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Tuesday, November 30, 2010

Tuesday 11/30/10 wrap up

The ES continues it's sideways drift of A-B-C's:

Meanwhile, the US$ keeps chuggin' ever upwards:

And the EUR continues it's fall off the cliff:

One observation here:  the bullish dollar should be exerting strong downward pressure on equities, yet they are not breaking hard down.  So if the US$ rally should pause, quite possibly equities might rally into the holidays, which happens to fit the seasonal pattern for equities.

After a Buy signal yesterday evening on the hourly Trend/Osc Gold went on a tear today.  As before this is counter-intuitive : US$ and Gold rallying simultaneously.  Got to be a flight to safety, and if that psychology turns Gold could be in for a heck of a dump.  Meanwhile it's on the way up.


Silver is also on a tear, but a buy signal wasn't generated there until this morning.

Monday, November 29, 2010

Monday 11/29/10 wrap up

The dollar is a key to the other markets I follow, and that key is in solid up mode.  If my Elliott count is correct, today marked the end of a Micro W3 (black) of a Minute W3 (green) of a Minor W3 (red) of an Intermediate W1.  So there appears to be lots of upside yet remaining.
 

The EUR, AUD, Gold, Silver and ES are all in down mode on the Trend/Osc system, which is to be expected with a bullish US$.

On the ES, we are in an Intermediate W4 and so far it's everything I've come to expect and dislike about corrective waves - choppy and hard to analyze.  Intermediate W2 was a simple zig-zag, so this W4 should be either a flat, triangle or some type of complex formation.  So far it looks like a triangle which quite possibly was done at today's lows.  There are two alternates here for the triangle possibility.

ES Alternate 1

ES Alternate 2

There are other alternates here.  We could see a flat type W4, in which case today's low would probably mark the end of the A leg of that structure, with a B wave up to early Nov highs followed by a C wave back down yet to come.  The problem with this idea is the time it would take to develop.  Intermediate W2 in August was 18 days, and this correction is at 17 days as of today, so you wouldn't expect it to run much longer.

There is another major problem here.  If the triangle idea is correct, one would expect a fairly solid Intermediate W5 rally to have started today or not too long from now.  However, if the US$ analysis presented above is in any way close to accurate, there should be an ongoing bearish drag on equities from that direction for a while yet.  Which brings us to another option presented in weeks past.  That option is encapsulated on the below chart:

I've been considering this alternate to be low probability because of the extremely choppy and overlapping nature of the move down from the top of Nov 9 to the low of Nov 16.  That move would have to be labeled a W1 of the "C" leg in the above chart, and it was anything but the impulsive move to be expected in that case.  But, there is the drag from the US$...................  If the above alternate is correct, then we should know it by the end of the week because we should be close to tipping over into a 3rd wave.   The ES 1173 area has been pretty solid support as of late, so that would be the level to watch.  If the ES should break below that with any authority we could drop like a stone.

Wednesday, November 24, 2010

Wednesday 11/24/10 update

Just a thought to mull on.  Why is gold and the US$ both rallying?  Seems counter intuitive.  Unless capital is fleeing Euro to US$ and thence into gold.  If that's right, then possibly any EUR rally could lead to a sell off in gold.  Interesting.

Tuesday, November 23, 2010

Tuesday 11/23/10 wrap up

Silver still under an hourly sell from this morning, but I decided to pass on a short in that market.

ES is on track for the triangle idea.

It's trading right in an area of recent support.  If it drops through the ES 1170 mark with any authority then the triangle possibility would be in question.  I like to watch the volume profile study for clues as to support/resistance levels.  Following is a chart of that for the ES:
This study shows the volume of contracts traded at different price levels over the last 6 months (blue histogram on right).  The idea is that spikes in volume at a level indicates resistance/support.  As can be seen, the ES 1180 to 1173.50 area has a significant volume spike and thus should be support, which so far is proving to be the case.  The other side of this is that the next area of major support isn't until ES 1140, so any serious break below this level has the possibility of dropping 30 points in a hurry.

On currencies, the DX had a daily close above it's downtrend line from the highs of early June, so it is now in a confirmed uptrend.

  The EUR and AUD are the reverse of this, of course, and the EUR is particularly weak.  The EUR is in a confirmed downtrend on the daily Trend/Osc dating back to Nov 4. 


Current Elliott count shows the EUR to be in a Minor Wave 3, so this should be strong and swift to the downside, which so far has been the case.

Doesn't look like there's any major support until EUR 1.26 - 1.28, so this could be a pretty good ride.

Tuesday 11/23/10 update

Sell signal on Silver hourly this morning, I may short this but need to see the rally of the last two hours roll over first.

Monday, November 22, 2010

Monday 11/22/10 wrap up

ES
Current preferred count on the ES is that we are in an Intermediate W4 of 5 waves up of a move that started at the early JUL lows. 

