Mar 312014
 
 March 31, 2014  Posted by at 8:18 am Comments Off on Weekend Market Update: March 31st, 2014 – Range Bound and Down

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.

SPX 60m

SPX 60m

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.

Nasdaq Composite Daily

Nasdaq Composite Daily

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

USD/JPY 240m

USD/JPY 240m

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.

EUR/USD Daily

EUR/USD Daily

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.

DXI 240m

DXI 240m

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 🙂

Mar 272014
 
 March 27, 2014  Posted by at 2:34 am 2 Responses »

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…

Bearish Engulfing Candles

Bearish Engulfing Candles

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.

SPX 10m

SPX 10m

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.

USD/JPY Weekly

USD/JPY Weekly

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.

USD/JPY 240m

USD/JPY 240m

The Nikkei 225 paints a similar picture of counter-trend rallies within an ongoing bear market…

Nikkei 225 240m

Nikkei 225 240m

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.

DXI 240m

DXI 240m

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 😉

Mar 242014
 
 March 24, 2014  Posted by at 3:25 am 9 Responses »

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.

SPX Daily

SPX Daily

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.

SPX 15m

SPX 15m

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…

ESM4 180m

ESM4 180m

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.

Nasdaq Composite Daily

Nasdaq Composite Daily

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.

BKX Weekly

BKX Weekly

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.

EUR/USD Daily

EUR/USD Daily

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.

EUR/USD 90m

EUR/USD 90m

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…

DXI Daily

DXI Daily

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.

USD/JPY 240m

USD/JPY 240m

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.

Nikkei 225 240m

Nikkei 225 240m

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 [2] / [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.

5 Year US Treasury Notes Daily Yield

5 Year US Treasury Notes Daily Yield

That’s all I have for now  🙂

Mar 212014
 
 March 21, 2014  Posted by at 3:13 am Comments Off on SPX Update: March 21st, 2014

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

SPX 60m

SPX 60m

A closer near term count of this potential structure…

SPX 10m

SPX 10m

Option 2 Ending Diagonal: Choppy overlapping wedge-shaped rally to complete (5)

SPX 60m

SPX 60m

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

Mar 202014
 
 March 20, 2014  Posted by at 11:02 pm Comments Off on (Restored post from March 17, sans charts — due to site issue earlier — site issue now fixed)

(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.

USD/JPY Daily

USD/JPY Daily

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.

USD/JPY 240m

USD/JPY 240m

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.

SPX Daily

SPX Daily

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.

SPX 60m

SPX 60m

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.

SOX Daily

SOX Daily

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.

BKX Daily

BKX Daily

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.

Dax Daily

Dax Daily

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

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.

EUR/USD Daily

EUR/USD Daily

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…

DXI Daily

DXI Daily

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

Crude Oil 120m

That’s all for now.

Mar 122014
 
 March 12, 2014  Posted by at 7:24 am Comments Off on Market Update: March 12th, 2014 – Warning Signs

“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.

SPX Daily

SPX Daily

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.

SPX 5m

SPX 5m

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

USD/JPY 120m

USD/JPY 120m

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).

Crude Oil 120m

Crude Oil 120m

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.

Copper Weekly

Copper Weekly

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.

Mar 102014
 
 March 10, 2014  Posted by at 7:06 am Comments Off on Weekend Update: March 10th, 2014 – Another Inflection Point

While equity markets continued to grind higher following Tuesday’s strong rally to new ATH’s, the USD/JPY reached an important inflection point on Friday. We have conflicting signals at this stage of the rally. 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. However, the DJ Transports and BKX (Banking Index) both rallied to new highs in 3 waves suggesting further upside to come. The SPX dip buyers held near term support and closed the market above the 5 ema as they have done in 19 of the last 20 trading days. The rally is extended but there are no clear signs of a reversal as yet. From a bigger picture perspective it appears that most equity markets I follow require a sequence of intermediate degree 4th and 5th waves to potentially complete this 5 year rally. I therefore expect increased volatility throughout 2014 as these tops form.

