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Market Report – Weekend Edition

February 12, 2012 By Leave a Comment

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Reviewing the charts from last week and it is noticeable that the EURUSD clearly outperformed most USD based currency pairs and the SPX/ES markets as well.  However, on Thursday, the currency pairs turned lower.  This is especially seen in risk-related pairs of the AUDUSD and NZDUSD.  When the risk-related currency pairs turned lower, they were ahead of the ES which is very typical.  The currency markets always tend to lead the equity markets.  The AUDUSD and NZDUSD remained heavy, while the ES rebounded a bit, as the markets closed last Friday which suggests that we may see a continuation of the risk-off tone to begin trading this week.

ES(gray), AUDUSD(green), GBPUSD(red), NZDUSD(blue), EURUSD(pink) – 5min Candle chart

 

It seems that traders may be anticipating a double top for the S&P 500 at the 1370 given the indecisive price action action at the current levels of 1340-1355.  Of course the S&Ps are due for a correction, but there is a lot bearish sentiment in the market still.  Since price action has exceeded the 78.6% retracement level of 1307, which price action slid right through, we should expect it to continue higher.  The next target to the upside should be the 127.2% fib extension, which is the typical target once the 78.6% retracement fails.  So the path of least resistance looks higher, and we may have some more reaction at the double top area of 1370, but those typically do not hold, nor do triple tops.  So over the next several months we are looking higher for the S&P 500 index.  To summarize we have had a three wave move higher off of the 2009 low primarily due to a violation of that move higher on the move lower from the 2011 high to the low. Therefore, we are expecting higher levels in the form of a fifth wave due to price action getting above the 78.6% fib level.

SPX – Daily Candle chart

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Market Report – Weekend Edition – 2.5.2012

February 5, 2012 By Leave a Comment

The better than expected US NFP data that was released last Friday morning, and we receive a nice bullish move higher for the markets as we expected.  The path of least resistance has been higher and we have no reason to abandon that continued bias.  It does seem though that currency traders may cut back their expectations of a round 3 of a USD-weakening quantitative easing effort.  We are wondering if this will change the landscape for the USD against the EUR, perhaps in the short-term, however, USD shorts may experience a short squeeze.  Therefore, as we continue to stay out-of-the-way of a difficult EURUSD to trade, we must try to understand its impact on the markets.

Our initial target has been hit for the SPX at the 1344-1345 area.  Price action is in overbought territory on the 1hour chart, but we could see price action push higher in the short-term to our extended target of the 1356 price level.  It seems prudent to take partial profits at minimum with a potential wave 4 pullback that could unfold in the short-term.  Our bias remains bullish for the next several weeks.

SPX 1Hour chart

 

The USD index continues to appear bearish especially if price action can break through below the 78.75-79.15 area, which has produced a bit of congestion for the short-term.  Although the SPX/DX inverse correlation has been challenged a bit this year, the two have tightened up that relationship as of late.

DX 1Hour chart

 

Similar to the DX chart above, but inversely related, price action could breakout to the upside if this wave count is correct.  The 1.3144-1.3216 price area is the congestion zone for the short-term.  A break above could really get price action moving to the upside.  We continue to have a neutral conviction on this pair as there remains to be a lot of cross currents affecting price action.

EURUSD Daily chart

 

As of late, we have been tracking the EURGBP, and believe there may be a nice opportunity in the short-term for lower price levels ahead.

EURGBP 1Hour chart

 

Crude oil is critical for longer term SPX bulls.  If we have seen the completion of a wave 2, we should expect much higher price levels in the weeks ahead, which should support the SPX for a continued move higher.

CL 4Hour chart

 

Our forex darling, the AUDUSD, continues to move higher as we have forecasted weeks ago.  We continue to like the price action that we see here, and will likely continue to trade it in the days and weeks ahead.

AUDUSD 30min chart

 

Join our premium members as we continue to stick with what has been working to trade the EURNZD, AUDUSD, and EURGBP pairs, which have a more clear wave count providing us an edge on the markets.  Our current trade has been working very well and we are positioned nicely for further gains this week.

