Daily Analysis

By: TheWaveTrading | Wed, May 16, 2012
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Yesterday I thought that the EUR, given the overextended move (from the May 1 peak), and the extremely oversold readings of the daily Stochastic and RSI, price could have bounced from the last support line left above the January lows in the area of 1.2800


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This was not the case. Price now is so close to the 1.2622 January's low that it seems inevitable a test and at the same time it is so oversold that at least a relief bounce is something to seriously consider.

Conclusion this is a tough call for the immediate time frame, but even if price is able to achieve a multi day bounce in my opinion the odds are larger for further weakness as long as price does not recover above 1.2979

I have lost confidence of my preferred count. The EW structure of the down leg off the February top remains corrective, but unclear to me.

In addition to the Triple ZZ option that I was following I add the option of a complex Zig Zag (ABC = black count), aligning it with SPX potential scenario.

Given the direct relationship between EUR & Equity market, I feel uneasy since I am aware that unexpected and sudden "news driven rebound" can occur.

It is obvious that with the failed rebound of the EUR the equity market had a zero chance to succeed in constructing a short-term bullish pattern.

I have no doubts regarding that SPX is unfolding a corrective pattern from the April 5 top.

The loss of the 1340 pivot support clearly opens the door for a move towards the range 1300 - 1277 where I suspect that price could establish an important bottom.


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The question is which EWP will price undertake?

So far it seems reasonable to consider a Zig Zag, with price now embarked in tracing an impulsive wave (C).

Before looking at the potential short-term options I cannot look down to the fact that:


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Therefore, despite price is still far away from the potential target box, I cannot rule out that a rebound could be in the cards.

But it is also a fact that the loss of an important technical support has inflicted a serious technical damage.

Yesterday I mentioned that for the immediate time frame price had two options:

With the failed recovery attempt we have to respect that price could be on the edge of a "cliff dive" if finally price unfolds a 5 -wave down leg from the May 1 peak.

Regarding the potential short-term EWP I am considering two options:

This is a "Perma bearish count" that would result in a market crash, since the wave (3) would most likely drop below 1298 and could extend lower.

It is possible and it has to be respected

For the immediate time frame it can pan out as long as price does not recover above 1340.86


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If this scenario plays out then price has to unfold a 3-wave down leg off the May (1) peak.

SPX will not establish an "important bottom" since after the wave (A) it comes a rebound wave (B) followed by the last impulsive wave (C) down but it could be aligned with the oversold readings that are suggesting that a bounce is due.

The "foundations" of this option are based upon a potential Triangle wave (B), which has opened the door of an impulsive down thrust wave (C).

If this is the correct path then price has to unfold a 5 -wave down leg off the May 11 peak.

The projected target is at 1298


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So the above are only "ideas", I am sure that there might be other options, but in my opinion both are feasible.

Therefore as long as today price does not recover above 1340.86 I am expecting more down side action.

More price information is needed in order to increase the confidence on a particular count BUT in my opinion the odds for more down side are larger than an immediate bottom and reversal.

I also think that if fear provokes a "panic" decline then the odds of a tradable bottom will increase substantially.

 


 

TheWaveTrading

Author: TheWaveTrading

TheWaveTrading

Contact: If you would like to contact the author, you can e-mail him at thewavetrading@gmail.com

The main objective of this project is to share my views on several markets and asset classes.

In the initial stage TWT website will be a free service.

My main focus will be the equity market with SPX being the leader but I will also follow US equity sectors, major European indices, fixed income, currencies and commodities markets.

My analysis is based upon traditional Technical Analysis, Elliot Wave guidelines and investor sentiment.

My goal is to establish the most likely path that the price of a particular asset will undertake and profit through ETF instruments both on the long and short side and mainly with leveraged ones (2 x & 3 x).

The advantage of ETF investments is that it allows getting involved in equity indices & sectors, currencies, fixed income, commodities etc.

Therefore the main purpose of TWT will be to establish investment strategies regardless if the market is in an up trend or in a down trend, leveraging the chosen scenario while managing the risk by establishing protective stop losses.

Hence I will always define the risk, I will try to let winners run the wave and I will cut the losses if my strategy is wrong.

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