Friday, April 16, 2010

Iceland, Greece, now Goldman?

Fear has been back in the markets since last November, although by looking solely at the equity markets, one would hardly know it. It is only upon review of the Euro, the dollar, and other major currencies, one gets the sense that there are serious fears being acted out in the markets.

The Euro has Greece, and while the possibility of Greece's default is significant, it is much, much, much, much, much (is that too many???) more significant in what Greece may signify... a tip of the iceberg of foreign nations defaulting. Ironically, Greece has had much wider coverage in the international news, but last year, Iceland sounded the alarm. That fear alarm has driven the EUR/USD pair down significantly from it's highs up over 1.51+ to a recent low of 1.32+. That's about 13% drop in a little over 5 months! A large move in any currency.

Equities back in 2007 had Lehman Bros.... the straw that broke... well, you know how that story goes. Today's announcement about potential Goldman fraud does not surprise anyone I have talked to, but it does point to fears that so far since 2009 lows, has so far been able to be ignored. I am no expert in derivatives, or the complex financial arrangements that surround them, but I do know that noone has a solid grasp on the amount of leverage they represent in the global marketplace... and hence, the impact of a chill on these bets such that the Goldman news today may represent.

I digress though... as a non-expert on all things Goldman, and merely an Elliott wave analyst and part time trader, I will leave the deep dive into such matters to those with more experience. I point these relationships out... that between Iceland, Greece = Euro, and Goldman = Equities to merely show that fear, the everpresent necessity of a bear market, does not show its ferocity all at once, at the same time, in the same marketplace. It has peaks and valleys. This is the root of a grand supercycle bear market elliott wave. The valley of the absence of fear in the equity markets may have just passed.

Binve has a great post on elliott wave counts (short and long term) in the equity markets. I highly recommend checking his latest post out. He has had a minority view that the latest wave up (since Feb) was NOT impulsive (which I had agreed with)...

As far as EUR/USD action, the bearish triangle or ending diagonal counts of late are still in effect. No need to change things here. The short term picture appears as if a small degree 5 waver has or is near to ending, which may mean a partial retracement of the move down from the upper blue trendline.

I thought I would show the various trendlines that may be in effect that are very solid tools at finding support and resistance levels.

The white line represents the recently broken upper trend channel that has guided price action since last November highs. Yup, it has been broken (with a gap up that was just closed today), but I would keep an eye on this line as it is common for breaks to retest.

I have spoken a lot about the blue trendlines shown. These have a number of touchpoints on the upside, and will be a formidable barrier for the bulls to try to break.

The purple is a so far weak upward bound trend channel. It may provide some resistance on the way down, but given the non-impulsive nature of the rise off last months lows, it should not hold for long.

The yellow lines are very short term trend lines. The most speculative of the bunch, a break of the upper would tell us that a short term trend change is in effect.

The red line isn't a trend channel, but rather represents my line in the sand for the bearish scenarios. If my analysis is right, price will not move above this level.

If we are in a triangle, wave D will probably end along the white line, and probably someone in the neighborhood of 1.34, before a 3 wave bounce in a wave E.

Will indicators a bit oversold, and RSI diverging on the latest lows on the short term indicators, my guess is that profits have been taken for the week and we won't see much action until open on Sunday.

Have a great weekend!

Thursday, April 15, 2010

Euro's got the blues.

EUR/USD declined again overnight, keepoing the bearish short term counts I have been showing on track. Most important from a technical perspective in my analysis, is that 1.3536 was taken out early this morning, negating the one bullish scenario I could come up with to explain the action off the lows of 1.326 last month (see alternate count post from Monday this week).

That clears the potentials a bit, and lends much more confidence to the likelihood of hitting new lows sooner rather than later, keeping me focused on the two bearish counts (see most recent post yesterday).

The short term picture is mixed however, with the action down from this weeks 1.369 high (touching off the blue trend channel) looking very corrective so far. I have included a micro count showing a possible impulsive wave that may be in progress, but I don't have high confidence that once this micro pattern completes, that we will head down to new lows without hitting another high above 1.369, before heading down. If we do, I continue to view this as an opportunity to go short.

