Jan 282014
 
 January 28, 2014  Posted by at 4:58 am Comments Off on Market Update: January 28th, 2014 – Are we there yet?

I have written a mid-week update because Global equity markets have fallen hard for the last week and we are getting close to a near term tradable low. Ideally, we get another marginal new low for wave v to complete the near term structure. Following the USD/YEN 5th wave thrust down from its 4th wave triangle I would expect a new low in equities NOT be confirmed by the Yen. What is becoming very obvious to me is that all equity indices I follow are at or near important near term support with internal trendlines and 100 day sma’s and the structure looks almost complete for this initial wave down. IF these levels break and the BTFD’ers don’t participate, it could be a very fast trip to the 200 sma’s.

SPX – Approaching my near term buy zone at 1762/68 framed by the 100 day sma and internal “broadening trendline” (special thanks to Ray C. Freeman and Rob Smith). Ideally, the near term structure would look best with another marginal low for a 5th and final wave. The equivalent 100 sma level on the SPY is 176.51

SPX Daily

SPX Daily

The near term structure would look best with a marginal new low to complete the decline. My idealized count is shown below

SPX 15m

SPX 15m

The DJIA is also approaching strong support at the previous 4th wave of 15700 which coincides with the 100 sma at 15755. The near term chart below shows my “idealized” structure and roadmap before a strong wave (ii) countertrend bounce

DJIA 60m

DJIA 60m

With AAPL being taken to the woodshed post earnings, the QQQ’s will likely need to hold broadening trendline support at 85.00, otherwise it risks being sold down the river to strong support at 83.00/83.60 and 100 sma to align with the broader indices

QQQ Daily

QQQ Daily

The internal structure of the Russell 2000 looks like a complete 5 wave decline, terminating at strong trend channel support. Should this level break, the 100 sma is nearby at 1110.

Russell 2000 Daily

Russell 2000 Daily

The USD/JPY is trading almost tick for tick with the equity markets at the moment as participants are concerned for the carry trade unwind. As proposed in my weekend update, the USD/JPY did complete a 5 wave decline terminating with a 5th wave thrust from a triangle. The decline held long term trendline support at 101.77 (bulls GTFO level if it breaks). I expect strong overhead resistance in the 103.50/75 area for any counter-trend rally.

USD/JPY Daily

USD/JPY Daily

The Euro looks to have completed its 5 wave impulsive advance for wave (c) of [ii] expanded flat correction. The green alternate shows the potential for one more marginal new high above 1.3737 (but below 1.3893), but that is not required. I am still expecting a decline towards my 1.3400 initial target.

EUR/USD 60m

EUR/USD 60m

Finally, a look back at the AAPL chart and count I posted a month ago… sayonara

AAPL Daily

AAPL Daily

In conclusion, the equity markets and US$ are at an important juncture here. Continued near term US$ weakness will likely cause increased selling in the equity markets. This is not what I’m expecting. I will be positioning myself for a strong counter-trend rally on completion of the 5 wave decline at 100 sma support.

Trade safe 🙂

Jan 262014
 
 January 26, 2014  Posted by at 11:22 am Comments Off on Weekend Update: January 26th, 2014 – Bears take it to the hole

“This is NOT a time to be complacent as equity markets are in 5th and FINAL waves for the current structure and Bond markets have signaled a change in trend.”, Weekend update: January 19th, 2014

“In conclusion, I believe all markets are at significant turning points for the start of 2014. The Yen carry trades and equity markets are in 5th and final waves but we as yet have NOT seen trend reversals. Price will always override conviction. The key near term opportunities I see are short USD/JPY, short EUR/USD, short equities and long bonds.” Weekend Update: January 13th, 2014

“With complacency at extremes and EVERYONE all-in long, I am alert for a swift reversal in the new year.” Market Update: December 23rd, 2013

