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Saturday, October 29, 2011

US Dollar Update: Zero Hour Approaches; Bottom Appears Imminent

I think that short positions on the dollar right now are very high risk.

Two weeks ago, the dollar gave some false signals, apparently indicating that it was nearing the end of its correction.  At that time, it appeared to have formed an expanded flat, with wave C-down in process and close to completion.  That turned out not to be the case.  It now looks likely that wave ii is not an expanded flat, but a simple A-B-C zigzag sharp, which means wave C-down of two weeks ago was actually wave A-down.  C-down, the final wave of the correction, is either in process now, or has already bottomed.

The dollar is now rapidly approaching its adjusted targets under this count.  If C = A, then the target for the bottom is 74.06.  If 5 =1, the target would be 73.66 (see final chart to understand which waves I'm talking about).  However, wave ii has already staged an extremely deep retracement, having now passed the 78.6% retracement level, so these targets may or may not be hit.  Given the deep retracement, it would not be surprising to see wave 5 truncate, and put in a bottom without reaching these levels.  Under my alternate count (see "Alt: C" label on final chart), the dollar already bottomed.

So it is my belief is that the dollar could bottom anywhere between its current position (75.06) and 73.66. 

Based on this count, I also maintain that the dollar is about to begin what will ultimately become a massive rally.  The key level to watch, though, is 73.42.  If the dollar bulls can't hold that level, all bets are off.  My personal belief is that they will hold that level.  The target for the bottom of wave ii lines up nicely into the time window of the Fed meeting -- but again, wave ii-down has done enough work and even though Uncle Buck could still head toward 73.66, further declines are unnecessary. 

In regards to fundamentals: I am almost certain that there's no QE3 coming right now, so that might be a good "reason" for the dollar to rally.  Besides, the Euro still doesn't look any better after the "solutions" presented at the European summit last week.

The first chart I'd like to present is my multi-century dollar chart (I haven't updated this chart since September 3rd, because it took me forever to put it all together in Photoshop in the first place).  This chart uses the dollar-relative-to-gold as the proxy for charting the first few hundred years, since there was no dollar futures market back then.  It is my preferred view that the dollar based Grand Supercycle Wave A in 2008, and thus the 2008 print low should mark the bottom for a long time to come.


 
The next chart brings us in at the daily level.  My preferred view is that the coming rally is part of a nested 1-2 count, but it's also viable that red wave 2 instead bottomed where the gray "Alt: 2" label is placed.  Both counts are very bullish for the dollar:


The final chart takes a look at the short-term picture.  We can see a very clean five-wave move for wave A, a pretty solid triangle formation for wave B, and three waves down complete for C.  Wave 4 of C appears to still be in process, with the fifth and final wave yet to come.  The alternate count says wave C bottomed last week.  If that's the case, the rally has already begun. 

The triangle adds some confidence to the idea that the dollar is about to (or has already) put in a bottom.  Under Elliott rules, triangles only form as the penultimate (second to last) wave.  Assuming the triangle interpretation is correct, wave C should be the final wave of this wave ii correction, and the dollar should put in a base and begin a strong rally in the very near future. 

 
If the dollar and equities continue moving inversely to each other, these dollar charts lend credence to the wave counts in the equity markets, and imply the following:

1)  Stocks are, indeed, completing the Minor Wave (2) rally.  As the dollar begins its strong rally in Wave iii-up, equities will begin staging a strong decline in Wave (3)-down.

2)  The Minor (2) stock rally is also complete or approaching completion, as indicated in Friday's charts and update.

Of course, there's no law that says stocks and the dollar must always trade inversely correlated; and there's no law that says my interpretation is correct (unfortunately... a law like that would sure make my life a lot easier!  Everybody write their Congresspeople.).  However, all the charts seem to be in sync, and they're sending the signal that things are about to change, both for the dollar and for equities, in the very near future... and in a very big way. 

Either the dollar holds the key levels and rallies, or there may be major trouble brewing on the dollar's horizon.  My preferred view is that it will hold and begin what will ultimately become a massive rally.  This has the all the potential to be a historic turn week in the markets.  Trade safe!

The original article, and many more, can be found at http://pretzelcharts.blogspot.com/

59 comments:

  1. Pretz, nice article. Re SPX and some time adjusted graphs, I am trying to figure out how to post a graph but I'll describe it. If you overlay 2010 May thru September 30th on top of the July thru now 2011 graph - amazing the similarities of the moves! Looks the the PPT is using the same playbook.

