The Deviant Standard

Traders' preparation for volatile markets.

It seems that the favorite parlor game among Elliott Wave currency watchers is trying to figure out which wave has extended in the Euro’s dramatic drop and/or the U.S. Dollar’s dramatic rise.  What fun!  Even though the Euro found support at the light violet “skyline” at 1.2258 when it tested the level around 8:00 EDT on Tuesday, the modest bounce did nothing to prop up U.S. equity markets during the day.  These levels produced from subdivisions of long-term Fibonacci projections continue to provide an excellent way to mark the progress of the Euro, or just about anything else we watch.  Since the test on Tuesday morning, there have been two more attempts by the Euro to crack the Skyline and it is beginning to give the appearance of an inverted head and shoulder pattern at that level suggesting that perhaps the level might hold. 

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However, we are contained above by a white “Snowline”.  In order of significance, our levels are:

  • Red “Fireline”
  • Green: “Treeline”
  • White “Snowline”
  • Light violet “Skyline”
  • Dashed teal “mogul”

Stepping back to look at these levels on a 60 minute chart we can see how price is stair-stepping its way between bands created by our projections.  So the real question posed by the support at the Skyline at 1.2258 is whether it is sufficient to help get the Euro back over the Snowline at 1.2334.  Failure there would imply that the skyline will break and we will likely fall back down to 1.2134 in relatively short order.  For now, it looks like the Euro wants to make another attempt to get through the skyline.  It’s what I’ll be watching today.

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The chart presented shows the Elliott Wave count that we (and many others) are presently presuming for our broader perspective.  Assume we (collectively) are wrong and that the move up from March, 2009 lows represents wave [1] of a new bull market following a correction instead of the corrective count shown.  In that case markets would currently in a primary second wave down.  Even a modest correction should take the Dow below 9,500, with reasonable targets in the 8,800 – 8,300 range.  Taking a step back makes it hard to be bullish.  It seems hard to look for much upside before attempting 9,500.  Then we can test the assertion that we are headed to new lows. 

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While a 500 point down day would have been more convincing, Tuesday’s trade went according to the bears’ script and the expectations we outlined.  While those expectations continue to consider the possibility that more upside correction is possible before a turn back down, Tuesday tilted evidence in favor of the scenario where downside has resumed in wave [3] of 3 of (1) of [3].   Read about it in  The Deviant Standard for June 22 (PDF)

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Monday’s high appears to mark the end of five waves up from June 8th. If so, then we expect continued downside to at least retrace a portion of the move up, if not an immediate return to new lows.  Analysis and projections are in The Deviant Standard for June 22 (PDF).

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Sometimes when markets do virtually the same thing for two days in a row it gives us valuable clues about what they’re likely to do next.  Today was not one of those occassions.  So tonight we had an opportunity to repeat what we said yesterday about what markets revealed to us.  In a word: nothing.  Read the same message in a shiny new wrapper in The Deviant Standard for July 17, 2010 (PDF).

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The market did very little today.  Consequently, The Deviant Standard for June 16, 2010 (PDF) has very little to say.  But it’s here.

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This morning was a chance to revisit the count of the move down from April highs.  As ususal, we are presented with several possible counts.  Presented here is the most bearish that is consistent with the possibility that the move up from Dow 9.758 is unfolding in five waves that we discussed in last night’s issue. 

In this scenario, five waves up would complete wave 2 in a flat correction, likely from near current levels, and leading to a significant selloff.

[Click image to enlarge]

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Today’s persistent strength has forces us to give more weight to the possibility of an upward retrace that reaches much higher than where we are today.  We had always considered this possibility, but had not given it much weight until today.  Evidence suggest that we’ll see at least a small down move soon, and the development of that move may help us to discern more about the retrace.  Read the details in today’s issue of  TheDeviantStandard(PDF).

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Taking out 10,314 caused some problems with the count, but it’s not as if we weren’t anticipating the possibility.  We lay several possible scenarios from here and establish the guideposts we’ll use to assess which one develops in the medium-term in the latest issue of The Deviant Standard (PDF).  Whatever those moves are, we still expect the broader move to be down.

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Having taken out the swing highs that we previously identified as wave 2, we are now in a position to revise our count. Look for ideas in tonight’s update. For the moment, nothing alters our overall bearish view. To do that, we’d need to identify a larger degree upward impulsive move.

The most obvious way to count a possible larger five up is shown in green on our 10 minute chart. For the time being, it shows divergences on both the Elliott Wave Oscillator and MACD at today’s intraday highs. A good impulsive move up should give us higher highs on these indicators. So a bullish view would require green [iii] to continue extending upward to new highs and put in new highs on our technical indicators.

We need to watch these indicators closely, because there nothing that prevents prices from heading up and doing just that. A break below Dow 10,150 would help rule out this poissibility, but wouldn’t prevent higher prices from a more complex correction than we currently have counted. At the moment, no down move is confirmed; just possible.

[Click image to enlarge]

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