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.
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.
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
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.
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.
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 🙂