Zooming in on the count since the low last Sunday night, we appear to be in the 5th wave of that rally as well.
The EUR/US$ threw a little head fake last Friday into Sunday night, but it does appear to have topped on Tuesday. Five waves up from the low of Jan 10 can be counted into Tuesday's high, and the action since then is clearly five waves down. The EUR topped at 1.3856, a little past the .618 retrace at 1.3776 but still in the vicinity. Interestingly Minute W5 (green) of the rally from Jan 10 is almost exactly half of Minute W1 (.0583 for Min W1 and .0292 for Min W5).
If this count is correct the top on Tuesday marks a significant intermediate term change of trend. It would mark the end of an Intermediate Wave "b" correction to a Major Wave "c" bear market that started at the high of Nov 4. We would thus be in Intermediate Wave "c" of that bear market.
First target for Major W "c" is the low of Major Wave "a" last June, which was EUR 1.1874. A 1.618 multiple of Intermediate Wave "a" subtracted from Tuesday's high lands at 1.1740, right in the vicinity of that Major Wave "a" low. So that's a reasonable starting expectation.
The AUD/US$ also appears to have put in a significant top at today's high.
If this count is correct, there are five waves up complete for the bull market that started last May and thus some serious selling ahead.
The action in these two currencies points to strength in the dollar. That strength was reflected in the DX which is showing a clear 5 wave pattern up from a low Tuesday night. If in fact there is a change in trend towards a stronger US$ it will provide bearish pressure to equities. This helps buttress the case for a top in the ES being nearby.
Nice charts Al. I agree about the dollar pressure on equities. The long term bond market 3x short (TMV) broke out as well. Silver seems stronger than gold, but I sense that they will be under pressure as well. We may be in the early stages of a bond bear market...how long do you think the pressure on the euro, US equities +/or gold/silver will last?
ReplyDeleteJordan
I hate predicting how long a move will last, it's hard enough to identify what the ongoing direction might be. With that thought in mind I will say that I don't think these are going to be real lengthy runs, especially in the case of equities. In equities I think we're looking at a fairly sharp but short lived (2 - 5 weeks) correction to a longer term bull market.
ReplyDeleteHi Al,
ReplyDeleteI seldom post online these days but I read your blog daily. Your trading is par excellence. Hit ratio is high, but the stop loss discipline is truly par excellence. The no-nonsense, no excuse, and no fighting the market approach is what every trader should emulate.
It appears that ES 1325 will be the destiny. We have two drops that have been reversed within a day or two. No one will short the third one or th 4th one. That just means this time the wolves are really coming.
Thank you for the nice compliments - greatly appreciated. Sorry I don't post every day, time pressures limit me (I run a food processing business full time).
ReplyDeleteIt would be nice if I was finally correct in calling a short term top in equities - it's been a relentless bull market. Also as I mentioned, I do believe any equity selling will only be corrective to a longer term bull market. But as usual one must let the market do the dictating not the other way around.