Vacation time - Portugal calling

I will be headed for Portugal early Saturday morning for 14 days of vacation. I will not be updating from there, so take care and happy trading. Look forwards to see you all and speak to you again on September 5.

The bigger pictures - Still all the same

Just wanted to show you the bigger picture, as you can see the are all the same.



Since the top at 1,129.24 we have had a clear five wave decline as wave i a equal clear three wave wave ii and are now heading down in wave iii. The first sub wave of wave iii (not shown on the chart) is also in five wave and expect sub wave (ii) towards 1,078-1,080 clearly being in three waves too.



When wave iii down really takes hold it will be speedy, violent and relentless.


Wave 2 is clearly over and we now have a minor Shoulder/Head/Shoulder top with a target near 121.80, but as this too is a third wave it too should be speedy, violent a relentless. Minor wave ii became subnormal, which is another clue, that the EUR is very weak at this point.

Again we are in the early parts of wave 3 down. The AUD is clearly stronger than the EUR, which can be seen by the corrections, reaching slightly above the ideal 61.8% retracement targets, but that can change very quickly as wave 3 progresses. Just take a look at the decline in 2008 (not shown here).

Finally we are beginning to see some action in USD/CAD cross too. It has been a very tough call, but today's break above 104.94, was the first hard evidence that a firm test of the key resistance at 108.59 is in the making. I would expect it to break easily for a quick run towards the 114-115 area, but as I said this cross has been a tough call.

The speed with which the EUR/CHF is falling, has surprised me, but it doesn't change the call for a move towards 129,56 as the first target, but I still think that we will see 127.35 too. As we approach that later target be careful as that might be the very end of the decline from 151.49.

Shanghai Composite - The correction is finished

For quite some time ago I marked the area, where I expected wave ii to end. We just hit that area yesterday. Having said that I must also say, that I had wave i ending at the 2,319.73 low, but looking at the internals again it's more likely that wave i isn't over yet, and we are only beginning wave (v) down from 2,701.93.

As we are currently tracing out wave 3 down I would expect it to become extended and reach the area between 1,995 - 2,001. In this area wave (v) will become equal in length to wave (iii) down.

S&P 500, EUR/USD and AUD/USD - All ready for the next leg lower

The count in S&P 500 and AUD/USD har been more or less perfect. The count in EUR/USD had the wave 2 correction a bit higher, but as I stated the other day, the very shallow correction just indicates, that the EUR is very weak. Remember, that we saw subnormal correction in wave 1 down too. That could mean, that touble for the Euro-zone is brewing. The spread between the govenment bonds in Grecce, Portugal, Spain og Ireland are all on the rise again.

In S&P 500 we should see a break below 1,069.84 soon for a violent decline down to 1,004.23, where wave 3 will be 1,618 times longer than wave 1.

As mentioned above the EUR is very weak and a break below 127.32 will trigger a decline down to at least 123.20, but more likely the decline will extend to 119.46, where wave 3 will be 1,618 times longer than wave 1.

Finally looking at AUD/USD it looks like wave (3) is ready to take it down to 87.33. As wave (i)
and wave (iii) was almost equal in length, then we migth expect wave (v) to extend, but time will show.

S&P 500, EUR/USD and AUD/USD - All the same - Not!

The S&P 500 just reached my target area betwwen 1,100 - 1,106 yesterday. The correction from 1,070.67 (adding the figures together 1+0+7+0+6+7 = 21 - Nice little Fibonacci relationship) was a nice zig-zag, where the c-leg became extended towards 1,100.14.
All demands for wave 2 has been fulfilled and we should now see wave 3 down. This wave should be the most dynamic and violente calling for a decline to at least 1,005 area.

A break below 1,082 and more importantly 1,075 will confirm the next leg lower.

EUR/USD became the outsider of the pack. If the wave 2 correction from 127.32 is over, the correction became very shallow and clearly subnormal indicating, that the EUR is very weak at the moment. However the is the possibility that we have only seen the first part of the correction and it needs more time, but for now lets keep an eye on 127.32 for clues.

By the way. I noticed a nice little relationship between the August 6 peak at 133.33 and the Fibonacci numbers. If one add the numbers 1+3+3+3+3 you will get the Fibonacci number 13
That do add support to the 133.33 high as being an important high.


