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Saturday, January 22, 2011

Weekend Update 1/22/11

It appears that an intermediate term top was made at last Wednesday's highs.  The problem is that there are various news stories out there heralding that top, which could well mitigate against it being the actual top.  When too many people agree on a market's course it tends to not be true.  Remember all the press about a head and shoulders formation about a year or so ago?  If I recall correctly, that's exactly what didn't happen.

If it is true, the wave count into the top is as follows:
5 Minute waves up complete from the low of  Jan 10
5 Minor waves (red) up complete from the low of Nov 29
5 Intermediate waves (purple) up complete from the low of Jul 7
-- which completes a Major Wave 1 or A of over 6 months duration.  This should put us into a major down move with a target of the prior 4th wave lows.  Looking at the daily chart there was a lot of time spent in the ES 1162.50 to 1200 area in October and November.  That area also marked the 4th wave low in Minor W3 (red)  and the low of Intermediate W4 (purple).  So that area is a reasonable target for this sell-off.

ES - 2 hour bars
ES daily

Helping to confirm that the top was in on Wednesday is the clear 5 wave structure of the move down into Thursday's low.  That's been labeled as a Minute W1 (green) for now.  Also, the move back up from the Thursday low is a very obvious 3 wave zig zag (so far), that's been labeled Minute W2.  Almost too easy.  In addition to the question of whether Wednesday did in fact mark an intermediate term top, there is the possibility that the rally off Thursday's low is not yet finished.
I'm currently short ES with about a 1/3 position that I put on Thursday afternoon.  I only went 1/3 because the Trend/Osc system has not yet confirmed the downtrend on an hourly basis nor on the daily.  If and when the Trend/Osc generates a sell signal I'll expand to a full position.

ES - 1 hour bars

As outlined in prior posts, the EUR appears to be tracing out an irregular flat that started at the low of Nov 30.  The Minor W a  and Minor W b  legs of that formation are concluded and the Minor W c leg is in progress.  The high on Friday was 1.3622 which is exactly a 50% retracement of the November sell off.

EUR daily

However, the internal count of Minor W c does not yet appear complete although it does look to be in Micro W 3 (black) of Minute W 5 (green) suggesting that a top is nearby.  The next fib retracement level of the November sell off is the .618 level at 1.3776.  The EUR could well hit it.

EUR hourly

I'm currently long the EUR from Tues Jan 11 at 1.2989.  Handy profit of around $7,800 per contract at Friday's close.  Nice.

Gold has been a muddy mess for some months now.  I'm not going to spend a lot of time trying to dissect it, just going to throw up a couple of ideas as to the current wave count. FYI there are another couple of alternates besides the two below, this is one of those situations where the count will become clear only when it's receding in the rear view mirror.  My sense is that there's some more downside left in the selling that started at the beginning of Jan, but it's not a high confidence call.  Made a little money shorting gold this last week.  Both the hourly and daily Trend/Osc for gold are in "DOWN" mode.  However, there was a buy signal on the hourly Trend/Osc for Silver on Friday, and since the two tend to move together and the most recent gold sell off appears to have 5 waves down complete or close to complete, I went flat with respect to gold.  If gold does move up some early next week in a non impulsive fashion I will consider going back in with a short position.  BTW, the same thought applies to Silver.

Gold daily (long term perspective)

 Gold daily

Gold daily (alternate count)
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