Key themes – Weak equities, weak US$, strong PM’s and lower bond yields. Both the SPX and DJIA remain below ATH’s for now and the short term charts are at an important inflection point while the EW count remains unchanged from the weekend. So far, there are 3 waves up from last week’s lows and last night’s decline caught support at the 5 and 10 day sma. The bears need to make a stand here and defend Monday’s HOD. US$ weakness continues with the USD/CHF breaking key support and USD/JPY is threatening a bearish reversal with a 5 wave decline following marginal new highs and bearish engulfing reversal day. Gold and the Aussie$ are attempting an upside breakout which is what I was looking for in my weekend update and AAPL completed 5 waves down on an intraday basis from recent highs, setting up the short opportunity. I expect bonds to rally near term.
The Daily SPX chart shows support held at the 5 ema and 10 sma and the trend remains up. Below this and we likely head for the 50 sma which currently crosses at 1756 near red TL support (support is support until broken).
The SPX chart below shows the current near term structure – I am short so may be biased 😉
Bear Case (black preferred): Wave (c) achieved measured target of 1.618x wave (a) without violating new ATH. The decline, while overlapping, may be nested forming multiple H&S. A break of last night’s lows will likely lead to an accelerated decline. Measured targets are 1777 where C = A, then 1745-56 at 1.618x A
Bull Case (red alternate) : The decline from Monday’s highs is overlapping and not clearly impulsive and “looks” like a wave (iv), holding the measured 0.382 Fib support and remains above wave (i) high of 1796. Measured target for wave (v) is marginal new highs at 1819 where (v) = (i)
The SPY (SPDR S&P500 ETF) has formed a potentially bearish island reversal while holding support at the 5 and 10 day sma. A convincing break below yesterday’s lows will bolster my near term bearish thesis
The Russell 2000 has been the clear laggard this week and is on the verge of breaking key trendline support and 20 day sma. A break of these levels targets 1100 in the very near term.
The DJIA weekly chart is never far from my mind because of the bearish implications and remains the key for the overall market’s larger structure. Above new highs and we’re likely off to the races but as long as we stay below, larger downside risks remain. With a potentially complete Elliott Wave structure to the upside, this is just a note of caution where we have all time highs in investor bullishness. The fact that so many people are also now following the 1929 3-domed house analog in which we blast higher in a parabolic blow-off concerns me greatly. The herd is rarely right…
AAPL refuses to die but its days are numbered. Yesterday was an inside day and now threatens to break out. On an intraday basis, the decline from 575 to 560 is clearly impulsive so I expect a break to the downside. The GTFO level for my short position is above 575.15
AUD/USD – Last week’s lows continue to hold as it tries to bounce impulsively. My expectations remain for a rally from here and further US$ weakness.
USD/CHF – The US$ canary in the coalmine has broken critical support as warned in my weekend update which opens the door to much lower prices for this pair (and warning for other US$ crosses). How long before the Swiss National Bank steps in to halt the strength of the Swissie?
USD/JPY – Bearish daily engulfing candle warns of further downside to come. A break of the 10 day sma leads straight down to the 20 day at 101.70 – bearish for US equities near term
Gold has triggered my popgun bullish reversal with Tuesday’s close above 1260 and I’ll look to buy the dips for a wave C higher towards 1350
TLT – I haven’t shown a bond chart for a while but I like this for a long opportunity. With every man and his dog bearish bonds and a quadruple bottom with 3 waves into the lows, I am looking for an impulsive wave (c) counter-trend rally back above 108.73 to squeeze the near term shorts.
That’s all for now. Trade safe 🙂