The Aussi slightly overshot my target zone, but the following decline below 90.11 was the clue, that the wave 2 correction ended at 90.82 and we should now see wave 3 decline to at least 86.30, but more likely we will see a decline to 84.94.

Be very care as the possibility of a total washout in the AUD is a possibility. We saw that during the 2008 decline and it could easily be seen again.

S&P 500, EUR/USD and AUD/USD - All the same

With the decline at the start of todays trading session, we now have a nice five wave decline from 1,129.23 in the S&P 500. We should soon see a correction in wave 2 up towards the 1,100 - 1,106 area, from where the next decline should begin.

EUR/USD has also finished a nice five wave decline from the 133.31 high to finish wave 1 down. Wave 2 should take us up to the 130.33 - 131 area, from where the next decline should begin

Finally we have the same picture in the AUD/USD cross. From the top at 92.21 we have seen a nice five wave decline to 88.57, very close to the bottom of my target area for wave v of 1 and we should now see a wave 2 take us up to the 90.35 - 90.71 area from where wave 3 down should be seen.

AUD/USD - Wave 3 of [C] down has just begun

First lets take a look at the longer term picture. Since the July 20 - 2008 top at 98.49 we have seen a three legged Zig-zag move down to 60.04 ending wave [A]. From 60.04 we have seen a flat correction up to 93.89. Wave 5 of C of [B] became truncated. We are now in the very early stages of wave [C] down. As wave [B] corrected 95.33% of wave [A] and this wave was a three wave decline and wave [B] was a three wave rally we are looking at a flat correction. That means that wave [C] should be a five wave decline slightly exceeding the ending point of wave [A] giving us a final target for wave [C] just below 60.04.

If we zoom in on the time frame and look at the daily chart we can see wave two became a double correction - first a flat and then a zig-zag correction in combination. Wave 2 corrected almost all of wave 1 and took back 98.28%. That is allowed for wave two's and is most commonly seen in the currency market.

If we take a look at the some Fibonacci relationships of wave 2 Wave c of the flat correction became 1.618 times longer than wave a and took 21 days. Looking at the zig-zag part wave a = c in length and if we count from the top of wave c it took 55 days.

Zooming in once more and looking at the hourly time frame we should be just about to see the first minute five wave decline end near the 88.54 - 88.86 area. Minute wave iii became 1.618 times longer than minute wave i, which mean that minute wave v most likely will be equal in length to minute wave i, they will be equal at 88.86. ending minor wave 1.

Minor wave 2 will most likely end in the 90.35 - 90.84 area. Be aware that we are now entering wave 3 of [C] down and this wave is expected to be the steepest, the longest and the most violent, so the correction could easily become subnormal.

S&P 500 - More downside to come... Much more

The low at 666,79 [A] was an important low and if you add the numbers 6+6+6+7+9 together you will get 34, which is a Fibonacci number. If you do the same with the 1,219.80 high [B] you will get the next lower Fibonacci number 21 that indicates that we should be looking for the Fibonacci number 13 next, but as the rally from [A] to [B] took 13 months we might be on the outlook for the Fibonacci number 8 instead. Whether we will find it in time duration or a fixed point, is not that important rigth now. What's important is that it seems that we are looking for an Fibonacci sequence going from the number 34 and down.

Wave 2 of [C] down ended at 1,129.24 and as wave 3 is normally the most dynamic, steep, violent we should expect the low at 1,011.52 to be broken soon for a decline to at least 951, but a more likely target would be 840,72.

If wave 1 down from 1,219.80 ended at 1,041.32 (The alternate count), then we have seen an flat correction, it's very important to notice, that wave C of that flat correction didn't break above the top of wave B at 1,131.08. That type of flat corrections is called "Running flats" (see Elliott Wave Principle page 48). They are very rare. In the Elliott Wave Principle Prechter and Frost says "We must issue a warning, however. There are hardly any examples of this type of correction in the price record..." This might be an excellente example of an running flat correction. The implications, if it is a running flat correction, is very telling. It forsay that the we are in a very strong and fast market and in this case it is to the downside.