The US$ continued its weakness with the Euro and Swissie making new swing highs while the DXI did NOT make new swing lows forming a potential inter-market divergence. This divergence often occurs at important turning points in the US$ market.

As I tweeted late last week, the next logical upside near term target and potential pivot was 1887 +/- and last Friday’s NFP pushed the SPX to new ATH’s at 1883.57. The price action was consistent with the previous Friday’s 1865/75 pivot range… a quick sell-off but no downside follow through as the BTFD’ers remain waiting at the 5 ema and 10 sma. I remain unconvinced of the push higher since Tuesday’s impulsive ramp to new ATH’s, but in the end, price is the final arbiter and UNTIL we see a clear impulsive decline against the primary uptrend, the trend is your friend. 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. Therefore, I am NOT participating on the long side as I believe the better risk/reward is for a reversal lower from near these levels. I am not front running this bull market on the short side but rather await a clear change of trend. The advantage of being a prop trader is that you don’t always have to be “in” the market and sometimes no position is the best position.

SPX Daily

SPX Daily

The near term SPX chart highlights the ongoing momentum divergence at new ATH’s and the measured target where (5) equals (1) at 1887. The count is potentially complete but the near term internals are messy. While alert for a reversal lower at these levels there is no clear impulsive decline as yet. I have no position here as I wait for the market to prove itself.

SPX 60m

SPX 60m

With 3 waves into new highs for the BKX, the rally is NOT yet over and requires “at least” a 4th and 5th wave higher to complete the impulsive structure. It will be difficult for the broader market to decline until the BKX upside is resolved.

BKX Daily

BKX Daily

The DJ Transports shows a similar structure of 3 waves up into Friday’s highs and a potential unwind of additional 4th and 5th waves into new highs consistent with other equity indices.

DJ Transports Daily

DJ Transports Daily

The USD/JPY pushed higher as expected into my sell zone and found strong resistance at the retest of the green long term trendline, wave circle 3 previous swing high and 0.618 Fib retracement at 103.75. So far, the rally is in 3 waves and remains counter-trend. Bears do not want to see a close back above Friday’s high.

USD/JPY Daily

USD/JPY Daily

The bigger picture bull and bear case for the US$ remains unresolved. While the DXI holds 79.00 support, a bullish resolution remains possible for the US$ towards 81.50 and above. All bets are off below 79.00 support. Even the red bearish count would “look” better with a near term rally towards 81.50 in (c) of (2). The near term rally off Friday’s 79.43 lows looks impulsive but no follow through as yet so long positions have added risk.

DXI Weekly

DXI Weekly

The EUR/USD traded above its previous swing high but with the DXI’s non-confirmation and overlapping rise, I continue to believe the near term risk is to the downside.  While the green trendline break is warning of further upside, the internal structure of the waves looks more like an overlapping ending diagonal.

EUR/USD Weekly

EUR/USD Weekly

Dr Copper is testing long term support here and a strong close below $2.964 could lead to an accelerated decline below $2.00… mind the gap

Copper Weekly

Copper Weekly

The following 30 yr US Bond chart also warns of near term downside risk for equities. A push back below a yield of 3.5% would warn of further bond strength and equity weakness.

30 yr US Treasury Bond Yield Daily

30 yr US Treasury Bond Yield Daily

Crude Oil reversed lower from its post Putin high on completion of the 5 wave impulsive rally. I expect further downside below 100 and towards 98.00 in the near term. The impulsive decline from the 105.22 highs and subsequent 3 wave rally from 100.13 warns of further downside to come.

