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SPX and US Dollar: Rally Likely Only Halfway Through


Odds are good that this is only the mid-point of this rally leg.


It should be noted that there is extremely bullish potential in the current market. This appears to be a third wave rally at several wave degrees (note the red ii at the November low), which opens up potential for a preliminary long-term target of 1680ish. There is another option, called an ending diagonal, which is less bullish, but would still see a trip into the high 1400's at the minimum. The bottom line is that the preferred intermediate counts of the past several weeks range from "pretty bullish" to "exceedingly bullish."

I do hope my warnings recently kept bears from over-committing. I know a lot of technicians were quite bearish of late, but I felt the bears never quite clinched the deal for a number of reasons. And every now and then in trading, just as in life, gut instinct beats everything. As I noted on 12/27:
"Bears have a definite shot at taking control, and there are a number of signals right on the cusp of rolling into their favor -- and yet I have a gut feeling that bulls will somehow manage (yet another) stick save here."

Last update, I published the triangle potential that I had noticed in the US dollar -- and until 78.60 is broken, that potential remains for the time being. However, I continue to favor dollar bears for the intermediate term (either directly, or after further consolidation), and below is the preferred wave count for USD. The first alternate is the extended sideways correction (triangle; not shown), which basically just stretches out the final resolution, but still ultimately leads lower. I would rethink this outlook if bulls reclaim 81.46.

Click to enlarge

In conclusion, this is not a rally I would look to short anytime soon. There is massive pent-up energy in the charts, and nested third waves are not to be trifled with. Third waves are the "point of recognition" for the masses, and tend to be strong trending waves that rarely let up for very long. Third waves tend to peg indicators at extreme readings and stay there for much longer than seems reasonable. In the next update, we'll get into more detail on the bigger picture. Trade safe.

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No positions in stocks mentioned.
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