 

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Market Report – Update – 1.29.2012

January 29, 2012 By Leave a Comment

Another interesting week ahead of us after the US Fed decided to maintain its very easy monetary policy of low-interest rates and potentially more quantitative easing.  These actions are likely going to hurt the buck and support equities for the next several weeks and months ahead.  The USD index is likely going to tell the story for the markets as we expect weakness to return to being the theme.  As we look at the different markets in this report, it seems that another push in risk-on sentiment is likely to continue to unfold.

The DX seems to be in a wave (3) move lower which should continue to see strong selling pressure to keep the index heavy this week.  Many analysts are looking for a rebound in price action, but we simply do not see that anytime soon for any significant rally.

DX 1Hour Candle chart

 

The S&P 500 appears that it may have another small wave lower to find support at about 1307 for minor wave 4 in the near term, but our focus is for price action to continue higher this week.

SPX 1Hour Candle chart

 

Crude oil hasn’t done much in recent weeks and has pretty much gone sideways since mid-November.  We expect price action to break out to the upside soon with a shorter term target of $115, which should be boosted by a lower USD.

CL 4Hour Candle chart

 

Our favorite risk-on currency continues to be the AUDUSD, so if we are bullish on equities then we continue to like price action here to continue higher.  Our wave count confirms our bias.

AUDUSD 1Hour Candle chart

 

Another interesting currency play is the EURNZD.  Instead of trading the EURUSD, we like a short EURNZD position with our expectation that the Euro will continue to have its troubles, but it would be far better to be short the Euro against the stronger New Zealand Dollar, which is setting up for a big move lower.

EURNZD 1Hour Candle chart

 

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Market Report – 1.29.2012

January 29, 2012 By Leave a Comment

A common method of analysis that we use here at Market Overflow is an inter-market analysis to help us understand how equities are performing relative to the currencies.  Our chart allows us to determine if the risk-on trade is being confirmed by the currencies, which seems to be clearly seen below.  The 30 day 1hour chart shows us that the S&P500 futures are up 7.58%, and the strongest USD related currencies are the NZDUSD and AUDUSD, which is why we have been trading the AUDUSD a lot recently with premium members.  The NZDUSD is up by about 8.55% and the AUDUSD is up by about 6.76% for the last 30 days.  We may begin to trade NZDUSD once we feel more confident in our wave count, but clearly we want to be long AUDUSD or the NZDUSD if we continue to believe that equities will continue to perform well.

 

ES(gray), AUDUSD(green), GBPUSD(red), NZDUSD(blue), EURUSD(pink) – 1hour line chart

 

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Market Report – 1.22.2012

January 22, 2012 By Leave a Comment

The past several weeks have been a slow grind higher for the S&P 500, and it seems that we have been stuck in a “hurry up and wait” market.  The extended move higher is likely drawing in more and more long positions for the SPX, which is a case of traders being afraid of missing a move higher.  When traders begin to pile in a certain trading position, typically the market will shake those traders out.  Therefore, current levels are very dangerous for long positions as price action remains at a critical inflection point.  We have two different wave counts for the SPX, and it seems both would suggest a move lower soon.  A move lower would be in the form of the start of a larger move lower that would last several months, or it would be a smaller retracement setting up a continued move higher for the next several months.

The wave counts for several markets are not very clean, which likely means that we remain in corrective patterns.  These scenarios are difficult for traders, and typically cause traders to lose trading capital due to a lack of a tradable trend.  It makes a lot of sense to remain patient to wait for the higher probability trades.  Trading is a game of “where are my probabilities the best or better”.  Remember of course that the tendency for the markets is go higher, and on average the market goes higher.  Also it is important to note that Chinese equities may have based out in the short-term at minimum for a move higher, which could support the S&P 500 and Crude Oil.  The USD index continues to be a mess, and our conviction is to not buy the DX.  We actually prefer selling the DX at current levels.  Now to the charts.

