S&P 500 - We could well have seen a top

We might well have seen the top of wave 2 with the 1,156.80 high today. That was just 1.2 points below the ideal target at 1,158.

With the break above 1,150 the triangle was fulfilled, whats needed now is a break below 1,122 to confirm the top.

Looking at the same chart in a close-up we can see the resistance-line of the channel (grey) tested perfectly. The decline since the high at 1,156.80 is a nice 5 wave decline (see the 5 minute chart below), which does raise the probability of the 1,156.80 high being the end of wave 2 but we need a the current rally to stall i the 1,145-1,149 for a decline below 1,122.

S&P 500 - One more wave is needed to finish wave C of 2

Wave C of 2 needs one more rally higher towards the 1,158- 1,164 area to end.
Wave iv of C has become and ascending triangle. Triangles can only occur in wave 4 or B. This is clearly not a B-wave, therefore this has to be wave 4. The rally in wave C also appears to be impulsive as one would expect. Shorting in the 1,158 - 1,164 area should represent a nice risk/reward opportunity. I would place a stop at 1,184.

S&P 500 - Something big will happen soon

The On Balance Volume (OBV) indicator hasn't confirmed the last move higher at the same time prices are meeting strong resistance from the declining trend line back from late 2007.
Wave C will be equal to wave A in the 1,154 - 1,158 area depending from where you measure the beginning of wave C. Only a break below 1,122 would confirm that the top is in place and the inverted Shoulder/Head/Shoulder bottom be destroyed.

As can be seen on the VIX below the Bollinger Band are beginning to get very close, which means that a big move is close at hand. I would still expect it to be to the downside, but as long as 1,122 isn't broken to the downside, the inverted shoulder/head/shoulder is in place calling for a move towards 1,245.86.

EUR/USD - Headed for the 140 target

The clear break above 135.20 today makes the 140 area the next target to aim for.
At 140.39 wave C will be equal in length to wave A.

Support is now found at 135.00 and important support is in the 133.35-133.80 area.

S&P 500 - Still headed for the 1,158 area

The small break below S/H/S neckline at 1,128 on Thursday wasn't enouf to destroy the possible inverted Shoulder/Head/Shoulder formation, but the diverging MACD doesn't seem to fit this picture. Therefore it should be interesting to see if this is a possible "Bull trap" taking us to the 1,158 area and then a collaps in price. We still need a break below 1,114 to "kill" the inverted S/H/S bottom.

EUR/USD - More upside to come in wave C

The break above 133.33 have demanded a change in my count. We are now in wave C of a A-B-C zig zag. If wave C becomes 61.8% of wave A, then we should see a top near the 135.00-135.20 area, if however wave C becomes equal to wave A then we should see a move higher to just above 140.00.

The reason why wave C could end closer to the 135 - 135.20 area is, that there only is 5% USD-bulls, such a low number does indicate, that a top might be close at hand.

S&P 500 - Top in place?

The break back below the S/H/S neckline has weakened the possible bottomformation considerably. If the decline becomes much deeper, which the MACD indicator indicates it will, then the Bulls will have to fold and sell out, adding downside pressure.
A break below 1,114 would be the next support to take out.

Looking at the VIX-Index we saw a break below the lower Bollinger Band in early september. A break below the lower Bollinger Band is negative for stocks and the VIX should at least rally towards the middle band and most likely the upper Bollinger Band. The break and close above the middle band yesterday confirms the rally towards the upper band.

It's also interesting to see, that the VIX never confirmed the last top in the S&P 500 by not making a new low. All in all we could well have seen an important top at 1,148.24 and the beginning of wave 3 down.

S&P 500 - The rally has become extended

I just added the chart above. The trendline (red) conecting the top from late 2007 top to what I sees as the top of wave [B] comes in at 1,156 - very close to the 1,158 target area.

Sorry for not updating the last couple of days, but I have been very busy.

On Friday I said that we should see a top near 1,134, that level was taken out yesterday. The clear break above 1,134 has opened up two possibilities:
First: The rally from 1,011.52 is a second A-B-C correction - Wave A rallied from 1,011.52 to 1,129.23. The decline from 1,129.23 to 1,040.40 was wave B and the rally from 1,040.40 to ? is wave C. If wave C is equal to wave A then wave A should end at 1,158.11.
Second: An inverse Shoulder/Head/Shoulder bottom might have been building and the break and close above the neckline at 1,128 yesterday might have triggered the formation for a rally higher towards 1,245.71.

I favor the first option for two reasons. First - the last part of the rally hasn't been confirmed by the MACD indicator, which have created a negative divergence. That in itself isn't enough to sell this rally, but it does warn, that a top might be forming any time now.
Second - The rally from 1,011.52 does look corrective and wave equality between wave C and A comes in at 1,158.11. However if we break clearly above that levels then the second possibility becomes the preferred picture.

