Bucky Bear Squeeze

I really like the developing wave patterns on the currency side of things. The DXY is right on track of tracing out an almost textbook third motive. Admittedly that’s a very early assessment but the first and second waves, as well as the currently evolving third wave look very nice in terms of form, sub-divisions, angle, and velocity. I know this doesn’t look like much to most equity traders, but let me assure you that a bunch of dollar bears are sweating bullets right now.

Where do we go from here? I think it’s up – at least until the 80/81 cluster. But let’s consult our DXY retracement calculator – courtesy of 2sweeties from retracementlevels.com:

As you know I always start with the odds and considering that this may be a third wave I am extra conservative and have placed my 100% mark at 83.44. Based on that the odds for a meaningful reversal are 75.73% at 80.7 and 87.45% one handle further up at 81.75. Now under regular circumstances I’d say that 75.73 would be a decent spot to get positioned for some short side. But again – we might be dealing with a third wave here and if I was planning to go short (which I don’t – only playing the long side) I would wait until at least 81.75. Please bear in mind that this bias is predicated on me having faith in EWT and its wave counts in the first place – if you don’t, then just fade my comment and focus on the odds.

The frequency tab tells a bit of a different story. There seems to be a a cluster of reversals around 80.7 and even a stronger one at 80.06. The next two above (81.75 and 83.44) also have respectable frequency readings above 10%. What to do – what to do?

I think at the current stage of the wave count trading the short side might not be the most profitable endeavor. The main trend seems to have switched to the long side and thus it is here where you should expect to see some nasty surprises – the bucky bear squeeze is on! If you are long since 77, then either take profits at 80 or hold to see 81.7 or 83. The wave count appears to be progressing nicely and we should not fall into the trap of over trading.

If you simply look at the chart it’s quite clear where the resistance clusters will slow the Dollar’s run. Bundle in the odds I proposed and the long side is promising right now. Also, once we get a reversal in the form of another sub-division we might push up hard in a third-of-a-third type scenario. This is the money trade we should be looking to get positioned for. I will keep you guys posted when we are getting close.

BTW, if you’re interested in trading currencies like the pros by facilitating statistical odds head over to retracementlevels.com and pick among various daily calculators:

• EUR/USD
• GBP/USD
• USD/CHF
• USD/JPY
• AUD/USD
• UUP
• UDN

If currencies aren’t your thing then 2sweeties’ got your back:

• Gold COMEX (GC)
• Hang Seng Index (HSI)
• Nasdaq 100 Index (NDX)
• Oil (CL)
• PowerShares QQQ Trust (QQQQ)
• Russell 2000 Index (RUT)
• S&P 500 Index (SPX)
• SPDRs (SPY)
• S&P/TSX Composite Index (TSX)

And those are just the daily indicators. I personally use 2sweetie’s hourly E-Mini S&P 500 (ES) and I wouldn’t even thinking about touching a contract without checking the odds first.

UPDATE 4:00pm EDT: PRSGuitars is back with a vengeance – I’m posting his very interesting chart without commentary as I’m not following this particular pattern.

I would however love to see it play out But again – this is one of those ‘exotic ones’ (at least in my book) I leave to others to follow. But I must point out that the resolution does coincide with my own wave count – so we shall see.

Cheers,

Mole

This entry was posted on Wednesday, February 3rd, 2010 at 3:32 pm and is filed under Currencies, Market Outlook, Retracement Levels. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.