SPX and Euro Update: Euro Still in the Driver's Seat
US markets seem largely driven by the euro, but there continue to be many indications the market is forming a top.
2. There are now two bearish reversal candlesticks in a row on the daily chart (not shown).
3.The Volatility Index (^VIX) has traded outside its lower Bollinger band for three days in a row.
4. Retail investors, as measured by Rydex (RSP) fund flows, are again very bullish.
5. "Everyone" is expecting a seasonal Santa rally.
6. The wave structure seems to support a top (see charts).
7. The euro, while open to some interpretation, could be on the verge of a major breakdown (see chart).
8. The market now has a fourth apparent rejection at the 200-day moving average.
9. The 1,158 bottom was not formed very well, as far as bottoms go (here I'm tempted to make off-color jokes about "well-formed bottoms.")
I've spent roughly 40,000 hours this weekend charting and re-charting, so I'm going to get right to those charts. The first chart I'd like to share is a big picture chart and compares some similarities between the current market and the market earlier this year. I'm using the Wilshire 5000 for form; the chart explains the rest:
Click to enlarge
The second chart shows my revised count for the short-term structure of the S&P 500 (SPX). I've never been entirely satisfied with the prior labeling of the decline, and the entire sideways correction in early November was also a big challenge. The count I'm about to show is one I haven't seen anywhere else, which is another thing I like -- it always worries me when too many technicians are on the same page together.
This new labeling accomplishes two things:
2. Explains the violence of the rally.
This is one of those "either I'm a genius or a madman" charts.
Anyone even passively familiar with Elliott Wave Theory will see why the decline was so difficult to label in real-time -- the wave peaks don't always line up with the price peaks. While I did get the direction of the decline consistently correct using real-time charting -- and did anticipate the rally potential at the correct time -- I failed to anticipate a rally this massive. (Which is why it's important to always protect profits.) This type of rally is consistent with a first-wave leading diagonal, and the revised count reconciles well under this interpretation:
Click to enlarge
Do note that the above chart raises the knockout level for the bearish count. This count seems to suggest that the top was made on Friday.
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