Healthy Correction Should Lead to Gains
We've been fortunate enough to get into the right mind set regarding stocks these past few weeks. Recall that we covered shorts on October 26, waited out a bullish resolution to the consolidation pattern two weeks ago then correctly anticipated a decline. Bearish weekly reversals appeared not only in the US but also in most major markets. This should lead to healthy profit taking over the coming days.
Following a weekly reversal, the average decline since 2002 over a 10-day period has been more than 3%. As such we expect a decline to 1150 or 1140, which marks the 61.8% and 50% retracements of the rally from the October 25 lows before the next up leg begins. Here is the chart we showed subscribers last week before the downside break.
We see S&P 500 support at 1150/40 and a year-end target level of 1245 if all goes according to our forecast. As such we will look to add to our long equity positions there. If we are correct this should represent "wave 3" of the larger "wave 5" that is the "sweet spot" of a rally. Only a move below 1100 indicates that we are wrong on this outlook.
The way we hope to play this correction is global equity markets is to add to our positions in Taiwan iShares. Monday's sharp break in EWT was exactly as we forecast for subscribers to ETF Global Research (www.fxmoneytrends.com/etf.index.htm).
Specifically we said, "The Taiwan Weighted Index's rally above 6000 has completed a "five wave" advance from the October lows. As such we feel that a near term correction may take prices back to 5950 before the next leg higher in "wave 3" of "wave III." If we are correct in our forecast, the next rally leg will be substantial and should target this year's highs above 7000."
Recall that one month ago we alerted readers to the breakout in EWT at $10.75. We called for a rally towards key resistance at $12, which was fulfilled at last week's highs. We now see this correction as the last significant pullback before a rally to $14 over the coming months. Today's decline to $11.30 may see further pressure targeting the key $11 level where we will look to take positions in EWT. Tight stops can be placed just below here. More leeway comes with stops just below the $10.50 mark.
For a closer look at our foreign exchange outlook look at our presentation online from the Las Vegas Traders Expo (www.fxmoneytrends.com/dx1.htm).
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