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.
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.
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…
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.
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.
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.
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.
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…
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.
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.
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  / [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.
That’s all I have for now 🙂