Asian Open / European Preview
01.12.2011 11:51 PM EDT
Good Morning Fellow Traders
A very dull day in the markets with most markets consolidating in tight ranges after aggressive rallies yesterday. SPX500 spent the entire day consolidating between 1250 – 1240. We have been highlighting the importance of SPX500 reaction from current levels, stating that an impulsive decline from current levels will keep a bearish nest (1,2,i.ii) count from 1292 alive. Today’s price action was definitely not impulsive to the downside and Index even made a marginal new high above yesterday’s high before consolidating in the range, it is too early to draw any conclusions. However, if we do not get a sharp sell off tomorrow, and instead see a choppy decline to hold above 1225-1230 support, that will almost invalidate the bearish nest wave count from 1292 (Oct 27) . That would mean that move down from Oct 27 – Nov 25 low (1292 – 1150) was a 3 wave move (labeled X) and market is now headed higher to take out Oct 4 high (1292) in wave Y to complete the correction which start on Oct 4. May high – Oct low (1376 – 1075) decline can be seen as 5 waves on the daily chart so we are operating under the assumption that we have seen the first leg of a new downtrend and now correcting that first wave down. Under W-X-Y scenario, 1305 (76.4 fib), 1317.5 (76.4% of W) and 1327.5 (1.236 inverse fib of the drop from 1292 – 1150) would become levels of interest for completion of wave Y.
There is no change in our USDX outlook and we are still expecting more weakness before the possibility of a reversal (W-X-Y corrective strcutre fromt the highs)This weakness could last till the end of next week and probably a couple of weeks longer. Our downside target for this move remains 76.00 – 77.00 area and until this level breaks on a daily closing basis, we would be expecting a reversal around these levels and then USDX should start the next leg of the uptrend. EURUSD structure since 1.3532 high is corrective and we believe EURUSD is currently in wave b of Y in the correction from 1.3211 (Nov 25 low). This could either take the shape of a triangle or a flat, if a triangle is in place, then 1.3415 should remain intact until 1.3532 is broken the the upside and if 1.3415 breaks to the downside, that would mean wave b is playing out as a flat correction and in that case, 1.3395 (50% fib) and even 1.3363 (61.8% fib) could be reached before EURUSD rallies again to take out 1.3534. high.
We have been saying for weeks that the downmove in Copper (HG) from Oct 27 would prove corrective and the strong rally in the last couple of days has proved our suspicions correct and it looks very likley that Copper will take out its Oct 27 high and could reach as high as 4.00 – 4.15 before starting next leg of the downtrend. First leg of the recovery in Copper from Oct 3 low was a zig-zag move (labeled W) and therefore, third leg of the recovery (labeled Y) should also unfold as a 3 wave move. Our short term wave count shows Copper to be in w.iv of 3 of a of Y which means it needs 2 new high to complete wave a of Y. Implications would then be for a 3 wave drop to correct the recent rally from Nov 24 before another leg up to complete wave c of Y and hence the entire correction from Oct 3 low. We would expect Copper to turn down after this and start a downtrend lasting several months. Only a daily close below Nov 24 low (3.2047 in HG_F) would mean that Copper might have already peaked and next leg of the downtrend has begun but this is very unlikely to happen. We recommend buying the dips.
Gold’s upmove from 1666.50 (Nov 21) low appears to be unfolding as a double zig-zag ( 2 ABC’s separated by an X wave). Our short term wave count shows Gold to be in wave b of Y and we are expecting at least one more leg up in Gold. 1727 and 1732 should provide support and we would like to try long positions around these levels if seen. A daily close below ascending TL currenly @ 1720 would jeopardize this positive outlook but until then, we are looking higher.
Tomorrow is NFP Friday and a better than expected number could further boost the risk trade and send USDX lower in a spike fashion.
Trade Safe & Good Luck !
Elliott Wave Forecast Editorial Team