ALL of red E of (B), leading to the start of a significant decline. If we do complete 5 up this opens the door for the bullish triangle outcome with significant upside potential. As the triangle gets tighter a decision point looms but it is too close to call right now. The next clear 5 wave sequence on small degree should provide an excellent trading opportunity.

USD/JPY 240m

USD/JPY 240m

Gold remains within a bullish trend as long as it does not trade below 138.41. So far, the decline does not look impulsive, but bulls should be cautious here with potential C wave targets met ($7 short). Further upside argues for a weak US$ in the very near term matching the potential that the rise in DXI is in fact an a-b-c counter-trend rally.

Gold 120m

Gold 120m

Silver on the other hand shows a clearly impulsive 5 wave decline from recent highs. The 3 wave countertrend rise to 24.50 (previous 4th wave) could be ALL of 2 / B (red count) or we may need one more wave (c) push up to 24.60 to complete the 3-3-5 countertrend rally (black count). It is not unexpected that Silver will begin to lag gold as it had been leading this advance to date. I expect Gold to play catch-up.

Silver 5m

Silver 5m

This next Silver chart is just to illustrate that the rally may be complete here with measured objectives reached after a 5 wave rally…

Silver 120m

Silver 120m

That’s all from me for now. Let’s see if the bulls can save the equity markets right here and “hold the line”… trade safe πŸ™‚

Aug 282013
 
 August 28, 2013  Posted by at 5:00 am 11 Responses »

Well, the SPX and DJIA made new lows last night to close the gap at 1632 and potentially complete wave (v) down which is the change in trend we’ve been looking and expecting as my roadmap had clearly laid out. There is a risk that something more ominous is happening with the strength of this last move lower. What we do know is the trend is DOWN. The alternate uber bearish case is that we have already started wave 3 down (red count) and while I think this option remains less likely, we must be wary of the potential for further declines here. We have 2-4 trendline support at 1622, but equities need to bounce here to prevent a potential waterfall decline.

SPX 30m

SPX 30m

The bigger picture and bearish potential is shown below on the daily SPX chart. Note the green trendline support right here.

SPX Daily

SPX Daily

The DJIA has also declined in a clear 5 waves and last night’s new low potentially completes wave 1 down with associated momentum divergences.

DJIA 30m

DJIA 30m

The US$ has been problematic of late, refusing to rally as I’d have liked. We are currently in no-man’s-land right here as there are both bullish and bearish interpretations with 50% probability for each in my opinion. I have covered my GBP/USD shorts for a nice profit and await the market to determine its next move. Triangles abound in the near term charts and until the market shows its hand I will stand aside. The EUR/USD could be in the midst of a wave (iv) triangle and 5th wave thrust right here (black count). Invalidation of the bear count (red) is above 1.3452

EUR/USD 120m

EUR/USD 120m

Similarly, the GBP/USD has declined in 3 waves thus far, reversing higher at the 0.382 retracement of black wave 3 which is a likely target for a wave 4 correction. That’s what makes me cautious about staying short here. As posted, I was short from 1.5632 and covered half at 1.5501 (+131 pips) and the remainder today at 1.5537 (+95 pips). Trade below 1.5436 would eliminate the wave 4 potential (black count) with an overlap of the previous wave 1. Trade above 1.5612 would invalidate the immediately bearish potential (red count). See below.

GBP/USD 120m

GBP/USD 120m

The USD/JPY traded below 96.90 “locking in” a 3 wave rise from the 95.80 lows, thereby eliminating the nested bullish option. The most likely count now is the symmetrical triangle for wave 4. The bearish alternate shown in red flips the triangle upside down looking for wave (e) of red B higher prior to an impulsive decline below 92.00 in wave C. This red option actually matches well with my expectations of a counter-trend rally in the equity markets prior to a substantial 3rd wave decline. Either way, I am expecting a rally from support in the 96.50 – 97.00 area to challenge the upper green trend channel line.

USD/JPY Daily

USD/JPY Daily

The weaker US$ environment has resulted in strong commodities and PM’s as we have expected, especially gold and silver. An important event occurred in gold last night. This recent push higher as now invalidated my previous ending 5th wave count due to the fact that wave (iii) would have been the shortest of the impulsive waves. This is an unbreakable rule. Wave 3 can NEVER be the shortest wave! Therefore, the gold chart begins to look even more bullish as it suggests we had a nested 1,2 count and we are now in wave (iii) of circle iii. I suspect there aren’t many gold bulls left so this might have a fair way to run on the upside towards the $1440 measured target I mentioned a couple of weeks ago in my update. This outlook confirms my caution regarding the strong US$ story. See revised count below.

