Thursday, July 26, 2012

SPX and US Dollar: Charts Lead the News Again

There's been no material change in the counts from yesterday, so I'm going to keep the update short and sweet.  Yesterday's update anticipated that the market was likely beginning a relief rally to the 50 or 62% retracement level.  This count remains valid, although sustained trade above the 62% retrace will call it into question and suggest that something more bullish may be afoot.

No change from yesterday:

Last night, while ES was still deeply in the red, I posted my interpretation of the short-term counts over in the forums (charts reprinted below).  Based on the futures action this morning, the counts I posted last night appear to have been the correct interpretation, and yesterday's rally was wave 1 of C (or possibly the start of something more bullish):

Here's the down-to-the-minute breakdown, for those of you following along at home:

The SPX daily chart below discusses two key zones for bulls and bears on an intermediate time frame.

A chart which I'd like to call attention to is the US Dollar, which recently hit its first target (which I published in mid-April).  The chart explains why I'm calling attention to it: There are two counts shown on the chart, and the less-bullish of the two could be finishing up right now.  Therefore, caution is warranted for those considering dollar longs, at least until the market declares that it's intending to follow the more bullish count. 

A funny thing happened after I finished this chart, too:  Europe announced it was going to save itself (I know: again!), and the Euro launched a huge rally against the dollar.  However, I think we need to be very careful about discounting that notion, because I had this chart done well before that announcement was made...

The more bullish count sees a correction, followed by more upside, but the implications for the less-bullish count are that the dollar rally is over on an intermediate basis.  We'll have to see how it develops from here, but the first target has been captured, concurrent with the potential conclusion of the wave structure.  I have been bullish on the dollar non-stop since September 2011 -- but I would now consider my stance as neutral on the dollar as of this moment. 

In conclusion, the bearish intermediate count remains preferred, but as discussed all month, unless and until the bears can reclaim some key levels, I remain fully cautious and on alert to the possibility of bulls pulling out a last-minute upset.  The bullish alternate count I published recently has not been invalidated -- and this "Save Europe" news announcement, coming right where it has relative to the charts (which are at a potential pivot point), is hard to ignore.  The charts are still at a point where things could go either way, and as long as the market stays range bound, there are simply no clear answers.  Trade safe.

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