Just to make it clear: I prefer a top near 1,158.11 for a break below 1,128 and more importantly 1,123.98, which would invalidate the inverse Shoulder/Head/Shoulder formation an force the bulls to close their long positions.

S&P 500 - Wave 2 is almost done

As can be seen we have just broken out of a small triangle, which forewarns that one more move in the direction of the trend will be seen. This rally has begun and we should see a top near 1,134, from where we should see the begining of wave 3 down.

A break below 1,114.84 will confirm, that a top is in place for a move down to next support near 1,076.

EUR/USD - Wave 2 is over

My preferred count have wave 2 ending today as it hit 131.59 (slightly below the 78.6% retracement target at 131.73). We should now be in wave 3 down, which should ideally be the wave the would extend a decline to 119.46.

Short term we should now seen resistance in the 131.10 - 131.30 area hold, for the next decline down to the 128.27 - 128.40 area.

EUR/USD - Wave 2 could well be over soon

Wave 2 could well be over soon. My ideal target area has been penetraded, we have seen a small break above the channel resistance-line and we do have a negative divergence on most indicators (RSI, MACD ect. not shown). All adding up to a possible top, whats needed now is a break below 129.75 to confirm the top for wave 2 is in place and wave 3 down is in motion.
As long as 129.75 isn't broken to the downside, we could see an extension of wave 2 higher towards 131.73, where wave 2 would have retraced 78.6% of wave 1. That is a very common retracement target for wave 2 in the currencymarket.

If the top is in place, then wave 3 should decline 118.55, where wave 3 will be 1.618 time longer than wave 1.

Polish WIG Index

I had a request about my view on the Polish WIG Index.

As can be seen on the chart above, the price action since early 1994 has been locked into a big rising channel. I have drawn a pale gray line indicating the middle of the channel. Normally the middle of the channel will act as either resistance or support depending on, which part of the channel has been touched lately. In this case it will act as resistance. Looking at the MACD-Indicator the later part of the rally is not confirmed by the MACD-Indicator, which is called Negative Divergence (A top in price is not matched by a top in the MACD-Indicator). Divergence is normally a warning that the ongoing trend is loosing momentum, in this case the uptrend since February 2009 is loosing momentum and warning that a top might be building.
As long as support at 41,451.23 isn't broken to the downside a continuation higher towards 46,237,77 is likely before the top is in place.

Elliott wave: (not shown on the chart)
An important top was seen at 67,772.91 in early July 2007, the following decline to 20,370.29 is a 5 wave decline calling for a zig-zag correction (5-3-5) and wave wave A. Wave B currently ongoing should be in 3 waves and should find a top near the Fibonacci 50% retracement of wave A at 44,127.37 or near the 61.8% retracement of wave A, which comes in at 49,745.31.
The 50% retracement target and the middle of the channel is very close to each other, and should provide firm resistance. The negative divergence on the MACD-Indicator also suggest the a top is getting close for wave C down.

EUR/USD - Still higher

The expanded flat correction was the correct count and the break above 127.18 has opened up for a continuation higher towards 130.48 and in the extrem 131.73, but I would expect major resistance near 130.48.

The current weakness in USD may provide the last push higher in gold.

Gold - Close to a top?

The rally in gold has looked very suspicious for quiet some time now. The tricky part is the price action from late February 2009 to late August 2009 (see the red circle), it looks like a triangle (all waves are three waves affairs). Triangle only occurs in wave 4 or in B-waves. This is clearly no wave 4 triangle, which only leaves us with one alternative, which is that it's a B-wave triangle. That would make the entire rally since 680 a B-wave in an expanded flat correction.

If we look at the internal relationship of this B-wave, the wave c now equals wave a in length. We also have a very clear divergence on the MACD all pointing towards a top very soon for wave C down.

A break below 1,233 would be first indication that wave B is over and wave C down has begun.

EUR/USD - Wave ii migth have ended

This could be one of those rare cases, where wave ii almost corrects the entire wave i. Having retraced 97% of wave i we now need a break below 127.90 to confirm that wave ii ended at 127.10 just below wave i starting point at 127.18.

A break back below the red former resistanceline will also confirm that the downtrend from 133.33 is back og track.

Stay tuned, because we are not out of the woods yet. This could be an expanded flat wave (iv) correction and a break above 127.18 would call for and extended move higher towards 130.47 and maybe even 131.73 before finally topping out. This later projection still isn't my preferred count, but one have to stay flexible.

EUR/USD - Wave ii became more complex.

With the break above 127.47 we knew that wave ii would become a more complex correction. We are currently testing the first serious resistance at 128.35. As long as 127.70 isn't broken to the downside we could see a continuation higher towards 128.63 before wave ii is finally over.

When wave ii is over either from 128.63 or upon a break below 127.70 we should see a powerful decline in wave iii.

EUR/USD - ready for the next wave down

Above my preferred count, which shows, that we are about to see wave (iii) of iii of 3 of 3 down. This wave should be the most powerful wave down in this impulsive. A break below 125.85 should do the trick.

