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Saturday, January 1, 2011

Weekend Update 1/1/11 HAPPY NEW YEAR!!!

Really got a kick out of writing the date in the header - "1111" - it's a binary code New Year!!

December has been a very difficult month for analyzing the markets I follow.  However, the picture has crystallized in the last few days, and it appears we are closing in on an important juncture across the board.

ES
The downstroke from Wednesday PM's high into Friday mornings lows looks very much like a descending triangle (wedge).  This fits the Elliott rule of alternation for Minute W4 (green) since Minute W2 was a zig-zag.  If Minute W5 is in progress it is the last leg of Minor W5 (red) that commenced in early Dec, which in turn is the last leg of Intermediate W5 (purple) that started at the Nov 29 low. Intermediate W5 concludes the rally that started on Jul 6.  So, if we mark this morning's low as the start of Minute W5 we are on the home stretch of the rally that started last summer and has resulted in a 250 point gain in the ES.

ES hourly

ES daily

Needless to say, if this analysis is correct we could see a significant correction in January.

CURRENCIES

The best way to make sense out of the EUR/US$ is to take a look at the DX.  It appears that a spike low in late Oct marked the start of a 5 wave Intermediate term rally which ended with a 5th wave failure at the high of Dec 23rd.   Since then the DX has sold off sharply and may have hit at least an interim bottom Friday in the 79.00 area.  That level provided support twice in the month of Dec.


The low Friday could mark the end of the correction to this rally which started in late Oct.  However, I suspect it doesn't as it's only ran for 5 days, which doesn't seem like enough time to correct a multi-month rally.

The 5th wave failure in this count, if correct, helps validate a count I've had for the EUR.  I also had considered a 5th wave failure (to the downside) in the EUR.  That idea appeared pretty awkward and unlikely so I rejected it, but the action this week plus the count on the DX has increased it's probability.


This count has 5 waves down from the high of Nov 4.  The 5th wave travels from the peak of the rally that ended Dec 14 to the low of last Thur Dec 23, and is a failure as discussed.  Since then we've had an "a" leg rally from Dec 23 to the high on Dec 28, a "b" leg sell off on Dec 28, and are currently in the "c" leg.  Targets for c are the Minor W4 (red) peak @ 1.3493.  This is only a little past 1.3468 which is the .382 retrace level of Minor W1 through W3.  Past that point the next likely area is the .50 retrace @ 1.3622.
The primary alternate count on the EUR is that the sell off in November was an A-B-C and that the pattern since the Nov 30 low is also an A-B-C counter trend move.  In this scenario we are currently in the C leg of the counter trend.  There isn't any practical difference between this alternate and the above count.  Targets for this alternate are the same.  The only advantage is aesthetic - it avoids the awkward looking 5th wave failure presented above.


The AUD/US$ has been stronger than the EUR.  It appears to have completed a Minor W4 (red) triangle type correction Dec 16 and has been on a tear since then.


Since the Dec 16 low there has only been one significant pullback which was actually the very next day.  I've labeled them as Minute W1 and W2 (green) for now, but this move needs to develop more to be confident of that labeling.  Right now it's pretty much an upward blur.
This is, however, a 5th wave, so it is the last leg before a correction of one higher degree.  Some longer term perspective:


The AUD has been in bull mode since a low print @ .8049 on May 25.  Since that low there's been an Intermediate W1-W2 (purple) with Inter W3 in progress.  Within Inter W3 we've had Minor W1 through W4 (red), with Minor W4 the triangle formation that concluded on Dec 16.  Minor W1 traveled .0689, Minor W3 was .1890 and the maximum width of Minor W4 was .0616.  The "e" wave of Minor W4 ended at .9725.  We can set some likely targets for Minor W5 from these values.   From the "e" wave low of Minor W4: 
        Minor W5 = Minor W1 @ 1.0414
        Minor W5 = .382 x Minor W3 @ 1.0446
        Minor W5 = Max width Minor W4 @ 1.0341
So an initial target area for Minor W5 is 1.0341 - 1.0446.

GOLD
Gold has been on a seesaw since mid-October.  It's been difficult to ascertain just what it's been doing from an EW perspective until recently.  
The most likely count is that of an ending diagonal since the late Oct. low.

Gold daily

Gold hourly

Like the ES, EUR and AUD this market appears to be in a 5th wave, the difference being that Gold's pattern has been much more sideways since it's Oct low.  If the count is correct, Gold is in the "c" leg of the 5th wave of an ending diagonal Minute W5 (green).  Target is the upper trendline in gray on the charts which connects Micro W1 and W3 (black).  That trendline is currently in the 1440 area.  In turn the Minute W5 is the last leg of Minor W3 which dates back to a low in early Feb.  It is thus nearing a top of some significance.  When that top is made, downside target would be in the area of the Minute W4 low around 1320.

There is an alternate count here, and that would be that the seesaw pattern since the Oct high into the mid-December low is actually a Minute W4 triangle.  This would mean that Minute W5 only started at the Dec 16 low.  This count would allow for more distance and time for Minute W5.  How much? Well, Minute W1 traveled 222 points and lasted almost 4 months, and Minute W3 was 232 points and lasted almost 3 months.  Since Minute W4 is a triangle in this count, and triangles generally precede a 5th wave that is more of a final burst to the upside and is generally the length of the widest point of the triangle, then it's reasonable to expect a duration of less than Minute W3 and a distance of travel of around 110 points.  The end of Minute W4 in this count was the low of 1361.60 on Dec 16, so 110 points gives us a target around 1470.

Gold daily - alternate count  

This Gold alternate count has an awkward look to it for a triangle.  This is why it is not my primary count.  However, if Gold rallies significantly past the upper trendline drawn in the primary count then the alternate becomes more probable.

SILVER  
I was going to do an in depth on Silver but it's late Saturday PM and the clock is running out.  A short version is that SI completed a lengthy 4th wave triangle formation on Sunday evening Dec 26, and is currently in a 5th wave.  So a top is near in SI as well.


Wrap-up
ES, AUD, Gold and Silver all appear to be in intermediate term 5th waves, and the EUR appears to be in the last phases of a counter-trend rally.  January could be a doozy of a month for those with a bearish inclination. 
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