Our current primary wave count for the SPX remains to be this first daily chart below.  The abc correction higher has pushed above the critical 1306 level with a very important trend line resistance just above current levels.  Currently the trend line comes in at about 1322-1324.  The trend line extends lower all the way back from the 10.11.2007 high.  A break above would be critical for the bulls and really hurt the bears.  It is important to recognize that this move higher is becoming overextended and overbought, therefore it is due for a pullback at minimum.  However, if this wave count is correct, once price action puts in a top we should see sharp price action lower very verry soon.  If we don’t get the sharp price action lower very soon, then we must shift to our alternate wave count.

SPX Daily Candle chart

 

Here is a look at our alternate wave count for the SPX.  It is a more bullish interpretation that expects more upside in the near term.  The evidence across the markets is pushing us more and more to this interpretation, especially if we don’t get a sell-off very soon.

SPX Daily Candle chart

 

The TNX has failed to break below 18, which likely points to higher levels in the near term.  We expect that price action may create an abcde triangle for wave iv over the next couple months.

TNX Daily Candle chart

 

Copper continues to look very choppy and may have higher levels ahead to complete the corrective wave (b).

HG Daily Candle chart

 

Crude oil has continued its holding pattern, but we believe a wave 3 break out to the upside is very near.  This expectation is part of what has us leaning more and more towards a bullish SPX for the months ahead.  Price action should find good support at the 98.37 and 97.35 levels, where we believe it’s a buy.

CL Daily Candle chart

 

The AUDUSD continues to be one of our favored wave counts that we have continued to track.  We expect price action to complete wave (1) soon, and then retrace lower for wave (2).  This wave count is very bullish for the AUDUSD, which likely means that the SPX is headed higher.  We will be looking to enter a long position soon, if price action plays accordingly.

AUDUSD 4Hour Candle chart

 

Apple is pulling back for a buy opportunity soon, which is another bullish indicator for the markets.

AAPL 4Hour Candle chart

 

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Market Report – 1.18.2012

January 18, 2012 By Leave a Comment

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The SPX may have another push higher to complete many waves as indicated in the chart.  We may be looking at a very important top.  The rally seems to be on borrowed time, especially as we evaluated the entire market landscape.

SPX 1Hour Candle chart

 

The TNX gave back all of its early gains yesterday, which is a signal of a continued risk off tone for the market.  With the “safe haven” buying of treasuries and the S&P 500 running out of gas yesterday, it seems that a major risk off move could come at any time and may be getting underway now.  We see the TNX as making another move lower the 15 level at a minimum, which is what we have been forecasting for months now.

TNX 4Hour Candle chart

 

Copper has moved higher in corrective fashion and has hit up against some stiff resistance at 3.75.  This could be the end of wave (iv) for another push lower, which would be bearish for the economy.

HG 4Hour Candle chart

 

Crude oil continues to flirt with a 2-month old trend line that has acted as support and resistance.  If price action breaks down again through the supportive trend line, we may be seeing the beginning of a big move to the downside.

CL 4Hour Candle chart

 

A very important long-term trend line has capped the move higher for the AUDUSD, which prevent the “risk on” tone from advancing.  A failure to break above would mean that we could see a very sizeable move to the downside develop soon.

AUDUSD 4Hour Candle chart

 

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Market Report – 1.8.2011

January 8, 2012 By Leave a Comment

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The markets are at very critical inflection point.  The US NFP data showed an improvement of 200,000 jobs, however equities had a difficult time rallying on the news.  It makes us believe that the positive data was already baked into the markets.  The data was expected to be positive, but the number was still a surprise to the upside according to projections.  Is the SPX running out of steam now?  There continues to be an increasing amount of bullish perspectives for equities, which likely provides us a contrarian signal to be aware of a potential top for the SPX.  We continue to believe it could be a significant top for the next couple years.

SPX Daily Candle chart

 

Many analysts have a more bullish perspective, which is fair to say.  We believe it is critical to have an inter-market perspective, therefore, we want to analyze other markets to confirm our bias.  We have continued to watch the AUDUSD for quite some time and believe that it could offer us a clue about the direction of the SPX.