Crude Oil 120m

Crude Oil 120m

In conclusion I have mixed signals here. Equity markets look extended and due for a correction but the bigger picture trend remains up. USD/JPY continues to be my risk guide and is at a critical inflection point. I will remain nimble and trade small until I see evidence of a change in trend. Trade safe 🙂

Mar 052014
 
 March 5, 2014  Posted by at 6:02 am Comments Off on Market Update: March 5th, 2014 – “You know, it’s a bull market”

“You know, it’s a bull market” Partridge (the Old Turkey) from Reminiscences of a Stock Operator  – Edwin LeFevre

The bulls took a hatchet to my near term bearish count as the SPX failed to close under 1840 and reversed higher to new ATH’s. You can learn a lot by watching the tape and more often than not, respecting price will keep you out of trouble. I was reminded once again that you don’t want the market to top on bearish news but rather, the price action you WANT to see is failure after bullish news. Lessons are worth learning…

The risk right now in the markets remains to the upside. Higher highs and higher lows, the very definition of a bull market continue to underlie this trend. While the equity markets keep rising impulsively to new ATH’s the wrong trade is to fight the trend which remains up. While we did get a violent reaction to my target sell zone, and a quick 30 pt decline for the nimble, there was NO follow through and no close below shelf support.

1905 remains my line in the sand for my primary count where circle iii would be the shortest wave and invalidate the count. The red bullish count suggests that we still have a number of 4th and 5th waves to unwind as the bull market continues through 2014. No point fighting the trend… and as I’m constantly reminded, “You know, it’s a bull market”

SPX Daily

SPX Daily

Near term, there is a possibility (red count) that last night’s new ATH was a final 5th wave following an expanded flat wave (iv) but momentum and volume does not support this conclusion. Last night’s rally looked more like a “kick-off” rally than an exhaustive move. It is a clearly impulsive rally in 5 waves which is either complete or nearly complete. Either way, we should expect a near term correction of yesterday’s advance and a decline in 3 or 5 waves will provide a near term path.  Take note also of the blue broadening megaphone formation which should be respected. I have no position here.

SPX 15m

SPX 15m

The Russell 2000 had an exceptionally strong day on high volume and led early to the upside, only to run straight into the red broadening trendline resistance. A break above this resistance will likely lead to continued upside follow through. An impulsive near term decline as a “reaction” to this resistance would warn of a larger potential correction.

IWM iShares Russell 2000 Daily

IWM iShares Russell 2000 Daily

I am closely watching the European indices which are threatening a strong breakout to the upside with a failed H&S. Above 3178 on the Eurostoxx 50 futures will likely lead to an accelerated upside move towards 3300. Importantly, the ECB meets on Thursday and there is a strong suggestion they will lower rates or increase liquidity which would likely ignite a strong rally in European equities.

Eurostoxx 50 Daily

Eurostoxx 50 Daily

The Weekly Eurostoxx 50 chart below shows the context and importance of near term resistance. The bigger picture rally is nearing important resistance so we should be mindful of the key levels here.

Eurostoxx 50 Weekly

Eurostoxx 50 Weekly

The USD/JPY held critical support above 100.75 supporting the bullish near term count targeting 103.10/103.65 to the upside. My count has the overlapping rally off the lows as a leading diagonal wave (a) / (i) with an overlapping corrective decline for (b)/(ii) and now in (c)/(iii) up towards my target zone. The rally off the 101.20 lows is impulsive and consistent with my overall count and consistent with more appetite for risk assets.

USD/JPY 120m

USD/JPY 120m

That’s all I have for now. My immediately bearish count was wrong and the trend remains higher. The importance of identifying key pivot areas is that it minimizes entry risk and EW tells you where you are wrong. We have near term broadening trendline resistance across many indices which should be respected. A strong close above near term resistance will open the door to more upside follow through. Stay nimble.