Wave 3 should make it down to 117.07, which is where wave 3 will be 1.618 times the length of wave 1.

Only a break above 127.46 would delay the downside for a more complex wave ii correction.

S&P 500 - Close to the wave 2 top?

The last couple of days has been pretty slow and hasn't done much to help deciding which count is right and which is wrong.

I still prefer the 1-2 count and the latest price action does look like and small ending diagonal for minor wave c of 2. If this is the case, we shouldn't see much more upside progress. Maybe a small spike up Monday morning followed by a quick reversal to the downside.

A break below 1,091 should be enough to close any further possibilities to the upside.

However if we do see a break a clear break above the minor resistance line, then the red alternate count takes over and we should see the rally carry on to the 1,159 area, before we will finally be ready for wave 3 down.

EUR/USD - Minor wave ii near completing

We are currently in the later part af minor wave ii, which began at 126.58 yesterday. The ideal target of this minor wave ii will be near 127.72 from where minor wave iii down should begin. There is a possibility that this minor wave ii turns into a expanded flat correction, which would mean that the minor c-leg in minor wave ii will rally higher towards 128.35 before minor wave ii ends, but for that to be the case we should see a clear break above 127.80.

Minor wave iii down should ideally fall to 123.51.

Time for a little technical formation analysis

The "Cup with handle" formation is a pretty well known formation, with a good record. Below is two very fine examples of this formation. I have inverted the price scale to make it look like the templet, but this formation goes boths ways, but it just hader to deteced when it's upside down.

Some time ago I showed and Elliott wave count on EUR/CHF, but as can be seen a very nicely shaped "Cup with Handle" had been building since 2001 and was triggered going into 2010.

The first target for this formation has been fulfilled at 128, but it could very well move further down towards 125.65 and in its extrem 120.54.

Turning to my next example of this formation we have the EUR/JPY. Again I have inverted the price scale to see the formation better. The "cup with handle" formation was triggered with the break above the lip in mid May at 114.34. The absolute minimum target will be a move down 89.57 (remember the inverted scale - You will have to pay less JPY for the same EUR).

The extrem target for this formation would be near 59.13. I personaly would not bank on that target, but if one rides the trend it's nice to have a possibly long term target.

Finally a formation everybody knows or should know. The Shoulder - Head - Shoulder pattern.

In EUR/USD we have seen the S/H/S build since 2003 and was triggered with the break below 128.20 in early May. The long term target for this formation is just below the 92 handle.

When we break below 125.84, then we should not at any time see a break back above 129.18.

All of the above examples points in one direction - A much weaker EUR. LLooking at the speards between the 10Y German Government bond and the 10Y Irish, Greek, Portugise they now all is above the point when EU and IMF "saved" Greece and gave birth to the guarantee fund. Pointing towards distrust from the financial markets, that they will be able to solve their debt crisis. If this escalates much further then Spain will be draged into question too and Spains debt alone mounts to more than half of whats in the guarantee fund.

By the way the guarantee fund is only keept alive because of Germanys grace, if the back down from their commitment, then we can look into a fullscale hurrican in the Mediterranean Sea and over Irland...

AUD/USD - Time for wave 3 down?

My preferred count is shown above. It seems as wave has become an expanded flat and if my count is correct wave 2 ended at 91.82 and we should be in the early stages of wave 3 down. Pretty much the same count as in EUR/USD, but the AUD/USD cross has pressured the maximal limites every time. It does make live more exciting doesn't it...

A break above 92.21 will kill my preferred count and call for a rally to new highs above 94.05.

S&P 500 - Make it or break it!

The rally (wave 2) from 1,041.05 has become bigger than one would normal expect. Under The Elliott Wave Principle it's allowed to correct up to 99% of wave 1, but normally when it breaks above 78.6% the risk of a break above or below the start of wave 1 is seen.

The 78.6% retracement of wave 1 would be at 1,110.53, so the is a little more room to the upside, but it would be better if a top is already in place with the 1,105.04 high.
As long as 1,110.53 stays intact I will go with the wave 1 - 2 count, but a break above 1,110.53 will make the red Alternated count the preferred count.

So what's needed now is for 1,110.53 to hold and then see a break below 1,064.65, which add credence to the 1-2 count.

EUR/USD - Wave 2 should rally a bit further

Nice to be back from vacation, Had a great time in Portugal. Nice weather, good food and drinks it just couldn't be better. Hope you are all well!

Lets start up slow and easy (just as the markets have been while I have been away).
The above count in EUR/USD is my preferred count. We are currently tracing out wave 2, which ideally will reach the red box before turning down in wave 3.

Looking at the internal structure of wave 2 the ideal target for wave c of 2 would be near 129.38, where wave c would be 1.618 times longer than wave a. That would also be very close to the 50% retracement of wave 1, which comes in at 129.58.

Stay truned for wave 3 down.