Finally we reached my 1240SPX target. (Fridays high was good enough for me) Although to say I thought it would come so soon is an understatement, but when you have a market that is on speed, what are we to expect?
DXY aka US$
The recent rally in "risk" can be focused on one market, and that being the US$, you only have to look at the moves that started on Oct 4th to note the aggressive selling in the US$, aligns virtually tick for tick in the US stocks markets and FX "risk" pairs.
But Friday we closed on a very key support area at just above 76.50. Until the DX pushes under and looses this support, buying the risk markets at these levels is extremely dangerous, yet I am reading talk of bullish breakouts on the US stock markets, and the "bull is back".
Has no one ever heard of a fake out? the move to above 1230SPX was expected by myself, and should have come as no surprise to many, if you have been reading my articles as there were other key markets that were signally that move.
AAPL
In last week's article I spoke of the NDX and how we were tracking the NDX pattern via AAPL, we had a $430 target, this week's high I believe came in at $426.59, a little shy of the target, but hey what's $3.50 amongst friends.
With what I suspect is a potential long term wave count in operation, this could have a nasty effect on the NDX going forward over the coming weeks. I noted that the usual buying power never really was there on previous dips, so it's suggesting that maybe the saturation point has occurred with AAPL.
I have been watching some of the momo stocks that led the NDX on the move from the Oct 4th lows AAPL being one of them, AMZN and GOOG being a couple of others, if the big tech momo stocks are not following on any upside move in the markets, I find it difficult to see here where much of the strength is going to come from.
Strength on bull runs come from the big tech stocks and the leaders lead the markets higher, if you notice this past week the NDX has lagged the SPX and DOW. If these stocks start to peel away, then I suspect it will have repercussions' on the markets.
AMZN
If you look carefully at AMZN, it appears as a rising wedge, or what Elliotticians refer to as an Ending Diagonal (ED).
So presently it suggests that this is coming to the end of a trend, not on the start of a bull market, rising wedges are seen on the end of a termination of a trend, those that buy into the current move on stocks might regret buying these highs.
The expected result, if this idea is correct, and this is a valid Ending Diagonal, is a very swift reversal and aggressive downside move.
Don't think it can happen??
I would like to refer you to an article I wrote way back in July this year. http://www.safehaven.com/article/21748/market-report-the-claws-are-out
You will note that I showed a setup on NFLX, and the talk was at that point NFLX was never going to go down, you even had one prominent bear on that stock cover his shorts for a substantial loss to his firm (I guess he don't think Elliott wave analysis is any good then?), funnymentals huh!!! You can keep those, I stick with price and patterns, the funnymentals killed the bears on NFLX.
Fast forward and you can see what happens once these patterns terminate.
A complete price collapse, you want to play chicken with that AMZN idea?? Be my guest.
Me and members can look for other safer markets, although I don't aggressively post ideas on stocks, I tend to just monitor stocks for edges on the markets, and I do think that following the big tech stocks is an advantage especially trading the NDX/NQs, I am sure anyone that bought puts on that stock would have substantial gains, should they have seen the potential for the ED pattern.
FX Risk Pairs
I have wrote about these in the past, but now we are at a key juncture on the markets, its prudent to pay close attention to what goes on at these levels in these 2 FX crosses.
They play a key role in the "risk on/off" trade.
With the AUD/USD pair right at channel resistance and sitting just under its 200DMA (not shown) and the USD/CAD sitting at above key support at 1.0000-1.0030, I am not exactly thrilled to be buying "risk" at these levels, considering that my target was 1240SPX, this is now where I want to actively be getting bearish.
Although to be fair, I did actually think earlier this week that we might have had the high I was looking for from the rally since the Oct 4th lows, yet it failed to see a substantial breakdown, so reverted to an alternative idea that again would see a bit more upside. We have that upside and with the way the DX is sitting, Imo this is not an area to be aggressively getting long on some talk of a breakout in risk markets.
Until you lose the DX area as shown above, I seriously think that the bulls on stocks need to take note of that support area, if the markets sees a serious pukage of the US$, then that will be a confirmed signal of its intent to see a full on "risk on" frenzy. But this is also where the markets I suspect will see a reversal and buyers step in to support the US$, if that's the case, then you should see a "risk off" move.
I saw weakness in both Brent and Crude oil on Friday, so oil was not buying into the rally on "risk".
But we don't yet have that confirmation, and we also don't have a breakdown in the USD/CAD pair under 1.0000 or even a solid move above this channel on the AUD/USD pair, as its still under its 200DMA on the AUD/USD.
Conclusion
Once again the markets are poised to show its true intent, although I am actively looking at a reversal from this area, as long as the US$ aka DX holds that support area, and we don't see a breakdown in the USD/CAD or an aggressive move on the AUD/USD, then markets can be setting up a nasty reversal and trap all those late to the party bulls.
It still amazes me; even though I have seen it loads of times, how trades get bullish at the highs of a move, and bearish right at the lows, as long as you have traders thinking like that, you will always have 2 sides to a market.
From here I am willing to go against the crowds at this juncture provided I don't see a serious breakdown of the USD/CAD and DX markets i.e. below 1.0000 on the USD/CAD and 76.50 on the DX, or a solid move above its 200DMA and this trend channel on the AUD/USD pair.
Anyone that has followed my work will know the importance of all 3 markets in relation to the "risk on/off" trade.
If you don't, I think you should take the time to get yourself acquainted; you are missing out some on some serious edges.
I have not included much in the way of the markets this week, as there is not much to go with, as we never really travelled far this week, but I will refer you to last week's article, for some ideas that readers can read up on. http://www.safehaven.com/article/22937/market-report-the-point-of-no-return
Until next time.
Have a profitable week ahead.
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