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  2. Walter Zimmerman on CNBC Friday, who I think is an EW tech, thinks the S&P will top out at 1305-1325. This is basically Pretzel's count which he is leaning ever so slightly towards. His LT target down was near 800. What is going to happen is the $64,000 question?

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  3. Pretz,

    I did start feeling the bullish vibes Friday at least for the short-term. Reason is primarily because I needed to see a reversal down within my 10/27 +/- 1 turn window to indicate an important top. Friday sorta dashed those hopes by meandering sideways just underneath Thursday's high not exactly the type of dramatic downside reversal I would have liked to see... BUT it did not yet take out Thursday's high so as long as Thursday high is not take out then there is still the chance that it was the 10/27 +/- 1 cycle high. We will find out soon enough next week.

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  4. Pretz,

    Couldn't you count the short-term US Dollar this way as well?

    http://screencast.com/t/E0HtpplJ1fVn

    In that case the top is already in.

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  5. Pretz,

    Having a bit of an Ah-Ha moment in my chart analysis of Treasury Bonds this weekend. Everything coming together pointing to this coming week as potentially one of the most decisive week's in market history. T-Bonds analysis to long to explain here in comments. I will try to create my own blog this weekend so that I can post it there.

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  6. CTPtrader please do. Potus can you post that chart?

    Thanks

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  7. CTP, did you mean the bottom is already in and not the top (for the USD)?

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  8. blackjak,

    even though this post is about the Dollar I was referring to a stop in the stock market.

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  9. Hey Pretz,

    I'm having a major breakthrough in my weekend chart reading. I am pretty sure I now have the SPX wave count nailed. It has such MAJOR implications though that I am not sure I want to go public with it just yet. Maybe after Monday morning market open.

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  10. Pretzel- Good analysis on the Dollar and thanks for posting your thoughts. But it is a bit disconcerting that yourself and TJ on the other board are not in sync about the stocks.

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  11. Hey CTP-

    Well, you've got me WAY curious now. :)

    Love it if you could find a way to share your breakthrough w/ me. I promise not to tell!

    As to the dollar, lemme go back and look at the tick chart and see if the count you propose is viable.

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  12. anon-

    We have a TJ here (note to TJ here, this conversation is not about you) -- the other TJ you are referring to gets *ragingly* bullish at tops. I love TJ, but he's a great fade sometimes.

    Dunno if you ever saw my "Trader Joe Tauntometer"?

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  13. Awww crap! I need to double check my math before I go shooting my mouth off. Turns out my "breakthrough" was a false alarm :-( ... Oh well, back to the drawing board.

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  14. CTP-

    I can't find anything terribly wrong with that alternate dollar count you propose... it just doesn't follow the guidelines as well. Two waves in an impulse *usually* tend toward equality -- but of course, not always.

    If we are in the throes of that extended fifth you're proposing, it still looks to me like it needs at least one new low to complete -- so it may not matter which one is right. :)

    Plus, as I said in the article, I think wave ii has done its work already... when i see a wave retrace that deeply, there's always the chance for an imminent reversal. The drill-down to the one-minute charts looks like it needs a fresh low, but there's no guarantees we'll get it.

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  15. CTP, LOL. You sound like me on Thursday night/Friday morning. I thought I had this great OMG!!! moment, and I kinda did-- but then went back and checked everything, and it didn't really change the targets at all.

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  16. mine missed being the perfect count except it violated an e-wave rule by less that 1 point :(

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  17. anon-

    Check out The Trader Joe Taunt-o-meter:

    http://www.screencast.com/t/IH5x5vEcJveh

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  18. CTP, that sucks. It's always such a let-down when you see one of those and it doesn't quite pan out.

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  19. POTUS,

    Imma go look at the charts to see if I can spot what you're talking about... then I'll try to do a chart for it.

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  20. Quick note to EVERYONE on the blog (not just those replying on this thread):

    I'm really enjoying the camaraderie and exchange of ideas. We've got a great group of people here. :)

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  21. Pretzel, I know you have more charts-to-do than time, but... I'm hoping you can find time to update your long-term SPX count and expand on your analysis. I would like to understand how you came to label the 2007 top as Supercycle III, and your interpretation of the larger trends since the 2000 tech bubble. I'm never really comfortable if I don't have a solid grasp of the big picture. The short-term charts are more critical with an inflection pt in the works, so if you can't focus on the long-term right now, no problem.

    Thanks.

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  22. Meant to add, your taunt-o-meter is classic, nicely done.

