Will Today’s Bullish Reversal Hold?
This morning's gap provided an opportunity to cover shorts initiated late Monday afternoon off the break of the "4th wave triangle". The gap lower put the market right in the target zone of 1045-1036. If in fact Elliot Wave's "4th wave triangle" rule does stick then we should FINALLY be in for a bounce. In accordance to Elliot Wave Theory, a triangle forming after the 2nd impulse wave results in a 3rd impulse wave, or wave 5. Once completed a change in trend occurs.
Furthermore, two out of the past three days the market has opened significantly lower only to surge back to positive on the day. There have been plenty of negative headlines and indeed longer-term fundamentals are in serious jeopardy. Never the less, the market has demonstrated short-term resilience as the current sell-off looks to have reached a point of saturation. Breadth indicators certainly suggest this to be the case.
Below is a graph of an indicator called "Intermediate-Term Indicator Score", created by Sentimentrader, demonstrating the overall extreme readings registered across the board in a variety of breadth and sentiment indicators.
Click Here to read a recent post regarding the statistical significance of Friday's reversal day….well, it applies to today's reversal as well. This analysis comes from Jason Goepfert of Sentimentrader.
The Euro (EURUSD) pared most of its overnight losses after retesting the low from last week. I look for this to be a successful retest with a stop on long positions placed under last week's low of 1.2143.
To reiterate a point previously made – my expectation for the ensuing bounce is that it will amount to nothing more than a retracement rally,
later setting up the pins to be knocked over once again. There are a number of fundamental headwinds which I believe will be too much for the market to hurdle as we head into the 2nd half of 2010.
Macro-Trader 