If wave 1 of [C] ended at 1,011.52 the following correction was a much more common Zig-zag. Telling us that the battle between the bulls and bears was hard, but the bears won and we should now headed lower in wave 3 of [C]

EUR/CHF - The correction is over

The correction from 130.70 ended a little below my ideal target near 139.75 (the high was 139.25. We should now see the next decline to at least 129.56 and possibly even 127.30, before a more important bottom will be found. I would not be surprised if the final leg lower turns into a ending diagonal, only making little headway, but dragging on in time.

In the short term a break below 135.05 will confirm the decline to 130.70 and 129.56.

USD/CAD - Finally ready for the move higher

As you know I have never liked the triangle concept. The break below 102.69 gave the triangle concept some credence, but with the break back into the triangle today in my view was the final kill of that possibility.
I have shown my favorite count, which has the decline from 108.62 as a double zig-zag, which ended with the low at 101.02.
I would expect a break above the minor resistancelineresistance line at 105.22 soon opening for a move towards key resistance at 108.62 and a break above here will yield at least a move towards the 114-115 area, but it will most likely be much higher.

The USD has bottomed!

The odds favor, that the dollar has bottomed. In the EUR/USD cross the minor support line has been broken. This cross broke slightly above the 38.2% retracement target, but the latest price action is bearish for EUR and bullish for USD. A break below 131.17 would be the next good indication, that the top is in place for the EUR/USD cross.

Looking at the AUD/USD cross my ideal target zone was hit (slightly exceeded) and the break below the ending diagonal support line does indicate that the top is in place and that we should soon see much lower prices. A break below 90.68 will confirm the top for a decline to at least 83.18 area.

S&P 500 - All demands are meet

Whether the decline was a Leading diagonal or we saw the first impulsive decline end at 1,041.32 (the Alternate count) all demands to the following corrections are now meet. If we saw a Leading diagonal, then the A-B-C zig-zag correction has now fulfilled all demands with the small new high at 1,129.23 and a turn could be imminent. If the decline from 1,219.61 to 1,041.32 was the first impulsive decline followed by a expanding flat correction all demands are meet here too and a turn to the downside should be imminent.

The only question back is whether we will see the last minor rally higher towards the 1,136-1,140 area or not? The next decline should be very dynamic and fast.

Shanghai Composite - Top in place?

We missed my ideal target area with a few points. The priceaction since the 2,679.09 high could be the beginning of the next impulsiv decline, but we might just be looking at the end of a flat correction. There should be no doubt that the decline since 2,675.83 is impulsive, but it might wave C of a flat correction (3-3-5). We need a break below 2,550 to be sure that we are looking at a new impulsive wave down and a break below 2,499 will remove any possibility of counting the rally from 2,320.08 as impulsive.

S&P 500 - Fibonacci in play.

I was looking at the S&P 500 chart this weekend in regards to Fibonacci. I sure you all know Fibonacci or Leonardo Fibonacci da Pisa, as his real name was. He was a great, if not the greatest, mathematician of his time. Fibonacci was born between 1170 and 1180. After a trip to Egypt he wrote a book Liber Abaci where he introduced the decimal system, but he also introduced the Fibonacci sequence 1, 1, 2, 3, 5, 8, 13, 21, 34, 44, 89, 144...... which is use extensively by the Elliott Wave practitioners.

If one looks at the price action from the top on October 11 - 2007 at 1,576.09 the decline to November 21 - 2008 took 13 months. If this was the orthodox bottom we have the first Fibonacci number. The following four months was wave A and B of a expanded flat correction. The low of wave B came in at 666.79. If you add the figures together 6+6+6+7+9 = 34, which is also a Fibonacci number and as we now know an important bottom. From the 666,79 bottom we had a 13 months rally to the high of 1,219.80 on April the 26 - 2010. If you add the number in1,219.80 together again 1+2+1+9+8+0 = 21 the next lower Fibonacci number. Therefore we could assume that the top at 1,219.80 was an important top as the bottom at 666.79 was.
What could be expected next? I would say that we should look for the next lower number in the Fibonacci sequence, that number would be 13, but it took 13 months from bottom to top, so maybe we should look for the Fibonacci number 8 instead? Time will show, but we might have gotten us self an important clue of the coming direction of the stock market and that should be down, when wave 2 of 3 of [C] is done near the 1,136 - 1,140 area.

