(Note: I want to thank Slope's guest writers for jumping in and giving me a chance for some time off this week; I am so grateful, and so are Slopers! – Tim)
EUR/USD has now broken the broadening descending wedge that had confined
it for the last three weeks and is returning to the top of the
declining channel:
Given that this channel was already steep enough to bring EUR to
parity with USD within six to eight months, it always seemed more than
likely than not that that when this channel ultimately breaks, it will
break to the upside. The channel is declining by about half a cent per
week, so if we reach the top of the channel at the end of next week,
the target would be between 1.395 and 1.40.
As well as the broken and now resolving wedge we also have clear IHS
patterns on both RSI and MACD. These generally play out as you can see
from the others I have marked.
In the short term the stochs look toppy and we may well see a
retracement. An obvious target for that would be the broken wedge
trendline at between 1.37 and 1.371.
The SPX is also looking toppy on the 60min and I have marked in a
possible new channel and significant interior trendline that both
suggest that we may soon fall back to the bottom trendline of that
channel from the circa 1100 level:
If we take a day or two to do that, then we may well fall back to
test the strong resistance now turned support level at 1080, though if
it happens faster, we could still fill Tuesday's opening gap at the
1075.51 level.
Now there is some talk that we might be starting a new major wave up
on SPX, which would be wave 5 of a bull market sequence. I don't buy
it. Quite apart from the doubtful economic and earnings prospects, and
the increasingly poor medium term outlook for the Euro, the wave 4
looks rather small to me for a wave 4 retracement, and I am looking at
many patterns that look as though they have much more downside coming.
It is worth noting though that if this is a bull market five wave
sequence, then that wave 4 did make a perfect 38.2% fib retracement of
wave 3 since July, and if that EURUSD channel breaks to the upside I
may have to reconsider my view, but in the interim this just looks like
a wave 2 retracement to me with an obvious target at 1110 for the 61.8%
fib retracement.
It is well worth remembering however that a wave 2 can and often
does retrace most of wave 1, the start of the EURUSD decline being a
classic example. SPX could go considerably higher than 1110, and
Fujisan was putting forward a compelling scenario suggesting 1130 last
weekend at slope which is well worth a look IMO.
I will be next shorting SPX again seriously only when EURUSD reaches
the top of the declining channel, or when it becomes clear that it
won't reach it.
Another interesting chart that is well worth a look is gold:
Gold is in a strong declining channel and is rising fast towards the
channel top, and also the broken neckline of a sloping H&S
indicating to the 960 level. The upswing target is about 1140, and that
should see gold start back towards the bottom of the channel. It should
reach the upswing target on the next EURUSD push upwards and it looks a good short from
there.
