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Friday 3 December 2010

Wave 5 Targets

We've seen enough in the amazing move up in the last two days to establish in my view that a powerful new wave up is in progress. I'm not actually expecting it to get a lot further than this, though there is obviously a risk that it will. My current view is based on two main assumptions. The first assumption is that this is a wave 5 move of whatever degree, and that seems reasonable from even a glance at the action since the July low. The only two EW bloggers that I read on a regular basis, Pug and Alphahorn, both think so too. The second assumption is that USD is now in an uptrend and while there's every technical reason to think so, it could be that assumption is mistaken. We shall have to see whether USD holds or folds after the current retracement reaches target, and if it folds, we might see a lot more upside than I'm currently expecting.

On USD the retracement is well advanced and the important support level at 80.13 has been broken. Channel support is marked on the 60min chart and an alternate support trendline if channel support is broken as I'm seeing that USD and EURUSD are slightly out of sync, and if EURUSD is to reach declining resistance, USD may have to break the obvious rising support:

Taking a fresh look at the a move from the July low, it now seems obvious that ES is in a rising wedge and that the obvious target for this wave 5 move is at the upper trendline of that rising wedge in the 1250 to 1265 area, depending on when it is reached. I've added in some other trendlines to the chart that are worth noting if that level is exceeded:

In terms of shorter term charts, I'd have more to work with if we had seen a significant retracement on the way up so far, but I've done my best with what is available. All my wave 4 channels and patterns have now broken and looking at the action since the low I'm seeing rising wedges on both ES and NQ that I'm expecting to broaden into rising channels. I've marked the alternate trendlines for a break up or down from the wedges, and I'm favoring a break downwards at the moment. Here's the rising wedge on the ES 15min chart:

Here's the rising wedge on the NQ 15min chart:

I've posted the right angled and ascending broadening formation on the Vix 60min chart a few times before, and it has been a very good performer over the last few weeks. I am watching the current move down on Vix carefully to see whether the pattern breaks to the downside. If it does that may well indicate that my relatively modest equities wave 5 scenario here is in trouble. Vix closed at 19.39 yesterday and strong support is in the 17.75 to 18 area:

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