This week has been unsettling inside and outside the US. Major Markets tumbled all over world on the back of poor manufacturing numbers out of China which also appears to being in the midst of a credit crunch. And the unemployment problems that persist all over the world are not making things any better. France’s unemployment hit a new 16 year high, along with Spain’s all-time 26.7% and Italy’s 12.7%. I am sure that emerging economies added fuel to the fire with Argentina’s and Venezuela’s currency crisis at critical levels, which many think in spilling over into Brazil whose currency has fallen sharply against the majors while its stock market hit new lows. Reading the US news, you would think these things were happening on another planet. Unfortunately they are not. And maybe investors know so, being that this past week most global markets have fallen in three waves so far from their 2014 highs with The Nikkei falling 6.4%, The EUSTX50 5.32% and the S&P dropping 3.23%. The move down on the S&P from the Jan15th 1851 high has broken through the 1815 Jan 13 corrective low like it was not even there, negating the extended five wave move to higher ground. If this move down is part of an expanding flat then the extended targets to higher highs would still be in the making. However, the supposed b wave to new highs is not a three and it topped out just past the beginning of its wave A falling short of expanded flat range. With sentiment levels still at extremes, PE ratios at market top levels and a risk off sentiment moving through all the asset classes, things look pretty bad. Plus do not forget that the S&P is up against some very resilient long term channel trendline resistance and Both the S&P and the Dow have hit and retraced out of very strong long term Fibonacci convergence at current levels. A deep correction is still looming.
The Dollar Index fell sharply this week, however, cutting out a flat pattern corrective C on the US index with confirming patterns on the Euro and the Swiss Franc. Both the Euro and the Franc have completed their first and second waves of five wave declines, putting them at the start of third wave moves in favor of the buck. The pound which has turned out to be the winner of the week moved up to new highs on the buck but fell short of invalidating its long term triangle C wave at 1.6758. The pound got as high as the 1.6674 and was rejected Friday giving up 189 pips in less than a day to cut out a wave four of what appears to be a contracting triangle fifth wave which needs to make a new high around the 1.6750 before it breaks down along with the rest of the majors. The Commodity bloc did not fare well against the Greenback, the Euro and the Pound. The CAD however retraced Friday while the Aussie and the NZD lost big. Looking at emerging market currencies, it does not take long to notice that money is flowing out of emerging markets and into the Pound, Dollar and Euro.
The US ten year looks like it has just completed five waves down from its Jan 2nd 3.03 high. It hit a low of 2.71 and closed Friday at 2.76. This should be a wave one of a larger five wave move down to complete a C wave of an expanded flat that started back at the Aug 5th 2.98 third wave high. However, keep in mind that the B wave of the flat can very well be a fifth wave that has completed the larger impulse wave one up from the July 24 2012 all-time low. Regardless of which scenario you prefer, the move is down for both with the flat wave four target at 2.17 and a zigzag correction for a wave two target at 2.01.
Both gold and silver have been enjoying an overdue rally although struggling a bit. Gold finally made a break of the corrective channel line trendline resistance on Friday’s trading closing at 1269. Silver, even though it has been moving up has been having a harder time since its Jan 3rd bottom at 18.60. It tested its channel trend line resistance three times this week and has failed to break above it. After Friday’s test at 20.30, it pulled back to close at 19.89. It will be interesting to see just what happens to the metals this coming week. Gold seems to be moving up nicely from its test of the low of its June 28th 2013 low at 1180. Even though silver failed to test its June 28th 2013 low at 18.21 and moving up quickly instead of off the 18.58, it has since sort of stalled, going sideways with slightly higher highs and lows. If silver finally breaks up, it could send both the metals considerably higher.