Mar 032014
 
 March 3, 2014  Posted by at 12:49 am 4 Responses »

Patience rewarded. Friday finally completed the 5 wave impulsive advance with a triangle thrust 5th wave into my 1865/75 target sell zone (ATH 1867.92). Friday’s fast reversal lower is the price action you would expect from a completed 5th wave thrust as it quickly returned to the origin of the triangle where the BTFD’ers stood waiting. To be clear, while the pattern appears complete and we saw a strong reversal lower from our upside price target, no real technical damage has been done to the bull trend yet. A weaker close under 1840 would have been preferred. We now need to see downside follow-through in 5 impulsive waves to confirm a potential change in trend. Aggressive traders may want to be short against Friday’s ATH looking for “at least” a correction of the recent 130 pt rally towards the 50 sma. A close under 1840 shelf support would increase the probability that a larger correction and potential trend reversal was under way. Remember, there are 3 steps required for a potential change in trend… (1) completion of a 5 wave impulsive structure (2) 5 wave impulsive reversal of smaller degree (3) 3 wave counter-trend rally of smaller degree challenging but not exceeding the prior swing high.

The US$ is also at a critical inflection point here as I’ve been warning about… The DXI broke below its long term trendline support but has NOT yet violated critical support at 79.00. Make or break time for the US$. Counter-intuitively, the best risk/reward setup here is to go long DXI against 79 or short EUR/USD against 1.3893 and reversing the position on violation of these levels.

SPX made new ATH’s into my 1865/75 target sell zone and reversed lower (actual high 1867.92). 1840 shelf support needs to be broken to the downside to confirm change in trend. 50 sma at 1821 next downside support. Big test for the BTFD’ers here.

SPX Daily

SPX Daily

The near term chart shows the 5th wave triangle thrust into the 1865/75 sell zone and reversal lower. Momentum divergence on the 60m chart confirms the characteristics of a 5th wave as we saw at the 1738 lows. 1867.92 now critical resistance to the near term bear case. A clear 5 wave decline from ATH’s would help confirm a change in trend.

SPX 60m

SPX 60m

As discussed last week, the DJ Transports failed to make new highs as expected and held resistance at 74 keeping the preferred bearish red count in tact. Trade below 71.33 would “lock in” a 3 wave rally confirming new lows below 70 to come.

DJ Transport Index 15m

DJ Transport Index 15m

The USD/JPY has been unable to rally along with other risk assets and risks breaking down here along with equity markets. 100.75 remains the line in the sand for the bulls and strong trade below this opens the door for an accelerated 3rd wave decline to “at least” 97.50 and likely much lower.

USD/JPY Daily

USD/JPY Daily

The DXI broke key trendline support but has not yet violated the critical 79.00 support. Key inflection point here. While BB’s and ATR’s continue to compress, I am looking for a “breakout” 3rd wave move in either direction. Great R/R trade here is to go long at 79.60 with SL and reverse below 79.

DXI Weekly

DXI Weekly

Not surprisingly, the EUR/USD is at an equivalent inflection point, bumping up against a multi-year descending trendline. Make or break time for the US$.

EUR/USD Weekly

EUR/USD Weekly

The USD/CHF has already broken it’s equivalent lows warning of more downside to come for the US$. However, we are starting to see price and RSI/MACD momentum divergence here on the Swissie. It is important to note that at key inflection points we often get divergences between markets so we should be alert to bullish US$ reversals here against the aforementioned key levels in Euro and DXI. Best R/R setups remain with the DXI and Euro.

USD/CHF Daily

USD/CHF Daily

Continued US Treasury strength (declining yields) has also been warning of reduced risk appetite despite rising equity markets. Lower bond yields and falling USD/JPY provided plenty of warning for equity longs at these new highs.

US 30yr Treasury Bond Yield - Daily

US 30yr Treasury Bond Yield – Daily

That’s all I have for now. Ideally, we now see an impulsive 5 wave decline and 3 wave counter-trend rally in US equities to confirm a change in trend. Until then, trade safe. 🙂

Addendum: March Liquidity Schedule

March Liquidity Schedule

March Liquidity Schedule