Since Int W2 (purple) in August was a zig zag, this Int W4 should be either a triangle or flat.  My inclination is that a triangle is the most likely for seasonal reasons - a lot of significant players are off for the holidays, so really big moves are unlikely (but not impossible).  In that context, the choppy sell off of Nov 9 through Nov 16 is likely Wave A, and this morning's highs would mark the end of Wave B, with Wave C in progress:

The flat possibility would look something like this:

There is another intermediate term alternate.  That alternate is that the Primary degree correction that started in April is itself taking the form of a flat, with the A and B legs done and Primary Wave C in it's early stages.  This does not fit well seasonally.  Also that would mean that the sell off of Nov 9 through Nov 16 is a Wave 1, but that move was not impulsive and thus did not look like the kick off to a deep sell off that would be expected for a Primary Wave C.  So this possibility is less likely IMO.
Intermediate Term Alternate

Saturday, November 20, 2010

Weekend Update 11/20/10

2nd Addendum 11/21 (5:10PM)
DX has gapped down on it's open, thus EUR, AUD, Gold, Silver gapped up.  Sell signal from Friday on EUR is now canceled, chances are that will also happen with the others.  I would guess my short gold position will be toast before the night is over.

Addendum 11/21
There was a whipsaw in the hourly Trend/Osc for the ES on Friday with a sell signal in the morning subsequently canceled at the close with the high print @ ES 1200.00.  Thus ES is still in UP mode from Tuesday Nov 16, but that is rather tenuous IMO.

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Short term bear flags all over the place on Friday, although ES and Silver may be overriding theirs.
EUR
AUD
GOLD
SILVER
ES

I don't normally like to open trades on a Friday afternoon, but the first three looked pretty juicy.  So I picked gold and opened a short position there.  Might open shorts in some of the others on Sunday night after the open.  I will especially be watching the EUR and AUD. 

The US $ (DX) is key to the currencies and metals, especially the EUR and Gold.  The DX looks like it started an uptrend from the low of Nov 3rd.  Last week the daily DX closed right at the downtrend line established from it's June highs on Tuesday and fell away from there.  So that uptrend is not yet confirmed.

However, an hourly Trend/Osc buy signal occurred on Friday for the DX.  That signal was matched by sell signals for the EUR and Gold (btw also AUD and Silver, but they are a little more problematical) which is to be expected.  If the DX falls below Friday's low of 78.26 in the very near future that hourly buy will be canceled.  If not, we very likely will see a strong DX rally resulting in a daily close above the daily downtrend line in the above chart.  That would confirm an intermediate term uptrend for the DX.  And of course it would be bearish for EUR and Gold, as well as AUD, Silver and ES.  So it bears watching (no pun intended).

Friday, November 19, 2010

Friday 11/19/10 update

9:00 AM CST
DX is rallying, took profits in EUR and silver position, in cash.

Thursday, November 18, 2010

Thursday 11/18/10 update

2:20 PM CST
But signal on hourly AUD Trend/Osc



10:05 AM CST
Buy signal on hourly ES Trend/Osc, will look to go long on pullback


8:30 AM CST
Buy signals on hourly Gold and EUR Trend/Osc overnight:

Wednesday, November 17, 2010

Wednesday 11/17/10 update

11:20 AM CST
Buy signal on Silver hourly Trend/Osc

Tuesday, November 16, 2010

Tuesday 11/16/10 update

5:00 PM CST
POSSIBLE ELLIOTT COUNTS

ES

Alternate #1

Alternate #2

EUR/US$

GOLD


2:10 PM CST
A little food for thought - Intermediate Alternate #2 on the ES from my weekend post:




9:20 AM CST
ES has been awfully difficult to read as of late.  Yesterday's Trend/Osc buy signal was canceled with the overnight lows, I had a hunch that would happen which is why I was ambivalent about acting on that signal yesterday.

The Elliott count looks like a zig-zag down from last week's highs with the C wave being an ending diagonal and quite possibly done as of the lows this morning.

Monday, November 15, 2010

Monday 11/15/10 update

Got a buy signal on hourly Trend/Osc on ES at the top of the hour.  I'm ambivalent about this signal, the Elliott count here is difficult and we're overbought on a very short term basis (5 minute charts). 

Saturday, November 13, 2010

Weekend Update 11/13/10

Smells like a paradigm shift is in the works.  For some months now the drivers of the markets followed on this site have been the mid-term Congressional elections, a weak US$, low interest rates, and a strengthening but still anemic economy.    A strengthening but anemic economy still appears to be the case,  but the other factors are in flux.  Obviously the mid-term elections are history so that driving force is gone.  The two key factors IMO are the US$ and interest rates, which are closely related.
On interest rates, long rates (30 yr US Treasuries) appear to have bottomed.   Shorter rates are still low, and the Fed is busy trying to keep them suppressed with the QE2 liquidity injection plan.  One has to question how effective QE2 will really be, the more liquidity in the economy the greater the inflation risk.  A perception of inflation risk will lead to a demand for higher risk premiums, i.e. interest rates, on debt instruments.  In addition, this last week an auction of 30 yr US Treasuries did not get good demand, so we may also be seeing the start of hitting the bottom of the barrel in available funding for US debt.  That's ominous.  All of this combined spells the definite possibility of much higher interest rates across the board for US$ denominated debt instruments.
Higher interest rates will lead to strength in the US$.  And, in point of fact, the DX (US$ futures) appears to have bottomed, at least for the time being.  A chart of the DX shows a clear a-b-c move down since highs in early June.  In turn, the "C" wave  of this move shows 5 waves complete at its early November lows. 
The thing to watch on this daily chart is the upper channel trendline.  A daily close above that trendline would confirm a change to bullish in intermediate term trend for the US$.  At Friday's close that trendline was at 79.09 and declining at the rate of roughly .09 per day.