Here is a look at a 1 hour candle chart for the AUDUSD, which is a bearish wave count.  If this wave count is correct then we should see our SPX wave count above confirmed in the weeks ahead.  The chart displays a 1-2 bearish move lower with a wave 3 currently dropping to lower levels.  The main resistance level is 1.0387 on a move higher, which is also our invalidation level.  Support areas on a continued move lower are currently at the 1.0174 level, which is the 61.8% fib retracement, and also there is trend line resistance that has now become support currently at about the 1.0131 level.  Our confidence in the wave count will increase with price action moving below the 1.0042 level.  A move below 0.9858 will confirm this wave count.  If this wave count is confirmed we should also see the SPX selling off significantly without much more upside at all.

AUDUSD 1Hour Candle chart

 

Here is another look at a 1 hour candle chart of the AUDUSD, which is a bullish wave count.  If this wave count is correct then we should see more upside for the SPX in the weeks ahead.  The chart displays 1-2, 1-2 Elliott Wave count, which expects price action to make a move to the upside once the correction is completed for wave 2.  Support areas are currently at the 1.0174 level which is the 61.8% fib retracement, and also there is trend line resistance that has now become support that is currently at about the 1.0131 level.  This wave count will be invalidated with price action moving below the 1.0044 level.  A move above 1.0387 will confirm this wave count.

AUDUSD 1Hour Candle chart

 

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Market Report – 12.28.2011

December 28, 2011 By Leave a Comment

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At this point we continue to see the AUDUSD has potential to push to much higher levels in the weeks ahead.  We have been pointing out today that there are several fib levels available that we are looking at for support, and it appears the 1.0050 level has held as support and price action has moved much higher off that level.  If our wave count is correct this sets up a very bullish move in the near term.  Price action was very oversold today as well.

AUDUSD 1Hour Candle chart

 

The SPX has dropped to the support area that we pointed out today in our premium members content.  Price action has back tested the former trend line resistance at the 1249 level that has now become support.  Sentiment has turned very bearish today, which may point to more gains ahead for the SPX.  At this point we do not see much more downside price action ahead at this point, especially with the bullish AUDUSD setup and short-term bullish TNX setup below.

SPX 1Hour Candle chart

 

The TNX seems to be setting up for a possible push higher in the short-term, which should support equity price action and the AUDUSD.

TNX 4Hour Candle chart

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Market Overflow – Newsletter – 12.18.2011

December 18, 2011 By Leave a Comment

Market Overflow Newsletter

www.marketoverflow.com

Full Market Analysis

As of 12.18.2011

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Newsletter Archives

 

Our newsletter is a weekly update on the markets as a whole, which is a broad perspective on the core markets that helps us to better anticipate the next directions as they relate to each other.  This week we are providing a look at what our premium members receive on a daily basis with updates throughout the day.

Keep in mind this week that we are now amidst pre-holiday trading conditions, which means that all set-ups, no matter how robust, will need to be managed closely as declining liquidity will begin to adversely impact price action.

Focusing on the SPX, over the last several trading days we have mentioned that the 1210-1221 area was an important support area.  Those levels were tested several times this last week and price action has bounced higher and currently rests just below the 1220 level.  As long as price action remains above the 1210-1221 area, our bias remains bullish towards higher levels.  The most critical level is the 1200 level, which is the 61.8% fib retracement level.  If price action on the SPX were to slip below the 1210 level to reach the 1200 level, we would need to see a bounce higher to maintain our bullish bias for the short-term.

Although we remain bullish on the SPX for the next week or two, we can’t ignore other factors that call into question the rally, which is the situation in Europe.  The last summit didn’t do much at all but extend liquidity to banks and governments, but nothing to address the more critical components of solvency and economic growth.  It seems to be more and more clear that Europe will be stuck with slow growth and a recessionary environment for months if not years as the best case scenario.  As of now, there are simply no mechanisms in place that allow for any other outcome as of now.  In addition, Bernanke indicated that the Fed had no intention or authority to bail out governments or European banks.

