Listen to the market
Everyone seems to have a great big case of a set in stone market view right now. My experience is that when I start making predictions, I stop being open to what the market is telling me, right now. Mark Douglas (trading in the zone) talks about good trading as “staying alive to the flow of information in the now moment”. Its a good time to examine, in context, what *should* be happening, and what actually is happening.
As far as I can tell, we are diverging from the usual script here, in a subtle way. This thing could still go either way, but cracks are appearing.
The bottom line, as Hochberg would say, is that stocks are about to start a one in 200 year decline in a primary wave 3, the USD will stage a powerful rally, and that gold will fall.
I JOKE! I JOKE! For the record P3 is a fairy tale and its not gonna happen. Its as stupid as the zerohedge crowd, which for the record, are pretty fucking stupid.
Well actually, the evidence is totally mixed. I can make both a strong bearish and bullish case here. But for the first time in a while, the bullish case has holes in it. Great big holes, which need to be filled by POMO on Monday, or its off the table.
The stopped clock may be right at long last. The sine qua non of the Prechter P3 theory is the USD will stop its decline.
Sentiment is all lined up. Its a one way street bearish for the USD, and has been for a long time.
Take a look at what the last few days of price action have told us about USD.
What I’m seeing is that after bucky has started to rally on increased volume, it has made two failed attempts to retrace, both of which started, but were totally overwhelmed by the buying pressure, painting bullish engulfing candles. A bullish engulfing candle indicates that the market *tried* and failed to go down. If a market tries to go down, it means that shorts are positioned or sellers are selling, and that their ammunition is temporarily depleted. This effectively gives the dollar bulls a few days of free punches until the bears get their shit together again.
So where does that leave old bucky? Its taking off without giving us a real deep retrace to get positioned long. This is very different, and indicative of a market that really wants to blast off. Its a hammer candle on the daily chart. and a buy setup on break of the daily high with a stop at the daily low.
To make it all simple for you. This is the order you give your broker.
SELL STOP EURUSD 14065 GTD IF DONE BUY STOP EURUSD 14340 GTC.
The only thing that makes it hard to take is the wide daily range, which necessitates a small position size.
Lets look at the indexes.
Up until recently the price action on daily, weekly, and monthly timeframes was as bullish as bullish gets. Add POMO into the mix and its almost a no brainer to be long. I mean, we have the widely anticipated bullish inverse head and shoulders complete, and a thrust to new highs. At this point what we SHOULD SEE IS TOTAL CAPITULATION OF THE BEARS. But thats not what actually happened.
After a strong bust to fresh highs, each daily range was smaller and smaller and then we reverse.
This is a great big hole in the bullish case. but its not too late for the bulls. We have a 50% retracement of the move up, then if the bullish case is intact, we should see a rip roaring rally, a total moon shot.
Lets take a closer look at the action, day by day. And see what *should* be happening and comparing it to reality. I urge you to look closely at the points marked on this chart, in order. Particularly telling is the failure of the upside break of the inside day, marked as (2). When a bullish setup fails, it tells us something.
Bottom Line (ha ha) is that the bullish case is hanging by a thread here. It really has to explode higher tomorrow, or IMO the bears can have a real chance at doing some damage. We have the inside day setup, short on break of the daily low, long on break of the daily high.
In other news. The emotions are strongest in gold and silver, and again I’m seeing mixed evidence. To me this is a good market to sit out right now, the easy gains have been made to the shortside, and the market has shown that retracements are more shallow than usual. We have a bullish non-confirmation between gold and silver (gold did not make a new low like silver did) and a *potential* short signal in silver on break of the shooting star daily lows. If you are a confirmed metals bear you could be getting short again, but personally I’d be happier shorting from up higher.
The other setups I like today are in USDJPY
Lets look at the weekly first. The concept here is more than just the inside week (which would be enough on its own) Here we have a different type of retest, where we have a move up for 3 bars to a spike high, followed by a move down for 4 bars which failed to break the old lows.
The concept is fast up, slow down, telling us that the ease of direction in the longer timeframe is to the upside.
Then we have a weekly inside bar, giving us a clear trigger point and stop.
In case you couldnt tell, this post is authored by Scott