Hopefully, these warnings were heeded, and like me, readers weren’t hurt by the 60 pt decline in the S&P over the last week. In last week’s post, I talked about “faith versus evidence” where there was, at the time, no evidence of a change in trend. While the SPX held 1815 and USD/JPY held 102.85, I saw no evidence of a trend reversal and while we were certainly in an extended 5th wave advance, fighting the upward trend would have proven expensive. With last week’s price action we certainly now have more evidence of a larger degree change in trend with a potentially completed structure for the advance. What is unclear is whether we are in a larger degree 4th wave correction, the very beginning of a prolonged bear market or just a brief correction in the ongoing multi-year bull market rally. What matters now is the form of the decline and next advance. The decline to date looks clearly impulsive but the structure requires at least another 4th and 5th wave to potentially complete before we see a strong wave 2 counter-trend rally. One thing to be aware of is that bear markets have “rip your face off” bear market rallies and I expect the next counter-trend rally for wave 2 to be no different. The challenge is to navigate the near term gyrations for the best risk/reward trading opportunities. Of course, with the FOMC meeting this week, the stage is set for the bulls to try and reclaim lost ground. I can only trade what I see and my roadmap is for a continued decline in global equity markets and that’s what I’m positioned for.

Before I begin with the individual chart analysis, I think it is helpful to review the anatomy of a market top, which is a broadening process. In this instance, it was the DJIA that topped first on December 31st, then followed by SPX on January 15th, then NDX, Russell 2000, BKX and finally the Dow Jones Transports which made a new ATH on Thursday, January 23rd. This was not a one day event but instead a 3 week topping process. It was not “caused” by the Argentinian Peso devaluation but rather has been developing over time which provides further evidence that this decline is unlikely to be a one-off event and more likely to exceed the bull’s expectations.

The Topping Process

The Topping Process

SPX – The daily chart illustrates the potential for a completed wave C rally (big bear red count) while the black count presumes we are in an extended 4th wave decline before we make new highs again. The next areas of strong support I am focused on reside in the 1775/80 and 1760-65 region along with the 100 sma. My bigger picture target for a larger degree 4th wave decline is around 1630/50. At this point in time, I expect strong resistance around 1808/15 area at the 50 day sma and prior 4th wave of lesser degree.

SPX Daily

SPX Daily

The near term chart for the SPX looks like it requires at least another 4th and 5th wave to complete the impulsive decline. There is blue internal trendline support at 1787 so there is the potential for a near term low here. Knife catching is a dangerous sport and I suspect there are a LOT of trapped longs at higher levels who were waiting for the BTFD’ers to step up last week. Who’s left to buy when the herd is already fully leveraged and long?

SPX 15m

SPX 15m

The Russell 2000 has fallen directly to a convergence of trendline support but would look better with another 4th and 5th wave to complete the initial impulsive decline.  There is strong trendline support in the 1140 area coupled with the 50 day sma crossing at 1138.5 so this will be a likely area for a near term rally to develop.

Russell 2000 Daily

Russell 2000 Daily

I have been warning that the BKX was in an extended 5th wave and it to has fallen directly to the 50 day sma and near term trendline support. The multi-year rally appears complete but as with the SPX, the option still remains that this is a larger degree 4th wave decline as shown by the red count. For the BKX,  the near term decline is in a clear 3 waves and we need a a 4th and 5th wave to confirm a change in trend.

BKX Daily

BKX Daily

My risk indicator, the USD/JPY broke key near term bullish support on Friday and now threatens a carry trade unwind. The nature of 5th wave thrusts from 4th wave triangles is that they quickly retrace the advance, leaving the Yen vulnerable to a fast move back down 96.50/97.00.

USD/JPY Daily

USD/JPY Daily

The near term structure for the USD/JPY which kept me bullish but cautious early last week now appears to have been a truncated 5th wave. Truncated waves are rare which is why I don’t trade them and always give them lower probability. The near term structure would look better as a complete 5 wave decline with a 5th wave thrust down below 102 following a 4th wave triangle of lesser degree. 105 is now critical resistance for the bears to maintain momentum.

USD/JPY 30m

USD/JPY 30m

EUR/USD – As warned last week, I suspected that this pair would reverse higher to form an expanded flat wave [ii]. Friday’s spike high into the 1.3720/60 sell zone provided a good r/r shorting opportunity. There is the possibility of a marginal new high above 1.3740 but I expect the 1.3893 high will remain unchallenged.

EUR/USD 60m

EUR/USD 60m

USD/CHF – clearly reflects the critical juncture here for the US$. There are both bullish and bearish counts, both of which are equally viable. The red count is a bullish expanded flat and must not trade below 0.880. This count calls for near term and ongoing US$ strength which aligns with both the Euro and Pound. The less likely count is for near term US$ strength for a wave (ii) counter-trend rally which must remain below 0.916. Either way, the near term decline looks complete and I would expect US$ strength to start the week. The nature and structure of the advance will provide near term clues for the bigger picture.