Gold 120m

Gold 120m

Silver has also continued to extend higher now reaching our next upside target of $24.70 where circle 5 = circle 1. Silver is extended here and momentum divergences are starting to appear as bulls are late to this party. I would be cautious staying long Silver here. I would rather look to go long on a substantial retracement once this 5 wave advance is complete.

Silver 120m

Silver 120m

That’s all I have for now, so trade safe πŸ™‚

Aug 272013
 
 August 27, 2013  Posted by at 7:13 am Comments Off on Exited remaining GBP/USD short @ 1.5537 (+95 pips) – Covered Half GBP/USD @ 1.5501 (+131 pips)
GBP/USD 10m

GBP/USD 10m

With minimum downside objectives met, I have covered half of my short GBP/USD @ 1.5501 (+131 pips)

The reason I covered the remainder of my short GBP/USD position is that the decline “looks” like an impulsive a – triangle b – impulsive c down to the 0.382 retracement of wave 3 (measured objective) and subsequent impulsive rise. When in doubt, get out… hope is not a strategy. See below

GBP/USD 120m

GBP/USD 120m

Seeing a similar potential triangle 4th wave setup in the EUR/USD (black count)

EUR/USD 120m

EUR/USD 120m

Lesson Learned: Don’t “lose your position” for the bigger nested move… there were no overlaps violated even though my SL was only 20 pips away… Risk/reward was too good if I was right and I only saved 20 pips if I was wrong. I was focused on protecting profits b/c the Euro was pushing higher in a fake-out move. Well, it faked me out. Lesson Learned

GBP/USD 15m

GBP/USD 15m

Aug 272013
 
 August 27, 2013  Posted by at 3:49 am 3 Responses »

Equity markets reversed lower last night following a stronger Monday morning opening. The rise from the lows continues to look corrective and I continue to believe the SPX trades towards my target gap close of 1632. While the higher beta indices have outperformed (Nasduck and RUT), the majors have struggled (DJIA and SPX). I still like this count for the SPX…

SPX 30m

SPX 30m

The DJIA looks particularly weak relative to other indices and hasn’t been able to climb off the floor…

DJIA 30m

DJIA 30m

Moment of truth here for the NDX as it rose to within 2 pts of a new high then reversed lower forming a triple top between 3145 – 3150. Last night’s high is now the line in the sand for the bearish case…

NDX 10m

NDX 10m

The USD/JPY has left the door open for either the red 4th wave symmetrical triangle count OR the nested 3rd wave higher. At this point, I believe the triangle is marginally more likely as we correct lower in wave E, but either way, the next big move in this pair will be UP. Looking to long on the right setup

USD/JPY 180m

USD/JPY 180m

GBP/USD continues to stair-step lower with impulsive declines and corrective 3 wave bounces. This pair is setting up a potential nested 3rd wave decline here and NEEDS to accelerate to the downside asap. Remain short GBP/USD with SL lowered to 1.5613 wave (ii) high. Targeting new lows below 1.4800

GBP/USD 10m

GBP/USD 10m

The following 240m GBP/USD chart shows the 5th wave momentum divergence at recent highs. However, the red incomplete option remains on the table until we have overlap of the red wave i high (1.5436) which would bolster the bearish case. The Pound remains at a critical juncture here.

GBP/USD 240m

GBP/USD 240m

As we have been expecting, Gold finally achieved its minimum objective for a complete 5 waves up for wave circle C. While Silver’s advance appears to be a clean 5 wave structure, Gold has been lagging. Divergence between the two is not uncommon and may signal a key turning point. The bullish red alternative for gold is that it is nesting higher for a strong rally (1271.80 is the critical line in the sand for the bullish case)

Gold 120m

Gold 120m

Silver on the other hand has rallied in a clear 5 waves although it is not yet clear that wave 5 is complete.

Silver 120m

Silver 120m

That’s all I have for now folks, trade safe πŸ™‚

Aug 232013
 
 August 23, 2013  Posted by at 9:55 am 2 Responses »

This is why I try to stop short term speculative trades in overnight illiquid equity futures markets. The stop runs are plentiful. I prefer FX markets due to deep liquidity and no natural Fed and investor bias. I prefer to trade equity futures during the cash session with deeper liquidity. Anyway, I have learned this lesson before… stops too tight, illiquid markets and not giving the trade enough room to move… the market ensures I pay for tuition, so here is another lesson.

