Apr 142014
 
 April 14, 2014  Posted by at 4:43 am 3 Responses »

“There is however a more immediately bearish case which I prefer given the heavily skewed risk/reward and similar probability… That the initial 5 wave decline from ATH’s was merely wave i of (c) and this rebound is a counter-trend wave ii rally as part of a larger 5 wave decline (red count). I just like the r/r profile up here for short positions. My analysis continues to point to limited upside and significant downside risks so I will continue to trade it that way…” enough said

We are in the 11th inning of this bull market ballgame. The leaders are now laggards (RUT/NDX/SOX) and the momo stocks are getting thrown out in exchange for income. In Fed we trust and ECB we hope… hope is not a strategy. Volume is the footprint of the herd and right now every down draft is supported by out-sized volume. Key moving averages are being sliced through at will and with Friday closing on its lows, I expect continued follow- through to the downside. I am particularly encouraged by the complete lack of fear with the VIX remaining below 20 following an 80 pt decline in the SPX. Complacency prevails and downside risks remain. I am NOT in the BTFD camp until I see evidence of fear and capitulation.

VIX Weekly - No Fear

VIX Weekly – No Fear

The daily SPX chart has been warning of rally exhaustion with multiple momentum divergences since the May 2013 highs as each subsequent new price high is accompanied by deteriorating internals. While the count suggests more 4th and 5th waves are still to be unwound before this rally terminates, I continue to maintain that this is not the time to be picking up pennies in front of a bulldozer. Given the late stage of this 5 year rally, risk remains to the downside as there is a lower probability alternative count which suggests the entire rally may be over.  However, no structural damage has yet been done to the bull market rally so strength should be respected. I think it was Keynes who said, “markets can remain irrational a lot longer than you can remain solvent”, so I will let price determine the path forward .

SPX Daily

SPX Daily

The near term SPX chart has continued to provide an excellent roadmap. My preferred count remains unchanged and counter-trend rallies should continue to be sold. With all equity indices closing last week on Friday’s lows, I expect continued downside follow-through. Trade back above 1873 will significantly weaken the immediately bearish case. The alternate (lower probability) count has the SPX finding support in the 1810/15 area for a small wave c (red count) as part of a more complex correction. There is no evidence of a tradable low.

SPX 60m

SPX 60m

The daily DJIA chart would look best with one more marginal new high to complete an ending diagonal 5th wave setting up a great risk/reward shorting opportunity. The overlapping 3 wave rise nature of the rally looks terminal. Near term strong support resides in the 15700/750 area of the 200 sma.

DJIA Daily

DJIA Daily

Importantly, the BKX has reversed lower from my long awaited 74 target in what may be a harbinger of things to come. Without the banks, this market will not continue higher.

BKX Weekly

BKX Weekly

One of my favorite shorts right now is the French CAC40. It appears to have completed its 5 year counter-trend rally in 3 waves of equality, terminating in an ending diagonal. While we must allow for one more marginal new high, it is not required and the r/r for this short setup is great.

CAC40 Weekly

CAC40 Weekly

The ASX200 (Australian stock market) also appears to be on the cusp of a major decline after completing an Ending Diagonal 5th wave. Once again, there is room for one more marginal new high but it is not necessary.

ASX200 Weekly

ASX200 Weekly

There is a common theme here. One by one, the leaders appear to be rolling over. There has been no confirmed change of trend as yet but the bulls ought to be careful up here, we’re in nosebleed territory.

The US Treasury curve is warning of a continued decline in yields in the near term to partially correct the 5 wave rally from the July 2012 lows. My long term analysis suggests the lows in yield will not be revisited and US yields will rise. The structure looks clear to me.

