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Design and operate a smart contemporary website and email template for my Alerts with e-commerce functionality
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Easter week was quiet on the western (and eastern) fronts, although markets were far from that. The dollar regained its mojo and headed back towards the 100 print, but I believe the rally will turn very soon – and with it, US stocks should retreat.
So today, I will expand on my thoughts on various markets.
US markets remain bullish – and moved against my recent ideas that we are at the start of a major wave 3 down. However, this scenario is not yet dead in the water! Here is the hourly S&P 500:
I have a tentative tramline pair and the market is close to challenging the upper line of resistance – but on a massive momentum divergence.
Trading volumes were very weak so last week’s rally lacks conviction. This is an ideal setup for a reversal.
But if the upper tramline can be broken (which it may do, but only after a fight), odds favour a push into new highs. That would set up an intriguing chart pattern – a wedge (more later).
I took a small loss on my short trade and now am standing aside awaiting the outcome of the upper tramline test. So next week – when the Easter holidays are over – should see a resolution.
Along with all other stock markets that are under the influence of QE (see Germany DAX), the Nikkei is rallying and hit the landmark 20,000 level yesterday. However, that is only a little over 50% of the all-time high near 40,000 made in 1990!
But I have an EW count that places the top close by:
Since January, the market has been moving up in a clear five wave pattern with the third wave itself containing five clear motive waves. We are in the final fifth wave and momentum is clearly weakening. Ideal conditions for a major turn, methinks.
The move up is contained within my tramlines quite nicely – except for the horrible head fake at wave 4 low. I hate those!
There is, of course, opportunity for the market to rally to the upper tramline – especially if wave 5 becomes extended – but with sentiment super-bullish towards Japanese equities, a major reversal is a distinct probability.
So today, we have global equities in major uptrends with complacency pinned to the floor. The VIX Fear Index trades at the 12 area – where it was seen last December. Markets have suddenly stopped fearing interest rate rises – and I have even seen an opinion piece proclaiming markets will still keep rising even when the Fed starts raising its Fed Funds rate! Now, that’s complacency in spades.
I believe we are still near major turns, but will not fight the short-term trend here. I need to see a clear sell signal before acting. The swings this year have been humongous – and very treacherous to trade, although I did succeed in bagging a 500 pip profit on a short trade in the Dow last month.
Is following my roadmap beautifully. I have had the main EW labels in place for weeks and now the market is in a C wave up:
But the pattern seems to be forming into a classic H&S reversal – a neckline break soon would confirm it – and project a measured target to the $1300 area; precisely where my C wave target has been all along! Now that would be sheer poetry in motion!
The other feature is the zig-zag pattern forming (green lines). This is a pattern I explain in my book Tramline Trading. It is a five wave affair with overlapping waves – and usually occurs about half-way along a thrust, which would take the market to my first target in the $1245 area.
Latest COT data shows hedgies (non-commercials) are slowly moving into the bullish camp as they track the rally off the mid-March low.
But they remain underweight long compared with the usual balance in a bull market. These is plenty of scope for a further bullish build-up. And when they become overweight, the market will turn down, but that day is weeks or perhaps even months away.
VIP Club mebers are long from $1160 and from $1184. Took partial profits of $60 near $1220 high. We re-instated to full long positions at $1195 yesterday, which is where newer members took full long positions with a close protective stop.
With last week’s very strong recovery in the dollar, the euro retreated somewhat further than I had expected. But we are at or very close to a turn that will take the euro up to over 1.20. Here is the daily:
I have slightly amended my tramlines, but the recent poke above the upper tramline heralds a more sustained push towards my targets.
But the move off the wave 5 low has been a little tricky to judge – but now the fog has cleared a little and I believe we are near the start of my purple C wave leg up. One give-away is the huge momentum divergence building.
But I have more clues! Here is the hourly:
These are my set of threes that has messed me up! Now, with the dip to the Fibonacci 78% retrace of purple wave A on a small red a-b-c and a large pos momentum divergence on the hourly to confirm that on the daily, we have an ideal setup for a reversal early next week.
But if the market does not turn early next week and even moves below the wave 5 low, that would not negate my labels. In that case, my purple B wave would extend further before making the turn up in the C wave. I would still look for a momentum divergence, particularly on the daily.
As the backdrop for the potential for a massive thrust higher, this is yesterday’s COT data:
With the euro still trading close to its lows, the hedgies (non-commercials) remain a staggering 6.3-to-1 bearish. When these guys start to cover, the buying will be intense, as it was in March.
I shall be positioning long EUR/USD very shortly.
If you would like to receive my trades in real time as I make them, drop me an email at email@example.com and I will send you details of membership in my VIP Traders Club.
Have a great weekend!