Aug 222013
 
 August 22, 2013  Posted by at 2:52 am 4 Responses »

The FOMC Minutes release caused a flurry of activity in all markets with the US$ gaining strength and equity markets whipsawing down – up – down. Where to from here… Well, the weekend update I posted provided a nice roadmap for the SPX which has held true (4th wave chop zone) and my 1632 gap close target remains valid. Last night’s spike high (post FOMC minutes) reversed lower at prior 4th wave resistance while the MACD zero line has held all advances to date. The SPX suggests we need at least one more new low here to potentially complete the pattern. What concerns me is that this decline has been bought aggressively by dip buyers without any success and with lower lows and lower highs, this stair-stepping structure leaves a risk of a larger breakdown / capitulation right here.

SPX 30m

SPX 30m

The Nasduck Composite and NDX have outperformed the broader indices to date and the 3 wave rise into last night’s highs leave the market vulnerable. The red count shows the uber bearish alternative where that “could” have been all of wave 2. A strong gap lower tonight which is not reversed and filled immediately will suggest a stronger 3rd wave decline is under way. The black count suggests that the 3 wave move higher was only wave (a) of a more complex wave 2 counter-trend rally.

Nasduck Composite 15m

Nasduck Composite 15m

The Russell 2000 has been providing the clearest wave picture over the past couple of weeks during this decline. Measured targets have worked perfectly here with wave 3 achieving 2.0x wave 1, wave 4 reversing lower at a 0.382 retracement (and prior 4th wave resistance). The measured target for this proposed wave 5 decline is 1010 where wave 5 would equal wave 1. This new marginal low and then reversal higher matches well with my SPX count and complex wave 2 count for the Nasduck indices. Sustained trade under these levels may open the door to a more pronounced selloff but that is NOT my “expected” higher probability path forward.

Russell 2000 15m

Russell 2000 15m

While I would just love to get all excited and US$ bullish following the reversal lower in the Euro, it really bothers me that the move into yesterday’s highs was in 3 waves. Yes, the EUR/USD does fit all the criteria for an ending diagonal wave (C) black count, ie., wave (v) is shorter than (iii) which is shorter than (i); wave (iv) is shorter than wave (ii); it is an overlapping 3-3-3-3-3 wave structure with multiple momentum divergences – but it just doesn’t “look” right which makes me hesitant. Either way, expect continued Euro weakness to 132 for what should be an impulsive (c) wave of an expanded flat OR wave (i) down of a much larger decline. Bearish count in black, bullish count in red…

EUR/USD 120m

EUR/USD 120m

The Daily chart shows the bearish potential here with the double right shoulder H&S… if this is the start of a 3rd wave lower it should fall very quickly from here. This chart certainly “looks” bearish to me with multiple momentum divergences and inability to sustain a break to new highs. Yesterday’s high of 1.3452 is now the key “line in the sand” for the bearish Euro case.

EUR/USD Daily

EUR/USD Daily

While the Euro made a new swing high, the GBP/USD failed to do so, providing a nice inter-market divergence for what could be an important turning point here. For the immediately bearish case to hold, yesterday’s high of 1.5718 should NOT be exceeded. There are a number of ways to count the recent rally from the 1.4813 lows as complete and trade below 1.5436 should all but eliminate the bullish red case. Looking to short GBP/USD on any counter trend bounce.

GBP/USD 240m

GBP/USD 240m

The USD/JPY has tracked my outlook well and with a breach of the prior wave b high of 98.14, we should expect 98.65 to be cleared in the near term in what appears to be a nested 3rd wave higher. I managed to get long 15 ticks from the wave c low so I have moved my SL to breakeven here. My expectation is a move back above 103.74 highs along the lines outlined below.

USD/JPY 180m

USD/JPY 180m

Gold has been stalling here but needs at least one more marginal push higher for a 5th wave. It is holding support above the wave circle A / 1 high indicating consolidation at these marginal new highs. Gold is struggling here in the face of a stronger US$

Gold 120m

Gold 120m

Silver also looks like it is consolidating here in a 4th wave triangle, prior to a 5th wave thrust to new highs. The 3 wave decline from the wave 3 highs suggests the next move will be higher to above 23.60

Silver 120m

Silver 120m

Finally, as mentioned last week in my TLT update, US Treasury bonds continued their sell-off in a strong 3rd wave decline as they head towards my measured objective of 96.00. Yields have further to rise.

TLT Daily

TLT Daily

In conclusion, the markets have been tracking along the lines expected, with continued declines in the equity markets, rallies in Gold and Silver, yields rising and a potential reversal in the US$.

Trade safe πŸ™‚