USD/CHF 60m

USD/CHF 60m

DXI – The US$ Index closely mirrors the Swissie and is at the same near term juncture. Importantly, if the DXI takes out the 79.68 lows, we can expect significant US$ weakness to come. On a weekly basis, the DXI has formed a bearish engulfing candle which improves the odds for a bearish resolution.

DXI 60m

DXI 60m

In summary, I would expect near term strength in the US$ against most pairs and it will be the structure of that rally that determines the longer term outlook. A critical juncture. If the US$ does NOT bounce here and continues its decline, I will be on crash watch.

I would like to add one more comparison chart that caught my eye during Friday’s decline. An intraday chart of ESH4 and USD/JPY shows how the pair moved in lockstep during the decline UNTIL the USD/JPY challenged the key 102 level. From that point on, something unusual occurred. ES continued to decline another 35 pts while the USD/JPY was held above support. I don’t like conspiracy theories but market behavior doesn’t lie. I suspect the Japanese Central Bank and US Federal Reserve were supporting the Yen  to avoid the carry trade unwind and potential crash. Just an observation of Central Bankers at work.

ES / USDJPY Comparison

ES / USDJPY Comparison

Finally, bond yields continued to decline as investors embraced a flight to safety

US Treasury Bonds (Globex) Daily Yield

US Treasury Bonds (Globex) Daily Yield

That’s all for now. Trade safe and enjoy the increased volatility 🙂

Jan 192014
 
 January 19, 2014  Posted by at 6:31 am 2 Responses »

“…faith is the substance of things hoped for, the evidence of things not seen”

We are in the business of evidence gathering with PRICE being the final arbiter. With bulls and bears fighting over a 25 pt SPX range for the past 12 trading days there is a lot of pent up energy building for a fast move. Equity markets continue to make new highs impulsively and higher lows correctively. There is no evidence yet of a market reversal. I’m focused on the Yen carry trade and US bond yields as my sentiment guide for equity markets here. The USD/JPY has declined in a clear 3 waves from recent highs and rallied impulsively from the 102.85 lows. We have clear points of ruin for near term bull and bear cases. My base case is for a continuation of new highs for the USD/JPY while it remains above 102.85 and equity markets in a 5th and final wave while SPX remains above 1815. The decline in the DJIA from ATH’s is clearly corrective and my base case requires new highs. This is NOT a time to be complacent as equity markets are in 5th and FINAL waves for the current structure and Bond markets have signaled a change in trend. To the charts…

SPX continues to rally impulsively and decline correctively indicating the trend remains up. Bulls need to hold 1815 to maintain positive momentum. While there is the “possibility” that we have seen the highs and we are now in a larger decline, we trade in probabilities, and I believe the higher probability is that we see new highs towards 1875/80 near term. I prefer the red count shown below but we require more price action to provide further EVIDENCE.

SPX 60m

SPX 60m

The DJIA’s decline from ATH’s appears corrective with new highs required to complete wave [v] of 5. You “could” count a “truncated 5th” but this too low a probability to trade. As we get closer to an intermediate top, I would expect the generals (SPX and DJIA) to outperform the higher risk indices (NDX and RUT) as the rally fades.

DJIA 60m

DJIA 60m

The recent exponential nature of the NDX rally is warning of a large decline to come as momentum indicators are failing to support each incremental new high. I am alert to a sudden reversal in the higher risk indices.

NDX Daily

NDX Daily

As mentioned earlier, the USD/JPY is my risk guide and remains bullish above 102.85 looking for new highs.  Trade above 105.30 will “lock in” a 3 wave decline and increase confidence of new highs towards 107+.

USD/JPY Daily

USD/JPY Daily

The following chart highlights the near term structure for the USD/JPY which effectively mirrors that of ES futures. Ideally, a wave (c) of (2) decline would find support in the 103.65/80 area before launching higher in wave (3) of circle 5. A decline into this support would provide good r/r for longs. The red and blue lines indicate critical near term support and resistance.

JPY 011914 30m

As mentioned in last weekend’s update, I was looking for a reversal lower in US bond yields and the market has provided a clear impulsive decline from recent highs. This warns of an intermediate term change in trend for bond yields as it corrects the 5 wave rally from all -time-low yields to at least 3.5% in US 30 yr Treasury Bond Futures. This change in trend adds to evidence of a potential near term high in equities.