We may conclude that equities and more specifically the Euro are most certainly headed lower.  Although from a macro perspective that is a very logical argument, we know however, that markets are often not driven by logic, thus to become a perma-bear the Euro or equities is no easy trade.  We will continue to analyze the markets with an intermarket perspective and Elliott wave recognition, so that we may have en edge on the markets as we trade.  Setups will continue to be very important as volatility continues to increase.

Heading into this week the market is aware of a possible French downgrade that could shake the markets up a bit to increase volatility.  If that happens the implications are for a subsequent downgrade of the ESFS, the European bailout fund, by Standard and Poors.  Should this happen the EURUSD path of least resistance is lower, especially considering the weak technical backdrop.  A lower EURUSD would likely keep pressure on equities to likely drop lower.  We will be watching closely on those developments.

We have SPX charts to highlight for the week with two scenarios that we are considering below.  Join our premium members for more trading insight and research of the markets as a whole with more specific trade recommendations.

 

Our Primary wave count for the SPX expects a rebound from current level to push higher to near the 1300 level to complete wave (c) and (ii).  There is several levels of resistance that should push price action back to the downside if we reach those levels.

SPX Daily Candle chart – Primary

 

 

Taking a closer look at the SPX, our primary wave count allows for another drop lower to the 1200 level, but that level must hold with a bounce higher to maintain our confidence in this wave count.  Price action on the move lower seems very sloppy with plenty of overlapping price action signaling that we may see another move higher in the near term.  A move above the 1231.41 level would invalidate this wave count.

SPX 1Hour Candle chart – Primary

 

 

Our alternate wave count expects the downward movement to be complete. but that level must hold with a bounce higher to maintain our confidence in this wave count.  A move below 1215.17 would invalidate this wave count.

SPX 1Hour Candle chart – Primary – Alternate

 

Our alternate wave count for the daily SPX chart expects price action to continue to drop to lower levels with a 1-2, 1-2 wave count unfolding.  Price action should continue to drop to much lower levels in the short-term and we need to see increasing momentum to the downside if this wave count is correct.

SPX Daily Candle chart – Alternate

 

A closer look at our alternate count shows that it would be invalidated if price action moves above 1231.53 before it gets below 1209.47, which is the minor wave 3 low.

SPX Daily Candle chart – Alternate

 

SPX / ES  – Bullish

Our wave count suggests higher levels in the near term, but be prepared to take caution as price action reaches higher resistance levels.

 

USD Index — Bearish

The USD now displays some potential corrective price action to the downside after the incredible week the buck had last week.    A stronger bullish move may be just around the corner.

 

EURUSD — Bullish

The opposite of the US Dollar is the EURUSD.  The USD may weaken some this week if equities are to make a push higher, but that likely only presents a tremendous opportunity to join a big move to the upside for the buck as the Euro has plenty of downside ahead as the Euro zone faces major problems that will unlikely be resolved without the currency suffering.

 

CL Crude Oil — Bullish

Price action seems to be setting up for another push higher with equities.

 

= Gold — Neutral/Bearish

Inflation pressures have eased due to a slowdown to the global economy, therefore, demand for gold may weaken a bit in the near term.

 

=Silver — Neutral/Bullish

Silver may trade sideways to higher with equities, but will remain sensitive to negative headline risk.

 

=TNX – 10 yr Treasury Note — Bearish

We continue get closer and closer to our long-term forecast predicted months ago of 15.  Yields are likely to set up another drop to those lower levels in the next couple weeks.

 

Market Bias & Forecasts

Market 1 Month 3 Months 6 Months
SPX Bullish Bearish Bearish
ES Bullish Bearish Bearish
Gold Neutral Bearish Bullish
Silver Bullish Bearish Neutral
CL Bullish Bearish Bearish
DX Bearish Bullish Bullish
EURUSD Bullish Bearish Bearish
USDCAD Bearish Bullish Bullish
AUDUSD Bullish Bearish Bearish
GBP/USD Bullish Bearish Bearish
USD/CHF Bullish Bearish Neutral
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AUDUSD – Long Term Forecast

December 4, 2011 By Leave a Comment

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