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  23. POTUS: I must not be looking at the right thing. A big difference I see in the charts is that 2010 had a retest after it made a new low, before the rally launched. Set up a free account at Screencast.com -- I'd love to see what you're talking about.

    Spiker: I'll work on it and see if I can get something posted for ya over the next couple weeks.

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  24. Here are my speculations based on what I've been learning about EW the last couple weeks. Expecting this B wave triangle breakout to fail due to the 65% rule and a C wave drop monday to 1275 or 1265 (2 most common fib retracements for wave 4, coincide perfectly with 200dma & thursday's intraday low) then a move into the 1300s, I like the 1307 fib but I've heard several argue for 1326. Guy on 'money in motion' was sying Aussie/Yen has 2% to run which would lend to the SPX running aswell (apparently that currency pair correlates closely with SPX). That would put us close to 1326.

    The only thing that scares me is the threat of a truncated 5th wave which are common with reversals.
    I guess if we head to 1265 then back to the 1292 and fail, I'll have my answer.

    Enjoying the blog, a great educational forum. Thanks for answering all my questions.

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  25. Actually Rocky, a 2% advance in the SPX would put us closer to 1307 (1310).

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  26. well that would be perfect then...I favor that fibonacci level anyway :)

    must have flubbed the math on the first pass. tks

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  27. http://www.dw-world.de/dw/article/0,,15497284,00.html

    lol look at this. I dont know what kind of impact its going to have on anything.

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  28. Anon- lol, looks like Europe's problems are solved! :o

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  29. After staring at charts till my eyes got blurry, my read is that we are at or within 1.5% of at least a short-term top.

    I am still favoring the count as being in wave 5 of C, just a question of whether wave 5 is going to extend further before topping. Now after we get a short-term top in place then the key is the character of the ensuing pullback. If this rally from 10/4 was indeed wave C then the market should waste no time heading down in an impulsive manner. If instead we see lots of choppy sideways overlapping waves and a shallow pullback then we need to start considering other alternatives. One of which would be that instead of wave C the rally from 10/4 was only wave A of and A-B-C with another run higher to come after wave B (although such a count would produce new highs for NDX which would be problematic for the bear case). And while seemingly implausible there is always the possibility that the rally off the 10/4 low was only wave 1 of a new bull market leg to new highs.

    But there is no need to determine which of these is correct right now, the focus just needs to be on the best risk reward swing trade which IMO is on the short side right now and just a matter of trying to finesse the last stages of the topping process.

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  30. PS... comments above pertain to stock market not US Dollar

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  31. yeah CTP, I'm feeling the bullish tug as well. Thinking they've kicked the can enough to make new S&P highs before it all comes crashing down.
    Thinkin 1326 nxt week and then a pull back to 1256 to close the euro gap up and give the bears a glimmer of hope. Then QE 3 in late november, bang...new highs.

    I've been constantly wrong for 3 months straight now so take it with a grain of salt. If I'm capitulating then that's probably a good sign for everyone else, ha!

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  32. anyone thinking of shorting LNKD?

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  33. Is ben suppose to speak this week?

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  34. fed meeting tuesday, announcement wednesday.

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  35. CTP- basically agree, with a few immaterial differences. The more material difference: I think the potential count I uncovered on the NDX (shown on Friday's LT NDX chart) would make a new high there okay.

    Rock-

    A new high in the SPX would likely be more problematic. What gives the bears hope here is the overlap of the current structure with wave 1 of the (c) wave of B (the NDX, as shown in Friday's alternate count, doesn't have that same overlap). From a bearish perspective, new highs in the SPX would, at best, make for a corrective decline in the SPX. At worst, they make for a massive new bull.

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  36. Tonight's/tomorrow's article is interesting. Not quite done with it, but it explains Thursday's rally on a fundamental level -- and how the bulls punched through the head and shoulders neckline.

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  37. So according to your wave count, wednesday should be the high at 1326 CTPtrader?

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  38. Witam wszystkich polskich odwiedzających mówiąc! Hope you enjoy stronie internetowej. Kiedyś Babblefish.com przetłumaczyć to z polskiego na angielski, więc mam nadzieję, że to ma sens. :)

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  39. Whoopee, futures down 2.25. No help there yet. :P

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  40. Pretzel - can you see a count where we don't have a wave 5 to complete this impulse?

    Looks like futures are holding the 200dma at 1275.