30yr US Treasury Bond Yield, Daily

30yr US Treasury Bond Yield, Daily

The US$ continues to get sold off aggressively. It appears that most traders have been caught on the wrong side of the US$ on the expectation of QE taper and ECB initiating QE. The US$ cannot get a bid which is worrisome for risk assets. I posted this chart some time ago and even though the DXI hangs on to shelf support it is still trading poorly, unable to achieve even minimum upside targets. This is worrisome as a break of my often stated 79.00 critical support suggests a swift decline to 75.00…

DXI Weekly

DXI Weekly

The DXI chart conflicts with that of the EUR/USD which suggests a fatiguing overlapping ending diagonal. When I have two competing, diametrically opposed structures, it is best to stand aside until the market tells us which interpretation is the correct one.

EUR/USD Weekly

EUR/USD Weekly

The USD/JPY continues to provide the cleanest count, targeting 100 and below. There is nothing bullish about this chart and any counter-trend rallies should be sold aggressively against 104.15. The more charts I look at, the more bearish I am on equity markets…

USD/JPY 240m

USD/JPY 240m

Risk remains to the downside. That has been my consistent theme for 2014 and it has served me well. Risks are increasing with markets aligning for a significant fall. That’s all I have for now so take care. 🙂

Addendum: The April Liquidity Schedule is very strong but the charts do not support this. I believe signalling and market reaction is more important than the $ amounts but we should be mindful of the liquidity support this month.

April Liquidity Schedule

April Liquidity Schedule

Apr 102014
 
 April 10, 2014  Posted by at 6:40 am 4 Responses »

Be careful what you wish for… that’s my advice to Janet Yellen. Despite the Fed tapering, the dovish tone set by Yellen is crushing the US$. This is a double edged sword. The US exporters (and China) will no doubt benefit from a weaker US$ but at what cost? Commodity price (cost push) inflation and a potential flight from US$ denominated assets. I’m not buying what she’s selling because I believe the US$ is the canary in the coalmine warning that all is not well in the state of Denmark.

The SPX reversed lower like clockwork (as per last week’s chart), trapping the newly initiated longs which is what (b) waves tend to do. This is why I trade EWT, it gives me an edge for excellent r/r probability based trading. Yet another expanded flat and 3 waves into recent highs. As I’ve said before, this market just loves expanded flats. This week’s decline met the minimum conditions for the (c) wave of a textbook expanded flat (terminating below the extreme of wave (a)) and implies new ATH’s immediately ahead (black count) after finding strong support at the 50 day sma (near term bullish case). Even if we make new highs, I expect limited follow through given where we are in the longer term count as these 4th and 5th waves unwind.

There is however a more immediately bearish case which I prefer given the heavily skewed risk/reward and similar probability… That the initial 5 wave decline from ATH’s was merely wave i of (c) and this rebound is a counter-trend wave ii rally as part of a larger 5 wave decline (red count). I just like the r/r profile up here for short positions. My analysis continues to point to limited upside and significant downside risks so I will continue to trade it that way. Both counts are detailed below…

SPX 60m

SPX 60m

The primary reason I favor the near term bearish count for equities is the USD/JPY which has begun a 3rd/C wave impulsive decline. I tweeted last week that once 103.77 was exceeded, I remained strongly bearish with a 104.00/104.20 sell zone target. The post NFP high was 104.13 which quickly reversed lower, confirming my bearish count. I do not expect the 104.13 high to be exceeded in the near term before 100 is breached and more likely much lower towards 97.00. I remain strongly bearish this pair.

USD/JPY 240m

USD/JPY 240m

The AUD/JPY count I’ve been following for some time is now in its long term sell zone. While minimum requirements for wave c of 2 have been met (above wave a), the structure doesn’t yet look complete. My ideal sell zone is 97.50-98.15 to get short this pair and stay short.

AUD/JPY Weekly

AUD/JPY Weekly

Occasionally, I like to post this DJIA chart for a bigger picture perspective… just to drive the bulls crazy LOL

DJIA Weekly (semi-log)

DJIA Weekly (semi-log)

That’s all for now. Take care 🙂