SPY
A new week, same outcome.
This seems to be same message every week, up down up down, if you are getting dizzy because of this price action you are not alone with those thoughts. I suspect the market is still currently in an ending diagonal for what I think is a 5th wave to complete a larger 5 wave advance from the Oct 2011 lows.
The whipsaw we have seen over the past few weeks is an inherent characteristic of the ending diagonal pattern, chop up as many bulls as bears before it finishes and then sets up a reversal. The key factor to the pattern is the shape, most will refer to the pattern as a bearish wedge, although in Elliott wave circles we call it an ending diagonal, but the message is still the same.
I have been short term bullish for a few weeks now, although it feels like I have been looking higher for months, the choppy upside is slowing the rate of ascent rapidly and causing most traders to either move to the sidelines or be forced to participate begrudging.
Wedges in general tend to be lethargic patterns and bore everyone to death right about the time most have given up to the idea of a reversal, this is where experience really matters, having the confidence to stay with the idea and ignore outside forces. I still feel that this pattern has a bit more upside to resolve first, so unless I see a strong reversal that breaks support, then I am continuing to look higher.
EURUSD
A good example of a potentially completed ending diagonal was witnessed on EURUSD this past week. The rapid reversal of that market argues that the idea is completed and a large decline is likely, that too bored traders to death for weeks, although we stuck to our guns and kept looking higher much to the dismay from the EURUSD bears until we got the new high above 13965, I am looking much lower on EURUSD, Initial targets are at 136 and 133.
If we do indeed have an ending diagonal setting up on the SPY/SPX then what we saw on EURUSD is what I would expect to see on the SPY/SPX once its completed then a strong reversal lower.
Bulls beware, the ending diagonal (bearish wedge) is a classic reversal pattern and one that should not be ignored, in my opinion ignore it at your peril, markets don't go up forever. Although you would think they do judging by the level of bullishness in the media.
Conclusion
I am still looking for a bit more upside in the SPX/SPY to complete the wedge pattern, once completed we are likely to setup for a strong decline, a decline that should be in the order of what we saw in 2011.
The EURUSD has probably put in a major peak, so against last week's highs at 13993 I am expecting more downside.
Until next time,
Have a profitable week ahead.
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