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Thursday 12 August 2010

Looked Like a Wave 3

That was a very impressive decline on SPX that continued after hours yesterday, and the wave down bottomed at 1074 ES, making it a peak to trough move of slightly over 50 points on ES in slightly over 24 hours. Very impressive indeed.

I don't do EW much myself but I have read a couple of books and am familiar with most of the rules. I've put a likely wave count on ES since the high last week:

I'm using the bull count taking this as an ABC move from the top. For the bear count you just change ABC to 123 and assume an extra two waves to follow of course. On this count we saw 3 of C yesterday and we have started 4 of C. As you can see from the chart I'm considering the possibility that wave 5 down has already started, though we could technically have a rally under this count that went as high as 1106, but would go no higher than the low on Tuesday.

In the very short term on the 1min chart ES formed a broadening ascending wedge from the low last night but as I write has broken down from it, which suggests to me that we may well see more downside this morning:

The main USD currency pairs are suggesting that too, as they rallied for a while overnight with ES, but then diverged to make new lows after the overnight peak on ES. EURUSD is now most of the way towards my target for a longer term bullish scenario on EUR. A break below it would look very bearish to me and would suggest that we may see a new low on it this year:

GBPUSD has also made it most of the way to my target. Again, a break below would look very bearish and suggest that we may see new lows:

Oil has made it most of the way towards the lower trendline of the rising channel:

I have noted the exact target levels on all of these if these were to be hit today.

Copper hasn't been falling as fast ast the others, and is only halfway to my target. Like ES, at the time of writing it is somewhat above the overnight lows:

The ones I'll be watching most carefully this morning apart from ES are EURUSD and GBPUSD. If the bounce at my target levels that would only to be expected, as they are the natural levels to see a reversal of course. If they break down through them though, then it would suggest strongly on both that we have been watching a rally on both of these since they bottomed in early June, and that they are both still in a major bear move. If so, that would suggest strongly that we haven't seen the low this year for equities either so it is very significant if those levels fail to hold.

If that isn't the case, and this is an ABC correction as I have marked it up in my EW count, then we may be very close to the low on ES, with just one lower low yet to come and if so, then the relative strength of copper overnight has a bullish look to it.

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