The e-mini S&P continues to march forward even as several indicators suggest that a top is immanent. While indicators can assist in building the bearish case, price ultimately will tell me when the market has truly made it's turn. Currently the market is within a few points from wave. 4 (red) of wave.1 blue. Elliott refers to the fact that corrective structures often reach the span of the previous fourth wave of one larger degree. That objective is 1172. I certainly didn't think that wave.2 would reach such a lofty objective due to the fact the other high probability target zones existed well below this area. The bottom line is they were all exceeded. As I mentioned in my weekly review for September 24, 2010, the US Dollar will need to terminate wave.2 before a significant top in equities can be put in place. I believe this to still be the case as the very mention of FED's QE.2 has added pressure to the upside for equities and commodities while hammering the dollar. Current market sentiment for the Dollar is just at 3% Bullish. So the "dollar down trade" is highly crowded. With the overhang of more easing, some other event is going to trigger the Dollar's turn. Here's the Market's position at the close of the week. Momentum: Remains OB on weekly and daily time frames. No turn down. Pattern: final wave.v of wave.c of wave.2 Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week" Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place. Best of Trading
Holiday markets are always slow and it's hard to gain much insight from them. I continue to monitor the USD trade like a hawk. Sunday night, the dollar gapped down and price has since filled the gap in today's trade. There's support just below the market at 76.7 that should limit any further downside. Looking at the wave pattern, it is clearly an ending diagonal. Now may be a great opportunity to go long with a limited capital exposure against the crowded dollar down trade. If the Dollar has made it's w.2 low, equities and commodities should come under increasing pressure to trade lower.
Turning my attention to the ES_F market, the following market position as of the close is: Momentum: Remains OB on weekly and daily time frames. No turn down. Pattern: Ending diagonal of wave.c of W-X-Y pattern Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week" Trade Strategy: Remain flat but looking to establish a bearish position against the termination of the ending diagonal that coincides with the turn in the US Dollar. Looking at the daily chart of the ES_F , I've labeled a possible expectation for the next few days as well as the previous wave.4 red resistance level. There are certainly other ways to label the diagional that would allow for the termination of the pattern to end tomorrow. Either way what's important to understand is that confirmation that the pattern had ended is a swift move below the trendline. When it does, the minimal expectation is a move back to the origin of the pattern (1117.25) and often much further. This should be a great set-up for shorts against the high of the pattern. Best of Trading
I continue to watch the USD Index in anticipation for a turn that will undermine the current rally in equities and commodities. So far the index has held above the low established on 10/11/2010 but most recently the Index can't seem to put together any sustainable follow through. Today's ES_F move forces some minor labeling changes of the 60-minute chart. Nothing changes the outlook. I am anticipating a small move down, followed by one more push to new highs based upon today's trade. Here's the market's position as of the close: Momentum: Remains OB on weekly and daily time frames. No turn down. 60 minute TF has turned down supporting a decline. Pattern: final wave.v of wave.c of wave.2 Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week" Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place. Best of Trading
The USD continues to be the focus whereas a bottom of W.2 may have been struck on Friday at 9:00 am est. Looking at the following charts we can see support buying coming into the market on volume at the previous w.ii circle. Furthermore, this aligns well with the commentary that I made in late September. If you would like to review it click here: http://elliottwavelive.blogspot.com/2010/09/s-futures-week-in-review-for-september_25.html I am expecting some weakness in the Dollar for Monday as momentum indicators have turned down at the 60 minute chart level. Expect a three wave decline followed by a break of 77.355 that would confirm that w.2 had ended on 10/15/2010. Should this occur, equities would be impacted.
Turning my attention to the ES_F market, there is an absence of 5 waves down. Therefore I must consider that price will reach a new high consistent with my down, up analysis made on Oct. 11, 2010. I have included two charts that show what I am looking for and what would signal that wave.2 top is in place. First, I've drawn a red line showing how a divergence between w. (iii) and w. (v) might be forming. Tops and bottom formations often exhibit these diverging signatures. Secondly, a chart of the SPX shows what I'll be looking for in terms of the ROC. Note the black bar that I have drawn in. This slightly higher bar would coincide with one last push up... again a momentum divergence from price. Aggressive trades should be leaning against a completed wave count and these signatures with a tight stop. More conservative traders can wait for a break of the lower channel boundary. I'll try to identify both when they occur. Here's the current market position for the E-mini's: Momentum: Remains OB on weekly and daily time frames. Sideways. No turn down. Pattern: final wave.v of wave.c of wave.2 Time: L-H time relationships of 4-5 weeks indicate that a significant top should occur by the week ending on 10/15/10 +/- 1week" Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place. Best of Trading
HAS THE DOLLAR TURNED? Today I was looking for some weakness off the open with respect to the USD. What transpired was a further subdivision upward to complete w.i, followed by what I expected... a w.ii decline. At the close, price appeared to bounce again suggesting that tomorrow we could see further strength manifesting itself as a w.iii. Conversely, as expected, we did see higher prices in the ES_F but the momentum signature that I discussed in the weekly wrap reached a new high instead of producing a divergence. With respect to the SPX, the ROC moved higher confirming the potential for divergence as a new high was reached. The market closed very weak. At the time of this post, futures are down 4.75 suggesting further weakness early on into Tuesday's session. While the new recovery high meets the requirements of a completed five waves, the structure is less than desirable. Trade below the lower trendline would give me more confidence that a top may be in place. Here's the Market's position at the close of trade: Momentum: Remains OB on weekly and daily time frames. No turn down. 60 min chart level has turned down. Expect selling pressure in the ON session or at the open of Tuesday's trade. Pattern: final wave.v of wave.c of wave.2 Time: The previous time relationships were negated today as time has exceeded the projections for a top to be made. Trade Strategy: Remain flat but looking to establish a bearish position as momentum indicators and price confirm a top is in place. Best of Trading