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Currencies, Bonds, Stocks, and Cyprus: Charts Say One More Upside Attempt Is Due


I was surprised as many were last night when I tuned in to check out futures and currencies. Fortunately for the bulls, the market gods are giving them a reprieve in the short-term.

As you'll read below, the reprieve may be stimulating enough to turn the bulls' brief trepidation into overconfidence here in the next ten days. Right about then is when it will behoove the wise to cash in their chips. This is a conclusion I draw from my observations of the charts of currencies, bonds, and stocks.

Sometimes, the narrative falls in-line with the technicals.

Before I get going with my analysis of the currency and fixed income markets today, I wanted to piggyback on Mr. Harrison's article (the aforementioned "narrative") from last night – and try to add some technicals to his very well-thought out, well-written article. Todd mentioned that he felt the hungry dip-buyers would be in action very early today (as "old habits die hard"). As we call can see, he was 100% correct.

So, what does last night's and today's action mean technically? As the chart below shows, it appears to me that we have been in a wave "v" rally since the short-term bottom that was put in at the end of February. Based on the Elliott Wave principle that fifth waves often match their corresponding first waves in magnitude, I would normally estimate that wave "v" should terminate at around 1,578 – 1,579 (since wave "i" was 93.47 points in magnitude and since wave "v" started at 1,485.01). To be even more precise, it looks like the overnight selling that spilled over into this morning may have been the start of the fourth sub-wave "(iv)" of wave "v." If I use 1,578.48 as the target and subtract the distance of wave "(i)" -- which was 40.33 points -- I can estimate that the beginning of wave "(v) of v" should occur down at 1,538.15. We didn't quite get there in this morning's weakness, so either we won't get there or we'll see some more selling in the next couple of days.

Just as I've suspected and shared with my readers, though, the end of the month should bring about window dressing activity on the part of hungry portfolio managers and traders. That should, in theory, coincide perfectly with wave "(v) of v" over the next 10 days or so (as March 29 is the last trading day of the month and quarter). We can and probably should see 1,578.48 tested near the end of that wave (is that close enough to 1,580 for you, Todd-o?). One additional note on the chart's labeling, I have included the red Fibonacci line of the very macro "ABC" correction from the monthly chart (as highlighted here recently). That line represents the key monthly closing resistance level for the theoretical correction that has been taking place since 3/2000. Now onto the currency markets.

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The euro was a nasty long overnight, but there's still a chance at a short-term "right shoulder" bounce.

When I turned on the screen early last evening and saw the sharp sell-off going on in equity futures and "risk currencies," I thought I might have to abandon the idea that a head and shoulders top was forming on the euro chart. Given this morning's rebound, however, that formation may still play out. Any bounce here – presumably the "right shoulder" – should peter out at no higher than 1.3273 or so. Of course, there's no rule saying this bounce has to occur. We could simply see things escalate over in Europe immediately and see a technical breakdown in the euro sooner rather than later. Right now, though, as I'm thinking we may see a wave "(v) of v" bounce in the equity markets, it would seem to make sense that we see the euro show a little life before really collapsing.

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The Aussie dollar has also rebounded from the overnight weakness.

Just as with the euro, the Aussie dollar looked pretty bad overnight but has done a nice job of recovering those losses today. The chart below shows a potential "abc" correction higher playing out (in fact, it may have already played out – depending on how you plot the Fibonacci projection lines). By my calculations, if this is merely a corrective move higher in the Aussie dollar, the highest the futures should go is 1.0348. Any close above that will signal to me that the Aussie dollar has much more work to do on the upside.

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