Friday, October 25, 2013

New High

It's been now two weeks since the market put in a Bullish Engulfing Pattern and the original target I had that day (1760) has been reached.

"If this is the start of a 5 count then expect 1760 more or less, assuming we see a reversal without taking out the 1695 resistance (which makes W1 around 45-50 points)."

Now the issue is the bullish wave from that date has turned into what I call a stand alone W3, which is a W1 and W3 fused together by a minimal W2 so there was no reversal to speak of. And since these waves are rare and I don't have enough data to project, I don't want to be calling a top before I see some sort of reversal pattern. So far I count two sets of bullish 5 wave counts and today's high could serve as a final 5th. However, this 5th could easily turn into another 5 count so we'll have to see what early next week brings. One thing that I just realized is the dollar weakness and how that might be playing into the stock market. QE aside, usually a weak dollar gives the market a reason to rally since a cheaper dollar translates into higher USD profits and at the same time adds to inflation. So as long as there is a weak dollar in the background and positive corporate earnings the markets will find it easier to make new highs.

I also added the long term chart to put into perspective where the markets are in relation to the count. Note the price labels I have on there were put in before the market top in May and the market has followed these levels more or less. Since we are seeing a breakout of a broadening formation, the usual target for this pattern would be equivalent to SP2000+ once the 5 waves are complete from the 666 bottom. Also, I added a picture I took in China couple of days ago. Those tall buildings in the background are probably half empty but somehow they still continue to build and people continue to buy. I am not sure if it's a product of a command economy or speculation but plans are to make that a financial center in Southern China so they build all these class A buildings and top infrastructure and assume the area will be booming in a few years time. That's not how things usually work but somehow it has happened before in China, in Shenzen to be specific.

Have a great weekend!

Short Term Trend = Bullish
Medium Term Trend = Bullish
Long Term Trend = Bullish

* Trends are not trade signals. Trends are posted for situational awareness only and does not take into account wave counts, technical or fundamental conditions of the market. While mechanically trading the posted trends is feasible, keep in mind that these are lagging indicators and as such are prone to whipsaws and I personally do not use nor recommend them to initiate or close positions in the market without taking into consideration other factors. 

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