Could It Go All The Way?
From Nic Lenoir
After successfully pinning the 2% move in the DXY, the question everyone is asking themselves is: is this a trend change or just a bump on the road?
Technically, nothing indicates in AUDUSD or S&P for now that it cannot be a trend change. The Shanghai composite index remains stuck against resistance, we still have in place the VIX signal dated October 13 which usually precedes a top in price by between 5 and 10 business days, and the Nikkei has failed so far to take out the 9,750 resistance which would call for at least 3% further upside. Looking at the price action more closely, we can see on the S&P 10-minute and AUDUSD 60-minute charts that we possibly have a 1)-2)-i)-ii) Elliott formation. What does it mean? Well it means if 0.9850 on AUDUSD and 1,175 in S&P future are not bypassed there is a distinct chance we accelerate to the downside, and if that is the case the market will go bypass 1,129 and dip much lower from here. Full disclosure long term I am VERY bearish, the key is to find the timing when Keneysian policies breakdown.
On the flip side, none of the commodities I follow have put on a major candlestick reversal pattern. As you know I believe we are relieving the spring of 2008: commodities are through the roof as money flees the US when investor realize there isn't much upside there, the economic cycle has rolled over, decoupling is all the rage, and BRICS can only grow by 7% or more in the next 10 years. The top back then for those who remember was marked by soft commodities turning first, with Corn (see 2008 chart attached) putting a major gap breakout to the downside. If I had seen such pattern in any of the softs I track I would feel a lot more comfortable but I have not. By the same token given the world has been deleveraging and hot money is probably a bit more cautious than it was in 2008 (though not much, people not only make mistakes they make them several times) so in that sense it could be understandable not to reach the same level of mania and therefore not see the same dramatic reversals. The other thing is that in terms of price action the DAX is a bit unclear as to whether it has finished its last impulse. On the way up the S&P future is very hard to read technically as it is purely liquidity driven and the fractal aspects of the wave structure are murky to say the least. The DAX however tends to be more disciplined and is therefore a good ally when trying to make sense of the wave structure to determine the road ahead. The 10-minute chart attached shows two possible alternate counts: one in which we had an abbreviated 5th wave up and we are now in a more significant correction that will take us back quite a bit lower from here, the other in which we have one last push up before rolling over for a more significant bearish move.
We shall know soon which it is, S&P futures are sitting on the 61.8% retracement of possible i) and the key 0.9819/0.9845 resistance area for AUDUSD is not too far ahead. Tactically it is a good spot to be short risk, knowing that if any of the levels indicated above in AUDUSD or S&P future break we will have a final push up before the reversal and a tight stop is in order to save powder for the bigger game.
Good luck trading,