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  41. I see the future at 1274.1 now

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  42. If we break above 1325-1330, wouldn't that violate the giant head and shoulder formation we've seen in the SPX for the last 20 years? Aren't we suppose to be on the downleg portion of the right side of the right shoulder as we speak? I'm pretty new to this stuff.

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  43. Rocky, if you think QE3 in late Nov, I'm thinking you think the SPX will be trading below a 1000 by then??? You guys are crazy to think QE3 would happen at these market levels.

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  44. No, I don't think Ben will do QE3 based on the level of the market...I think he'll do it based on unemployment. I think by the end of Nov we'll be either completing a correction of this violent move up at around 1256 or 1220...or we'll be in the first leg down of the 3rd move lower off the May highs. I'm torn now between this being a correction or the start of a final bull run before the big crash.

    My feeling is that Europe has kicked the can again, probably long enough for one more leg up over the next several months. Plus a lot of the economic data like GDP, ISM, earnings is still looking decent enough to support stocks.

    I just don't see a major event that will send us to new lows taking place before next year. Europe is getting worse, not better, but it seems this stops the bleeding for now.

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  45. blackjak -

    agree. like i said on Friday, "if there's ever to be QE3 in 3D, they'll need to save it for after the crash."

    re: h/s. Depends on where you draw the line exactly, whether you use closing prices or intraday highs. We could probably get all the way up close to 1350 (1347 or so) w/out violating it.

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  46. Rocky,

    give it time. if this rally doesn't reverse soon, then we can start talking new bull market. at this point, it's still just a bear market rally. the update will help you wrap your head around what caused the melt-up on thursday. hint: it wasn't anything to do with "good fundamentals"

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  47. Well, there is no question at this point that the sentiment of a wave 2 in a bear move makes everyone bullish. I'm struggling to stay on board the bear train.

    btw, I'm not sold on QE3 happening in Nov either, it's just something that could propel new highs. I actually don't think it will happen becuase of the political backlash. If he did, it would be becuase Obama wants to drive unemployment down.

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  48. Thanks pretzel, looking forward to the update...definitely in need of some bear logic to keep me grounded :)

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  49. The TJ-taunt-o-meter will be an excellent instrument for future reference :).

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  50. Rocky, how about another credit downgrade in the next 4-6 weeks? While I don't think the damage will be like it was in Aug, I also don't see the markets moving higher on this news.

    Pretzel, you are right about the 1350 level. I looked at it again and you were right.

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  51. The market hasn't been flinching on these credit downgrades of late. I suppose at this point, once earnings are over, no reason to think markets can't melt-down instead of up.

    Yen just went crazy...MF global bankruptcy driving some wild currency action.

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  52. ...MF global unrelated...japan intervening in their currency rise. Wild times.

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  53. ES drifting steadily lower... down 6 pts now.

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  54. Copper might be getting ready to roll over.

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  55. Not to toot my own horn TOO much, but the new article is turning into a masterpiece. :D

    Market did me a favor by not going anywhere Friday, so I could focus on fundamentals instead of charts. I hope you guys find some aspects of it enlightening. Still working...

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  56. Hey all,

    Just a quick heads up on my interpretation of the cycles. If tonight futures trends carry over into Monday it is looking increasingly likely that my 10/27 +/- 1 cycle turn date was in fact a high. Next cycle turn date is 11/4 +/- 1 and the natural inclination here would be to expect it to be a low, but based on my Hurst stuff that is not what I am looking for. I am still expecting 11/4 +/- 1 to be a high which makes Monday and possibly into Tuesday VERY important. For the bearish scenario I need to see a significant drop over the next couple of days (ideally with impulsive wave structure) which would allow that to be wave 1 down and set-up for a wave 2 retracement into an 11/4 +/- 1 turn date high.

    So, my preferred roadmap for the week is sell-off hard into Tuesday, bounce on Fed Wednesday and into Thursday morning, then tank hard into the end of the week. That would set up for a very nasty drop (wave 3 down?) into the next cycle turn date of 11/11 +/- 1 which my Hurst stuff indicates should be a low.

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  57. Also just so happens that the roadmap above would match the 2007 analog that the market has been tracking rather closely from a cycles perspective.

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  58. CTP-

    You sure turned the corner from Friday! I thought you were on your way to becoming a bull. ;)

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  59. The update is posted, and should be very helpful to those bears who are doubting themselves this weekend. I probably have a little bit of editing left to do on it, but I wanted to get it out there before all you mainlanders went to sleep.

    Let's move future replies over to that thread.

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