Market Report: Is This Time Any Different?
Well that's what many others are thinking atm, although you could make the same argument at the May 2011 highs, atm I don't have any reason to think it won't end any different, the sentiment and price structure ideas appear to be the same, all we have missing is clues for a strong reversal.
Rather than bore readers with the same message I have been posting the last 2 weeks, I thought I would look at some other angles to see if we can find some clues to the current trends we are in the markets.
The failure to see a sustained push lower in the risk markets on Sunday/Monday had us back into neutral bias, as the Greece news on Sunday pretty much curtailed any follow in the early part of last week. We continue to be below some key areas on AUD/USD and above USD/CAD support, although those areas I suspect will be tested again early next week.
I will be going into a lot more details in the trial newsletter we are running atm details here: http://www.wavepatterntraders.com/forum/196-new-service-newsletter-launch/
The uptake do far has been very promising and from the feedback, it seems many are happy with the content, although it's still in its infancy as we try and adjust to readers needs, but I will be going into more details about the US markets.
Whilst the letter is a trial it's currently free for anyone that signs up. So click on the link for further details.
The 1st time we have seen for a while the SPX put in a negative divergence on the RSI, if you look closer you can see the previous 2-3 occasions it did this, it led to a huge reversal from the April 2010 and May 2011 highs.
Most long term highs over the years do possess that negative divergence, in fact I think it's really a requirement imo, to see a RSI divergence at important turns and important inflection points.
So that's the 1st real big clue we have seen for a while, I think it's important as well, although the RSI divergence can easily be corrected, when I generally see that along with a working wave count that satisfies the Elliott Wave structure, I am on Defcon 2.
Interesting I have noticed the bearish bloggers and Elliotticians pretty much "giving" up now on wave counting the current move, I guess when you are a "one trick pony" there is not much else you can so when your one and only wave count gets blown out of the water your stuck.
That's the key difference with staying fresh of ideas, whilst I am still looking for a reversal to at least correct the rally from the Dec 2011 lows, I am also aware that we can equally have a setup for a strong move into the rest of the year into the election season towards 1500-1600SPX.
It really boils down to the next decline and if the bulls defend the area around 1280-1300SPX.
So the message still stands as before that whilst this has continued to grind higher, I suspect we are still setting up for a pullback at least towards 1300SPX or my preferred idea is a test of the Oct 2011 lows again.
Either way, this trend from the Dec 2011 lows is looking very exhausted and it can break at any moment.
I remember back at the previous peak at April 2010 and May 2011, not many were on high alert or as I like to call it Defcon 2, but eventually those highs broke lower.
I still say that buying the highs and looking higher is an extremely risky strategy and those that do buy the highs might really regret that choice if they get caught holding the bag.
It was also noted that Elliott Wave theory fell out of favor at those peaks in April in 2011 and May 201 as technicians and even other Elliotticians decided not to use it, with limited skills other technicians I suspect are finding this tape difficult to navigate.
This is where having a few other ticks up your sleeve can do wonders for bringing a plan together.
Using fractals and the previous DNA of the prior rallies can really hone in some targets.
You have seen this chart before but it's really is worth watching.
Using the previous DNA of the rallies in 2010 and 2011, we can use that to project time and price, so far there is nothing out of the ordinary with the current rally, and so whilst others fade into the sunset, we are really starting to get excited at the potential for a strong reversal.
Now nothing is ever set in stone, but we have some key areas on the downside that need to be broken 1st, but if these markets do crack I think it will surprise many, especially now that many have "thrown in the towel".
Just the way I like it.
Is the R2K trying to send a message?
With a suspected 5 wave advance form the Dec lows, at minimum I would expect a pullback towards 780-790, from that decline we can work out if the bulls really are in charge from the Nov 2011 lows.
One market of interest in the European area is the French CAC.
It is starting to look like it finally could have finished a 5 wave sequence from the Dec 2011 lows, and the DAX is pretty much in sync, so regardless of the longer term idea, with a suspected 5 wave move in place on many other US and European markets, time for caution is again needed.
We have been watching for clues in some of the Asian markets, and the NIk-225, is now starting to come into areas where a solid choice needs to be made.
If the trend is going to continue lower in the immediate time frame, then this is potentially setting up for a strong break lower, in what we Elliotticians call a "3rd of 3rd".
Even after all these years the Nikkei-225 is still floundering around the 9-10k area. But the eventual target is still open to see the 5-6k area over the coming months/years. I suspect there is still some downside left in this market.
Is copper telling us the real story? It's failed to move back up with stocks over the past few days, and so far this idea is working well, it's been one of the hidden gems we found this week, as the markets continue to whipsaw around, this is currently down over 5% from the last high, although it's not getting much attention in the press. It was highlighted in last week's article.
Stocks and copper tend to move in sync with each other, so we will continue to watch for any clues to see if it's talking and suggests that stocks will follow next.
Not really much going on in the stocks markets of late, and pretty much reflected in the FX markets, so careful trade selection again being suggested, although I do have some ideas that members and even the newsletter readers should hopefully find interesting, but we are still waiting for some evidence.
Until next time.
Have a profitable week ahead.