Last week I had labeled the move from the bottom of the USD as a 12345 impulse wave. What transpired since then was an additional wave which made it a 7 wave move necessitating me to re-label the move as a corrective wxy(xx)z pattern instead. For the time being I have labeled that pattern as corrective wave a. We then had a 3 wave move down which I labeled wave b. Since that time we have had a 3 wave move up and currently are in a 4th wave down. I have tentatively labeled these waves 1234 but may need to re-adjust the labeling next week depending on the pattern that develops.
I suspect that the current move down will only be of a short duration.
The last down move caused a corresponding move up in the US equities overnight. Naturally enough with my expectation that the current down move in the USD will be of short duration I therefore also expect that the latest upward move in the US equities will also be of short duration.
Another view of the USD is displayed in the following daily chart. We can see from this chart that the USD bounced off the 78.6% Fibonacci level recently prior to the latest move up. At this stage the MACD indicator is not suggesting that the upward move is ending so for the time being we can assume that the trend will continue.
Last week I suggested that there was nothing in the charts suggesting a significant decline as the short term trend lines appeared to be reasonably solid. The S&P500 in fact closed up 1.4% on the previous Friday’s close.
Again, last week I suggested that if the S&P500 managed to continue the rally beyond the 1300~1313 zone then the next likely obvious target level would be 1330. Last night the S&P500 closed at 1329.15 after peaking at 1330.79.
We can see from the daily chart below that the S&P500 remains in a strong ascending channel. Now as mentioned previously I don’t expect that the move in the last trading session will lead to a major move up as a number of my cycle studies suggest that the top is running out of time.
The following two charts suggest some target levels to keep in mind for future turning points. The first chart shows target levels derived from the move that started on the 27th August 2010 at 1039.7 and completed on the 5th November 2010 at 1227.08. From this range I have projected possible target levels for the 87.5%, 88.6% and 100% Fibonacci levels. These are 1336.96, 1339.02 and 1360.38 respectively.
The second chart gives two significant target levels derived from the major plunge that occurred between October 2007 and March 2009. We can see that the 61.8% Fibonacci level of 1228.74 was significant in the March 2009 rally. I would anticipate that the 76.4% level of 1361.5 will again be another significant level. Note the confluence with the 100% Fibonacci level of 1360.38 on the first chart.
We can also see that there is a Saturn planetary line located at the 1362.31 level which once again shows the very strong overhead resistance that will present itself to the S&P500 when it finally gets there.
I am not suggesting that this level will be reached in this cycle leg but we should be very wary of a major resistance to the index when it does finally reach the 1360~1362 levels. The following 99 minute chart indicates that we are reaching the upper boundary of a short term trend channel at this point in time.
The strong lead from the US market has the ASX200 futures contract anticipating a 39 point move up on Monday’s open. The ADRs on the NYSE have BHP up 0.85%, RIO up 0.24% and WBC down 0.42% so we can see that the anticipated strength will come from the materials sector.
We can see from the chart below that the XJO managed to drop down to the 23.6% Fibonacci level and as already mentioned we expect a bounce off this level.
Whilst we anticipate a bounce on Monday for the XJO, what we are unsure of at present is whether we will make a new high next week as occurred in the S&P500. The following 8 minute chart of the XJO indicates that the anticipated move on Monday will not achieve that feat however it is certainly possible.
We can see from the daily chart that the XJO continues to move in a relatively strong ascending trend channel and whilst it was moving in the lower half of the trend channel, recently its momentum picked up as indicated by the short term red trend channel.
The weekly planetary chart for the XJO indicates the overhead resistance of the Saturn line that acted as overhead resistance. The line remains in place and should the XJO move to that level it would once again face a similar resistance.
One of the things that is suggesting that any further upward movement in the XJO will be short lived is the Conti chart below. The XJO in recent times has been under the influence of a 30 trading day and 65 trading day Conti cycle. It should be remembered that Conti cycles have a habit of appearing and then just as quickly disappearing.
Until they disappear I tend to assume that they will continue to operate. Remember also that they have an accuracy of +/- 3 days. Hence the latest that the 30 day cycle will remain viable is if it makes a high on Monday the 14th February. The latest that the 65 day cycle will remain viable is if it makes a high on Tuesday the 15th February.
A high made later than those two days would indicate that a new cycle was in play. Coupled with the Conti cycles, my Delta studies would also suggest a top in the next two trading days.
Once again we are in the situation where the channels are indicating that the S&P500 is quite likely to move up a bit more to perhaps the 1336~1339 target zone. In spite of many traders anticipating a significant decline, the technicals at this stage just don’t support that view. At this stage a minor retrace away from the upper boundary of the main channel shown on the S&P500 99 minute chart is likely in the first instance. It is only once this retrace is underway that we can determine whether it could become more serious.
The XJO is also capable of moving up and even making a new high however various cycle studies are pointing to a top in the near future. As mentioned in previous Market Wraps, any decline would precede the final rally leg of the rally pattern that commenced in March 2009. Note that based on the Conti cycles, a top made between the 9th and 15th February would indicate potential lows around the 22nd February and the 1st March. This would naturally imply that the decline was one of some significance.
The information in this market wrap is provided for educational purposes only and does not have regard to any particular person’s investment objectives, financial situation or needs. The information must not be construed as advice to buy, sell, hold or otherwise deal with any securities or other investments. Accordingly, no reader should act on the basis of any information in this market wrap without first having obtained investment J