S&P 500 - Triangle = one more rally and then down

Yesterday we finished a small triangle, which calls for one more rally higher towards the 1,136 area. Just below the 1,140-1,145 target area.

This rally should be the last. Triangle in wave four positions always predicts the last move in the direction of the underlying trend.

Below I have shown a 5 minutes chart showing the last five wave rally. As can be seen we have a clear triangle and are in the early parts of wave (v) of C, which should end the entire correction from 1,011.52. Be ready for the trend to turn down.

AUD/USD - Next target is within reach

I still convinced that we are looking at a double correction, where the first correction was a flat and the second is a zig-zag. As we are closing in at the next target area near 91.85-92.00.
Wave C2 will be equal in length at 91.85 and the resistance line will come in near 92.00. There is a possibility of a extension higher to 92.30 - 92.40, but that should be it and at least set the stages of a decline to 89.02. My preferred picture is that a important top is close by and we should see a much deeper decline in wave 3 of [C] down.

Correlation between DJI and AUD

As Mimi pointed out after one of my posts the correlation between the DJI and AUD/USD cross has been extremely high. As can be seen on the chart above that's true. Maybe the latest rally in AUD/USD cross should have been a warning that the rally in the DJI or the S&P 500 wasn't over yet.

I do recognise correlations and the correlation between the DJI and the AUD/USD cross has been higher than most for a long time, but these correlation has a way to suddenly disappearing and when they does, it takes time to recognise the disappearing, therefore I always make my analysis based on just how I see the DJI or the AUD, but I will give to Mimi that if the DJI or S&P 500 was trading higher my calling for a top in the AUD and CAD probably was wrong. Now we know and again, that is what stops are for. Those two trades where very low risk, with a great reward potential.

S&P 500 - The market is always right!

With today's break above 1,120.85 I clearly got the messages, that the rally from the 1,011.52 isn't over yet. I'm not giving up on my long term bearish view, but I might have been blind sighted by this long term bearish view and have tried to force my opinion down over the market and that stuff seldom works. The market is always right ! I'm not always. I know I have limitations and the way I deal with them is always having stops on every trade taking small trades and try to hang in there when the trend is really you friend.

The long term bearish picture stays, but the very short term has clearly become bullish again after break back above 1,120.85 reviving the "old" 1,140 - 1,145 target area.
What could have been a overlap between wave iv and i of C clearly wasn't and overlap, because if it was we wouldn't be up here.

So lets see where wave C ends and lets take it from there.

USD Index and EUR/USD - Is wave 2 finished?

The chart above is the USD Index and as can be seen the zig-zag correction from 88.71 is very close to its bottom, if it hasn't already bottomed. It has corrected 50% of the wave 1 rally and it can't go below 80.97 as that would make wave iii of C the shortest of the impulsive waves in wave C and that is not allowed under the EWP.

If we take a look at the EUR/USD chart (see below). We can see that wave 2 has corrected 38.2% of wave 1 and wave five of C is almost done if not done already, a break below 129.66 would confirm that the top is in place.
As is the case with the USD Index wave 5 of C can't rally above 132.24 as that would make wave 3 of C the shortest of the impulsive waves in wave C. If wave v of C has more upside potential I would not expect a move much above 131.33.

S&P 500 - Wave 2 is most likely over

As I said in my Friday post the was a possibility that wave five of C of 2 became truncated (no new high in the fifth wave). The reason for my to say that is, that what might have been wave iv dipped into the area of wave i, which is not allowed under the EWP. Therefor the most obvious count is that wave 2 is over and wave 3 down has begun.

Looking at the longer term picture (see the chart below), we faces to possible counts for the decline since the April high. The decline could be a A-B-C correction, where wave C will fall to around 911 (pink line), while the other count is that wave 3 down has begun (my favorite count) that should take wave 3 down to around 784 (1.618 times wave 1) or possible even to around 584 2.618 times wave 1). Elliott said that wave 3 is often the longest wave and never the shortest.