EUR/US$
The EUR is showing the flip side of US$ strength.  It topped on Nov 4 and has been in a steady decline since.  In addition to US$ strength the EUR is being further weakened by economic concerns in the EC block countries of Ireland, Spain, Italy and of course Greece.
From a technical standpoint the EUR generated a sell on the hourly Trend/Osc on Nov 5 and on the daily on Nov 9, so it is in a confirmed downtrend.

EUR Hourly Trend/Osc

EUR Daily Trend/Osc

From a short term trading standpoint, the EUR quite possibly put in a short term low on Friday and is in the process of a bounce.  This bounce is a good candidate for establishing a short position.  However, the Elliott count since the top is a bit awkward, so the initial wave (which would be Minor W1) may not, in fact, be complete.

ES
From a long term perspective I believe we're in an Elliott "X" wave separating a years long corrective sequence.  That X wave started at the Mar '09 lows and completed the "A" leg at this year's April highs.  The question right now is whether the "B" leg of that move was done at the early July lows or is still in progress.  Thus I have two intermediate term alternates at the moment.

Alternate 1

Alternate 2

Alternate 1 has Primary Wave B of Cycle X complete at the July lows. In the rally since then we have Intermediate Waves 1, 2 and finally 3 (purple) complete at Tuesday's highs.  That would leave an Intermediate W4 and W5 yet to go to finish Major W1 of the Primary "C" leg of the Cycle X wave.
Alternate 2 has Primary B still in progress with it forming a 3 wave flat type of structure.  In that context, the early July low marked the end of Major Wave A, and Major B finished at last Tuesday's highs.  We thus would be in the initial stages of what should be a sharp and deep sell off down to the July lows at a very minimum.
Alternate 2 would make all the perma-bears happy, but I believe it is the less likely of the two.  Alternate 1 fits much better with historical seasonal patterns, which are generally bullish at the end of the year, especially from mid-December through early January.  In addition, the very short term price pattern following Tuesday's highs has been very choppy and overlapping, more befitting the start of a sideways Wave 4 type correction than the start of a strongly impulsive 5 wave down move that would be expected in Alternate 2.  In Alternate 1,  the Intermediate W2 selloff in August was a zig-zag, so the projected current Intermediate W4 should be either a flat or triangle to meet the Elliott rule of alternation.  Flats and triangles are more sideways patterns than sharp sell offs, once again that fits with what's been seen so far since last Tuesday.
Finally, there is a 3rd ES alternate that I've not charted, and that is that the rally sequence from the late August lows was NOT complete at last Tuesday's highs and itself needs a W4 and W5.  This is a viable alternative but not as likely as the other two already presented IMHO.  Time will tell.

The very short term Elliott count since Tuesday is very murky due to it's choppy and overlapping pattern.  It can be labeled such that there is a 3 wave move done at Friday's lows which would complete an "a" wave of Intermediate W4.  But that labeling is not high confidence, there could easily be more selling left to complete this move.  However, next week is OPX which has been historically bullish.



GOLD
Recently a case for gold tracing out a large Minute W4 flat correction was presented on this site.  It looked like that possibility went out the window with the rally into Tuesday's highs which carried prices past a ratio of 1.382 times the maximum travel of the "a" leg of that possible flat.  However, Tuesday's highs at 1424.30 was only 10 cents shy of an exact 1.5 times the "a" leg, and the selling since then has been very sharp and impulsive as would befit the "c" leg of a flat.  So at this point the flat Minute W4 correction idea is not only very much alive but apparently in progress and in it's last stages.  Since last Tuesday's highs it looks like Waves 1,2 & 3 are done with Gold now in W4 of that "c" leg.  This fits with the idea of the EUR currently in a retrace to it's confirmed downtrend.


The longer term implications here fit with the themes presented earlier in this post.  Near term, strength in the dollar would have a negative impact on the price of gold.  But if inflation expectations really start intensifying one would expect the price of gold to climb long term.  Gold trades like a commodity, and in commodity markets the 5th wave of a move is generally the longest and most powerful rather than the 3rd wave as in equities.  If the above count is correct, we will be entering a Minute Wave 5 fairly soon, and that Minute W5 only completes minor W3 of Intermediate W3 of Major W3 of Primary Wave V.  So there's a long way to go for gold if this count is correct.  Which by the way would indicate some severe inflation on the horizon.
Thanks Ben.