Market Report: More Chop Ahead
Last week I left readers with the idea that more upside is expected in US stocks, nothing really has changed those thoughts, although short term we could see some early weakness, I still feel that the dip will provide an opportunity to get long US stocks.
It seems many premature bears last week were once again looking for that elusive crash that for some reason never seems to go away, and got run over again. I guess when some "papa" bears keep telling their readers and subscribers "it's just around the corner" for the last 3 years it kind of gets thin.
The past week spent most of the week chopping higher, but whilst we saw a new yearly high on the DOW on Friday, the other broad markets failed to register that high hence I suspect we see some weakness early next week and the market pulls back.
From the June 2012 lows, it's my belief that the market is still involved inside a 4th wave, although I am allowing for a deeper pullback as the recent bounce suggests a 3 wave bounce which should see more weakness towards 2750 as a potential target.
We went into the FOMC looking for a high to get short the NQ, as the advance was a near perfect measured move, we had a target penciled in to stop the advance and reverse towards 2750.
Whilst the Jobs number was creating a stir, we simply focused on watching price action and a failure under 2840.
If our preferred idea works out the way we would like, then I suspect a trip to 2750 will be seen on NDX/NQ, which should see the end to this suspected wave [iv]. The impulsive drop from the highs supports the idea.
There is an alternative idea of a triangle we are watching, but presently I tend to think we could see a quick spike lower towards 2750.
If you look at the DAX it suggests the same idea and if my interpretation is correct and it ended a small [b] wave at Friday's high, then the DAX could pull back towards 7200 easily and be in no danger of damaging the trend from the June 2012 lows.
You can see that the DAX has been following the NDX and SPX markets, so whilst the markets suggest the wave [iv] idea, I think it's wise to respect price action, it's clearly moving higher in an uptrend.
We went into Monday looking for a low as many traders were looking for reasons to sell the EURUSD pair; I was looking for reasons to buy this market.
The advance from the last swing high suggested a corrective decline and fitted in well for the move we were working from the 25th July pivot, as the DX (aka US$) remained under our key 80.50 area, the advances in the USDCAD, USDCHF and the DX markets were a series of choppy waves that overlapped, that gave me the confidence to be looking for a low in the EURUSD.
I had 2 ideas working last week, but it really came down to the strength above 129, but Monday saw a complete bullish reversal and the low at 12802 I suspect was the low for a move to see higher prices, and the wave [iv] low in place.
Fast forward and we are well above 130, and once again traders were bearish at the lows, whist we were looking to buy those lows. It never changes, traders are bearish at the lows and bullish at the highs
At the top of a 5 wave advance, is where I am at my most bearish, and likewise at the bottom of a 5 wave decline I am at my most bullish.
The one issue I see in continuing higher in EURUSD is that the US and European stocks ideally could see a pullback which in theory should see the EURUSD pullback as the stock markets and the EURUSD are moving for the most part together, hence I have included an idea of a potential triangle.
The market remains bullish above 12802, and very bullish above 12960, should we see a break under 12960 it will likely suggest that the triangle idea could be an option and any dip in the EURUSD aligns with a dip in the DAX and NDX as shown above.
With more weakness expected in the US$ and whilst price remains under 80.50 on the DX, I don't have any reasons to abandon my bullish forecast on Gold.
It continues to hold firm and the buyers are stepping up at every opportunity, but presently I suspect it's trying to base build for a move higher.
I suspect that it made a larger 4th wave low on the 25th July and we have been involved in a strong impulse wave higher for wave 5, currently we are seeing a bunch of 3 wave moves, which suggests a sideways consolidation move and trying to build a base to launch higher through $1800, the longer this holds firm and steady the more I suspect this is taking a break and just wasting time for a strong move higher.
It would need something impressive to derail this market as well as Silver, as long as the US$ continues to push lower I see no reason to get bearish or even think about bearish ideas on the precious metals.
The trend is strong and it's doing what is expected, so "if it's not broke why try and fix it"?
For now if we continue to see more chop and it holds above $1740, then the suspected pattern is a triangle, although it's early to fully suggest it with some confidence just yet, but we are seeing some choppy gyrations and that supports a corrective wave structure, in this case a 4th wave.
A few readers have asked how they can keep up with my work.
The easiest way is to follow the blog at http://wavepatterntraders.blogspot.com/
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I welcome any questions related to ideas on the markets.
I am looking for a small pullback early next week to end wave [iv] on the NDX and DAX, I currently see no reason to be bearish stocks as I don't have a completed wave cycle, we need to see evidence of a break down, or a 5 wave move from the June 2012 lows.
With USDCAD expected to move lower towards 0.9600 it further supports more upside in US stocks, whilst bearish analysts will continue to write articles above how the world is about to blow up, (only been writing that for the last 2 years).
We will continue to do what we do best, remain true to what we see and look to find setups that we can trade with low risk and high reward, long or short.
If the market wants to crash lower then so be it, then we will switch bias and sell it, but whilst the market supports the idea of more upside, then I will continue to respect the trend and look higher.
Remember sentiment and indicators can last far longer than you can remain solvent trying to fight the trend.
Being early is wrong in my book, forecasting the next leg lower but being 12 months early is plain and simply wrong.
Until next time,
Have a profitable week ahead.