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Sunday, November 1, 2009

It's all about the dollar...

It's all about the dollar folks.

In my opinion the dollar seems to have bottomed, and that is the requirement for the indexes to start to decline as well. Patience is key most investors say. And the Dollar really tested my patience since July ! It's been surrounding the 77-75 levels for 5 months now almost, without any decisiveness on a turnaround.

Now, it seems very likely a bottom in the dollar has occurred and this will serve as a catalyst as well for the indexes to follow suit.

On the larger time frame, this is either a Wave C or the beginning of a 3rd Wave. For the mid-term projections it doesn't have any implications, the difference is, under Wave C this is just a rally under a larger degree bear market, with a 3rd Wave sky is really the limit, and for all I know, the index under a 3rd wave could really go to 120+ or something.

Here are the graphs regarding the USD:

 Regarding the indexes, this last move up was what is called under EW terms as a expanding ending diagonal.
According to the book Elliott Wave Principal it states that ending diagonals occur  when the previous move "has gone too far too fast". This surely fits into the current scenarios after a 65% rise in little under 7 months.

Nothing that couldn't be seen under EW as you can see here and here, whatever critics may say.

Again EWP states that near-term, diagonals are ending patters and they imply on thing which is "dramatic reversal". So one more argument for the bearish stance.

Here I lay some more charts:

 Not to mention, this last week the down days were very very big, achieving on Friday 95% of the volume was for the downside, with 10 stocks declining for each rising stock.

Also the German DAX, that most the times works as a "forecaster" has already declined 10% while S&P has declined 6% from the top, causing a market divergence, so I expect the S&P and the DOW to catch up with the DAX in brief order.

Also, take note at the above picture... 5 waves declining. Anyways I'm expecting in brief order some kind of bounce during the following days, maybe we open negative, catch support at 1020 and go to 1060-1070 for wave [2] (yellow box is the target)? That is, if indeed what we're seeing now isn't a 3rd wave extension. I guess we'll see...

Cheers ! (on a side note, how much do you want to bet the Australian Central Bank will raise interest rates this Tuesday? Either Tuesday or next month I bet it will raise the rates... so keep an eye on pairs related to AUD...)


Should I mention VIX?

Update 2:

Also VIX is on the 1st step of a buy signal for equities. Remember the steps in order for a valid signal:
- close outside the BB 2.0
- close back inside the BB 2.0
 - and a lower close that previous day

So this could support again the scenario of wave [1] being almost done, hence the rebound scenario expected.

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