08/27: CHART OF THE DAY

Looks to retest recent highs

POSITION UPDATE

STRATEGY: LONG AUD/USD at .8775, risking .8870 (revised), targeting .8960 (revised)
LONG S&P 500 at 1056, risking 1039 (revised), targeting 1100

POSITION UPDATE

LONG EUR/USD at 1.2639 stopped at 1.2639
LONG AUD/USD at .8775, risking .8720, targeting .8832, .8896

EUR/USD: Rebounds off key 50% retracement

The EUR/USD has rebounded off the key 50% retracement level at 1.26 to highlight the possible completion of a 5-wave down-move off the August high. While 4-hourly bullish diverging studies hint of a period of base building, reclaiming the key 1.2732 swing low is required to confirm that a substantial intermediate low is in place. This would then suggest a 38.2% retracement recovery to 1.2870 that roughly equates to the previous 4th wave peak, a common Elliot Wave target. Meanwhile, an inability to regain the 1.2732 pivot confirms the near-term bearish structure and would put the 50% retracement support in jeopardy.

STRATEGY: LONG USD/JPY at 84.88 stopped at 84.88.
(REVISED) LONG EUR/USD at 1.2639, risking 1.2684, targeting 1.2732, 1.2870
LONG S&P 500 at 1056 risking 1025, targeting 1100, 1217

S&P: Similar pattern seen back in 2006

USD/JPY: Showing signs of a base

The USD/JPY is showing tentative signs of exhausting a long-term downtrend. Last week's low found support exactly at the 2009 reaction low to hint of the completion of a large five-wave structure that originates from the 2007 high. The last leg down also resembles a five-wave ending diagonal, which is often found in the latter parts of an impulsive trend. Also, daily studies are bullishly diverging to suggest that downward momentum is stalling.

More importantly, in bear markets of this magnitude, price-action tends not to merely test key swing lows. Rather, once below the previous swing low, the market generally resumes the downtrend, but at a faster pace. In this case the swing low happens to be the 84.74 pivot and the next test should either illicit a panic sell-off or a false-break rebound.

Currently, the market has produced a normal counter-trend bounce off key support that is now in its fourth day. Counter-trends that exceed 4 days generally exhaust strong trends. Moreover, the 2-day rebound off 84.74 has produced a 2-day weak move down. Thus, if the market fails to test this key level by Friday this would indicate bullish price-action and suggest that a substantial low is in place.

To shift the focus away from a potential freefall to a period of base building, a positive move out of the ending diagonal is required. Above key trendline resistance near the 86.00 handle initially targets the 87.35/88.62 region, which would still be considered a normal retracement within a bear market. Below 84.35, however, will increase the odds of a climactic capitulation.

STRATEGY: BUY at 84.88 risking 84.35, targeting 87.35

S&P 500 and EUR/USD lose key support

Last week's robust short-term momentum gave way to consolidation, highlighting the S&P 500's inability to overcome the key June peak. As hourly studies began to roll-over it became evident that bearish MACD divergence had once again reared it's ugly head. The recent bout of risk aversion has highlighted a near-term trend shift, given the loss of important (14-day) moving average support. As a result, a 5-wave leading diagonal has been completed which suggests a deep retracement before resuming impulsive strength back towards the 2010 high. The July 20th swing low at 1056 is the most likely candidate of support since it correlates with a key Fibonacci retracement level. Oversold dips that exhibit bullish short-term divergence below this key pivot should be accumulated. Price-action near the 50% and 78.6% retracements at 1070 and 1036 should be monitored as well.


STRATEGY: BUY at 1056 risking 1025, targeting 1217



The EUR/USD has completed a 5-wave rally off the June low, highlighting bearish MACD divergence. The subsequent loss of 14-day MA and RSI trendline support, indicates an exhaustion of the medium-term recovery. The formation of a possible weekly bearish engulfment also suggests short-term weakness towards 1.2725, also the previous 4th wave base. Any oversold dips below this important base and the key 10-week MA should be accumulated.

STRATEGY: BUY at 1.2650 risking 1.2595, targeting 1.3485