Market Report: Cross Correlations Between Markets
If readers take a look at the chart below you can see how highly correlated the markets are and looking for that little edge can sometimes literally be the missing piece of the jigsaw puzzle that can make the difference to being on the right side of the trend.
As an Elliottician I look at charts every single day of the week trying to evaluate and find little edges that can make the difference.
Presently I think the markets are at inflection point that should decide the next strong trade.
If we use the ES e-mini contract as a proxy for the US stock markets, we can also see how it has moved opposite virtually tick-tick to the DX (US$) and the USDCAD forex pair.
But I am more interested in what the moves are actually doing from the September 14th lows (ES would be a high).I currently see a 3 wave move on the DX and USDCAD, and likely wise I see a 3 wave decline on the ES.
A 3 wave move is considered a corrective move in an ongoing trend, hence why at this juncture I think if the US$ reverses, we should see the other 2 markets ES move to the upside and USDCAD move to the downside.
Because of where the DX and USDCAD are situated, it's important for stock traders to monitor those 2 markets as they will likely decide the trend of the US markets. As the DX and USDCAD pushes higher up, US stocks markets push lower.
But as mentioned, if the bounces in USDCAD and DX remain as a 3 wave move, that should be a corrective move in the current downtrends, hence why a potential turning point I suspect is at hand and if traders are not watching carefully they might get caught napping.
If we take a close look at the advance we can clearly see that it's a 3 wave advance (so far), its hit a technical measured target where the 2nd advance is equal to the 1st advance.
A 3 wave bounce is important to Elliotticians as not only does it suggest a corrective ABC bounce, the next potential trade is a complete reversal of the move, if the USDCAD pair reverses, then the likely- hood is ES/SPX will reverse to the upside, as seen in the above chart as they are virtually trading tick-tick opposite each other.
You can also see how it's contained via a corrective channel, that's another key characteristic of a corrective wave.
So currently we have a 3 wave bounce that has hit a measured fibbo target, it's inside a corrective channel, so all that is missing is a strong reversal under the red line to confirm the move is complete.
Now if we take a look at the DX (US$), we can see its failed to reached its 1x1 fibbo target, and we can also see its still contained inside a parallel channel, which currently suggests it's a corrective and in 3 waves.
I tend to favor the advance in both USDCAD and DX as a corrective advance, whilst the DX is under 80.50 (daily resistance), I think the market will eventually reverse, which in turn should see risk markets push higher.
So by using the DX and USDCAD markets I think we can find potential clues to a reversal in US stocks if the DX and USDCAD markets are setting up for a move lower, as that will be the link between the next move higher in the US markets.
If the USDCAD and DX fail to reverse and we see a strong move higher that will likely see the US stock markets head lower, so the bulls in stocks need to be watching the markets closely, especially the DX (US$).
I will leave you with one other chart which I think speaks volumes, and why I think it's important to follow USDCAD as the next clue in US stocks could be coming from a market many traders are unlikely to be following.
Until next time,
Have a profitable week ahead.