With the larger patterns tipped clearly to the side of a new low in the near future, this may be one of the many cases in trading where watching and waiting may pay off with a solid entry position for the next leg down.

Wednesday, April 14, 2010

Ode to a EUR/USD Bear...

Well, my short term great short term trade opportunity from yesterday was proven wrong with a move above 1.3627. It appears we still have another move up above 1.3691 before the move we are in completes. This would break the blue upper trendline that I have been showing, and but me on the defensive to watch out for a more bullish alternative. The short term bullish count from last week has not changed, and is still an option, but prices would have to move above 1.3816 to clench this as the top option.

So many options, what to do? Corrective waves are fun trying to identify, aren't they? Take a look at the 2 bearish counts below:

What apears to be 3 wave movements in both directions, possibly since what I show as wave [iii]. Primary count is the ending diagonal wave [v] which is what I have been following, but a solid alternate is potentially a triangle wave [iv] still in motion. Triangles are common corrective patterns as the wave preceeding the final wave of a sequence. Usually either a wave 4 or a wave b. If this is indeed the pattern, it may raise the probability of a different longer term count... and [a][b][c] correction. This is the count that my good friend Binve and most of the long term dollar bears are following. If we break through 1.3266 (the low so far this year) without bouncing up in a wave e first, then the ending diagonal maintains its primary status. For now the short term direction of both the patterns is effectively the same, but I thought I would bring the pattern into your thoughts to see the most likely possibilities.

Tuesday, April 13, 2010

A study of a solid elliott wave trade setup...

Not much new to report on the wave structure, so I thought I would show you a short term setup that has me interested. Counts from yesterday are still intact, with overnight range bound action. I am considering an alternate, more bearish scenario that may have us still in a fourth wave, but waiting for more evidence from the market to seriously consider.

Take a look at the 1 min chart below:

I circled the areas that have me interested, as an elliott wave analyst.
  1. 5 Waves down from a short term high
  2. MACD rolling over at the peak
  3. Wave iii of iii with peaking RSI
  4. Wave v RSI diverging
  5. Retracement into common fibonacci area
  6. Retracement has the appearance of a corrective wave

Where I have labeled wave (ii) or (b) I have an allowance for the pattern to morph into an more complex corrective pattern that will retace a bit further of the previous wave, but the message stays essentially the same.

A solid example of a potential trade setup on a very short term chart in real time. Placing a trade near the peak of wave (ii) or (b) allows risk to be limited to the peak of wave 1 where I know that I am wrong (elliott rule that wave ii cannot go beyond the starting point of wave i)... awaiting a wave (iii) or wave (c) to short term lows.

I am a big fan of this type of setup, no matter the timeframe. Hopefully, this one works out in my favor!

Monday, April 12, 2010

EUR/USD Touching the blue line...

The deep blue hue of the Pacific Ocean is unmatched by any color I have ever seen. The fish were not biting all that much, but the weather, company, and experience will be fresh in my memory long after the fillets have all been enjoyed.

I left the ocean and fishing lines behind yesterday to discover that the EUR/USD had indeed touched off on the upper blue trend channel line I had first mentioned in my post on 3/31/10, and then most recently mentioned again in my post last Tuesday, April 6th.

Whether the price action will fulfill my longer term EUR/USD count remains to be seen, but for now, the primary count in play remains either an ending diagonal for wave 5, or a yet to be seen impulse. If the latter is in play, we need to see some serious impulsive looking wave 3 down very soon... where things stand right now, I rank this option a distant 3rd in probability. The alternate is the bullish scenario (larger degree wave 2 in motion) I have been showing off and on since March 15th lows. It is possible to count an a-b-c flat correction for wave 2, followed by an impulse for wave 3 (or the start of wave 3 up). A clean break through the blue upper trendline shown would move this option up in probability, but it would take a break through of 1.3816 clenching this as the primary option.

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