This month so far has seen a massive move of money out of emerging markets and into the USD, GBP, EUR and the JPY. And instead of heading into equities, it has been heading to cash and bonds. Major global indexes are down better than 6% off of their New Year highs. US indexes have fared best losing between 4 and 5% so far. The S&P has dropped 4.3% in an impulse off of its 1850 high. This high completes a five wave series which started back at the Dec 20th 1202 low. However, this minor degree impulse wave could extend up to new highs if this move down proves corrective. In the near term it does not matter for both scenarios call for the index to move down through February. If this is a correction, the S&P should turn around somewhere near the 1730, which is the zigzag A vs. C equality with a B 61.8% retracement of the impulsive move down to the 1770. In contrast, if the S&P moves down in an extended third wave with a corrective forth wave instead of an impulsive wave up, then the more bearish scenario would be in play. The confirmation for the bear market primary C wave is a break of the lower zigzag channel line support around the 1500 which would be a devastating move to say the least.
The Dow has lost 5.8% and appears to be finishing off its first wave of a larger move down in its expected C wave at primary degree. Unlike the S&P, the Dow is harder to count as extending up. Structures are complete and would require a major relabeling for a larger move up then the S&P would. This is one of the reasons why I am going for the bear market scenario instead of the near term retracement. The move down from the 16588 broke key levels once it passed 15677. If this is a corrective move for and extended move up, then the Dow should correct up in a B of a zigzag before moving down to complete near the 15308 in early March. Keep in mind that ideal Fibonacci targets have been met along with complete fifth wave structures at intermediate degree. Given that market sentiment is at an extreme and it looks like central banks are losing control, markets could very well be at the start of a bear market that could take equities to devastating levels. Marc Faber was quoted as asking who you would rather be in a bubble: the fool who tried picking the market top, or the fool who missed it. One has to get out somewhere. The exact top is extremely difficult to pick. However, knowing that the top is near is not. And I believe we are near.
The US 10 year is at the limit of a five wave move down off of its 3.03 high. This move down is a clear five wave move down that needs to retrace at current levels. The 10 year hit a low of 2.64 on Friday before inching up to close Friday at 2.66. This retracement correlates with the retracements due in stocks. Look for both equities and stocks to move up in the early part of next week before breaking down again. The move so far is part of a five wave sequence of a C wave of an expanding flat. The alternate count has yields in a second wave at minor degree. Both counts are bearish Yields with targets at the 2.21 flat and 2.0 for the wave two count. I would also like to point out that there is an second alternate count that has Yields completing a second wave of a first of a third at minor degree. If this is so, and stocks keep breaking down while interest rates move up, it would mean that panic was setting in. Gold should move up in this scenario. It would be wise to keep a close watch to these correlations in the weeks to come.
The US Dollar index has moved up from the bottom of the C wave at 80.14 putting the index in a wave three of three. On the hourly, the index is now completing a fifth wave and needs to pull back in a wave two somewhere between the 50% at 80.73 and the 618% at 80.59. From there the index should take off towards the 83.89 wave three target.
The EUR/USD supports this this Dollar Index view. The pair has also broken down off of a C wave of an expanding flat at 1.3742 and has cut out its first wave of a third wave move to ideal 161.8% 3 vs. 1 at 1.3179.
The Pound has just completed a forth wave of a contracting triangle and is now sitting at trend line support. Minimum targets have been met and the Pound should move up to a new high around the 1.6712 where it should break down to follow the Euro.
The JPY has been the safe haven currency leader and looks strong on all the Yen crosses. USD/JPY has had some difficulty moving down and has so far cut out a 1 2, 1 2, 1 2 sequence. The Pair has finished its five wave move up at minor degree and is now in a wave two which could complete as far as the 86.98—the 618% retracement of the move up from the Oct 2011 low at 75.56.
One the weekly, both gold and silver are in wave three of three territories. These zones are always choppy and overlapping. Gold made it up above its near term trend line resistance and pulled back under it this week. Silver failed to make it above its near term trend line resistance testing it several times this month and finally breaking down off of it on Friday. Both metals look weak for now, yet are still in heavy consolidation zones at minuette degree. A break below the 1180 on gold and the 18.21 on silver will confirm the immediate bearish counts. However, until then, the moves should be up to complete the forth waves at minuette degree.
Have a great week trading.