30yr US Treasury Bonds (Globex) Yield Daily

30yr US Treasury Bonds (Globex) Yield Daily

The AUD/USD has reached important support in the 87/88 buy zone and I expect Chinese GDP numbers on Monday to drive near term sentiment in this pair. The Aussie is oversold and unloved and ripe for a ripping rally from strong support. Front-running the data may be hazardous but I like the r/r for longs here.

AUD/USD 240m

AUD/USD 240m

The EUR/USD has continued its decline as expected but I’m wary that Friday’s decline below 1.355 may be wave (b) of an expanded flat (red count). Critical resistance for a continuation of this Euro decline is 1.3650. Above this and we likely push higher towards 1.375 for wave (c) of [ii]. I am alert to a reversal higher from this 1.35 support area but ultimately, I’m looking for lower prices in this pair.

EUR/USD 60m

EUR/USD 60m

The EUR/AUD provides a great potential r/r  short with a 5 wave decline followed by a deep 3 wave advance where a = c. I’m short from 1.5466 with stops above 1.551 as trade to new s/t highs would indicate a 5 wave impulsive rally.

EUR/AUD 60m

EUR/AUD 60m

EUR/AUD bigger picture perspective… large r/r potential as the decline targets 1.40 ish at previous 4th wave support at a minimum. A also like the positive carry of this trade and sentiment extremes. Short term risk for long term gain.

EUR/AUD Daily

EUR/AUD Daily

The GBP/USD has rallied impulsively from a declining wedge Leading Diagonal (preferred bearish black & red counts) or Ending Diagonal (bullish blue). Importantly, trade below 1.631 will lead to an accelerated decline. Trade above 1.652 invalidates the immediate bearish nested red count while trade above 1.6605 invalidates the black count and proves the bullish blue count. We have clear points of ruin and opportunity for this pair.

GBP/USD 60m

GBP/USD 60m

I have been tweeting an explosive potential setup in Dr Copper through the week with nested intraday rallies and corrective declines. Not surprisingly, this coincides with China’s GDP data to be released on Monday (Sunday US time). My immediate bullish count has key support at 3.308 while a push above 3.377 and then 3.425 would lead to an accelerated advance towards 3.60+. The lower probability red count (triangle B) shows another potential long setup from the 3.25 area should we break below near term support. Long from 3.310

Copper 120m

Copper 120m

That’s all I have for now. While the US markets are closed on Monday, the potential remains for China GDP to drive near term sentiment with surprises being to the upside. Trade safe 🙂

Addendum: Please find below the updated January Liquidity Schedule. Lots of green…

Updated January Liquidity Schedule

Updated January Liquidity Schedule

Jan 132014
 
 January 13, 2014  Posted by at 4:06 am 7 Responses »

I hope everyone had a great Xmas and finished 2013 in style. It was a year that rewarded equity bulls and the Yen carry trade. What will 2014 hold?  We live in a world of escalating debt where central bankers fight the inevitable by printing money to maintain artificially low interest rates. From a bigger picture perspective, equity markets appear to be completing multi-year rallies, the USD/JPY and Nikkei 225 are in the 9th inning of a two year impulsive rally, US bond yields have rallied in 5 waves from historic lows and the Euro may have completed an 18 month corrective advance. The various chart structures indicate an imminent change in trend. I expect 2014 to be a year of trend reversals and increased volatility.

For those interested, I have published a new tab on this site called “Trading Plan” which outlines my trading process and tools used.

Equity markets are set up for intermediate term reversals. Bullishness, margin lending and complacency is at all time highs along with equity market prices. However, the structure of the advance warns of a terminating trend. My preferred count is that the rally from the 2009 lows is a (B) wave, supported by Fed money printing and financial engineering (share buybacks), in an environment of weak final demand and deteriorating balance sheets. I expect this entire 5 year rally to be retraced. That is my base case. I have not been fighting the tape. The market will tell us when the rally is over. In the meantime, I continue to trade on a short term basis both long and short. The Weekly DJIA chart below clearly illustrates my preferred wave count as I expect a revisit of the 2009 lows. I will not let conviction override price but instead, I will pick my spots and trade accordingly.

