Equity markets continue to follow my preferred path down with new lows this week and primary targets hit. However, I was completely wrong in my near term calls for a weak US$, lower bond yields and strong PM’s.
SPX reached my 1st target of 1777 yesterday, taking out last week’s lows as expected. The advantage of Elliott Wave Theory is that it gives you clear points of ruin (you know where you’re wrong) which is why the risk/reward of being short against new ATH’s was compelling. Now comes the difficult part… where to from here. Firstly, prices have met minimum expectations for this decline with new lows where c = a and the bulk of the initial decline “looks” nearly complete with an impulsive 5 waves down. However, a marginal new low may be required to complete the decline (the intraday decline into the LOD looks to be in 3 waves so a final 5th wave should be expected). The close below the potential H&S (pink) neckline warns of the air pocket below targeting TL and 50 day sma support. With many indices holding on to key support levels last night, traders need to be nimble here. While the preferred count remains on track, we should remain mindful of the potential alternate bearish count (red) with next week’s FOMC meeting and maximum bullish sentiment and complacency among investors.
The intraday 5m squiggle chart does not show a clean 5 waves into the lows which is what the bulls were looking for. My preferred count (black) suggests new 5th wave lows tonight to potentially complete the decline. The green bullish count is least probable where the decline ended on last night’s lows and we head straight to new highs. I covered most (4/5) of my ES shorts at the first target.
The Russell 2000 broke hard from TL support as suggested in my last update and reached my 1100 target almost immediately. So far, the internal TL has held as support but yesterday’s price action appears to be a 4th wave consolidation. Therefore, I expect this TL to be broken near term in a 5th wave with (2)-(4) trendline support (purple trend channel) at 1087 and 100 sma at 1077.
The NQ futures chart below makes me cautious on the near term bullish counts for the SPX and why we should remain nimble. What we have, is a completed 5 wave structure to the upside, terminating in a 5th wave ending diagonal. The decline from the highs is clearly impulsive in wave 1 / A suggesting that another decline of “at least” the same magnitude is expected following a counter-trend rally. Bulls beware.
AAPL has a “popgun” reversal set-up with bearish engulfing candle. A close below $559 will trigger the bearish trade setup. I am already short AAPL
The US$ has rallied against all pairs over the last 2 days which is NOT what I expected. Given the proximity to significant trendline support and Weekly 200 sma, I guess I should not have been surprised. The US$ rally is not yet impulsive so it is premature to call a low in the US$ yet.
USD/JPY – The Yen has achieved its bigger picture 5th wave “thrust from a triangle” minimum objective with a push to new highs for 2013 but the near term count is unclear. My best read is that wave (iii) may now be complete with the unwinding of nested 4th and 5th waves. The reason I am labeling this as (iii) is because the rally never left the 3rd wave acceleration channel which would be expected of a 4th wave. The nature of any near term decline should be instructive.
December’s updated liquidity schedule is attached below.
That’s all I have for now, trade safe 🙂