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