DJIA Weekly semi-log

DJIA Weekly semi-log

The weekly SPX chart below highlights my preferred and alternate counts from a bigger picture perspective. What is clear at the moment is that we are completing a 5 wave structure of lesser degree for wave (v). A near term count suggests we need one more push to new highs above 1850 to complete the preferred count, probably early this week. At that point, I will be looking for an initial impulsive decline to signal a near term change in trend and retracement towards the 1700 area. The green (immediately bearish) count is invalidated on trade above 1905. Alternatively, the black and red counts suggest we continue to unwind a series of 4th and 5th waves to new highs above 1900. Either way, it appears that equities are nearing an intermediate term correction so longs beware.

SPX Weekly
SPX Weekly

The near term SPX price action counts best as a 4th wave barrier triangle with immediate new highs to come to complete wave v of (5) with a price target of 1855/65. Trade below 1823 would suggest the near term high is in place (red (5)) and the larger decline has begun.

SPX 60m

SPX 60m

The near term DJIA chart would also look more complete with a new 5th wave high and associated momentum divergence.

DJIA 90m

DJIA 90m

The Nasdaq Composite and Nasdaq 100 continue their parabolic rise but as illustrated by the daily QQQ chart, price is forming  a wedge with deteriorating momentum on each subsequent rally. Once again, while a push to marginal new highs is expected, this should provide an excellent shorting opportunity.

QQQ Daily

QQQ Daily

The BKX is in an extended 5th wave nearing measured targets in the 71.50/72.50 area. As my tell for this market I have been patiently awaiting completion of this rally to confirm an overall market change in trend. Subject to marginal new highs, the structure of this rally is nearing completion, which coincides with other counts presented here today warning of a near term market reversal.

BKX Daily

BKX Daily

The DJT has already pushed to new highs and is now testing the upper trend channel and measured targets in a 5th wave advance. Once again, I am alert to a reversal of trend at these new highs.

Dow Jones Transport Daily

Dow Jones Transport Daily

The Nikkei 225 rally counts as complete with a 5 wave thrust from a 4th wave barrier triangle terminating above the prior wave (3) highs. Wave (v) of (5) also reached its measured objective of equality with wave (i) as shown below. Ideally we get one more push higher for wave c of (ii) terminating BELOW the prior swing high of 16340. The red alternate count reflects an immediate nested 3rd wave decline from here.

Nikkei 225 240m

Nikkei 225 240m

The consistent equity market theme here is that we are in the final stages of this advance and a reversal down appears imminent.

To the FX markets and the Euro has reversed lower in 5 waves from key trendline resistance on the weekly charts. The rally from the 1.20 lows in July 2012 is corrective. I have two primary counts here, both of which are bearish near term. Either the Euro just completed wave b of a double zigzag with wave c targeting 110 OR wave D (red count) for a symmetrical triangle targeting 1.22 to the downside. Either way, I am bearish the Euro here against the 1.3893 December highs.

EUR/USD Weekly

EUR/USD Weekly

The EUR/USD near term count shows a 5 wave impulsive decline into last week’s lows following completion of a 5 wave advance of larger degree. I will be looking to go short a 3 wave counter-trend rally terminating in the 1.3720/1.3800 area against the prior swing highs.

EUR/USD 120m

EUR/USD 120m

In an ideal world, I would like to see one more marginal new high in the USD/JPY to coincide with new ATH’s in the equity markets but it is NOT required. Being long this pair here is akin to picking up pennies in front of a bulldozer. With the 105 upside measured target met for a 5th wave thrust from a triangle, the risk is clearly to the downside for a decline back towards 94 and likely much lower.  One thing we know about thrusts from triangles is that they are quickly retraced so longs beware. I am expecting a multi month decline in this pair.

USD/JPY Weekly

USD/JPY Weekly

Finally, US bond yields appear to have completed a 5 wave advance from all time lows indicating a change of trend at larger degree. Yields should be expected to decline near term against the herd’s expectations. I think the long bond / short equities trade here makes the most sense providing the greatest risk / reward opportunity. While another marginal new high in yields is possible in the near term, being short bonds here is risky.

US 10yr Treasury Note Yield Daily

US 10yr Treasury Note Yield Daily

In conclusion, I believe all markets are at significant turning points for the start of 2014. The Yen carry trades and equity markets are in 5th and final waves but we as yet have NOT seen trend reversals. Price will always override conviction. The key near term opportunities I see are short USD/JPY, short EUR/USD, short equities and long bonds. This is how I intend to get positioned this week depending on price confirmation.

Good luck to all throughout 2014 and thanks for your support 🙂