Asian Open / European Preview 12.05.2011 10:45 PM EST
Good Morning Fellow Traders
Slow start to the week. SPX500 (Cash) and ES_F made new highs above Friday’s high today. We mentioned in our NY preview that our preferred wave count had SPX500 (cash) completing 5 waves up from Nov 25 low and we we were expecting prices to meet resistance anywhere between 1265 – 1271. Market did get rejected from 1267 and reached an intra-day low of 1250. We are now operatin under the assumption that a 5 wave rally from Nov 25 low has come to an end. In Elliottwave Principle, after a 5 wave rally, a 3 wave correction is expected, so we are looking lower for the next few sessions and support between 1220 – 1235 could be tested. Provided the Index avoids aggressive weakness by the middle of next week and holds above 1215-20 support on a daily closing basis, that will add conviction to our view that market is in a W-X-Y corrective structure since October low and we would expect a final rally in wave c of Y to complete the entire correction. 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. Following this peak, we would expect SPX500 to turn lower and start a sustained downtrend lasting several months and could even extend till the end of 2012.
We mentioned during our NY preview that EURUSD decline from Friday high (1.3548 – 1.3361) was in 3 waves but the recovery from Friday low (1.3361) was also corrective. We were expecting EURUSD to trade lower in wave C or Y, EURUSD sold off after London close and has already taken out 1.3361. We can see a 5 wave move from 1.3485 and believe we have just seen the end of wave a of Y from 1.3548. Implications are for a corrective/choppy upside reaction to 50-61.8 fib of the decline (1.3422 – 1.3437) in wave b of Y. Following this correction, we would expect the market to sell off again in wave c of Y targeting 1.3270 – 1.3335 support zone. This should complete the interim B wave and implications would then be for a rally above 1.3548 to complete a 3 wave correction from 1.3211 (Nov 25) low. GBPUSD (Cable) rallied during the London session but ended the day off the highs. We believe we have seen 5 waves down from 1.5716, though a correction of the recent down move is now expected but as long as 1.5716 holds, we are expecting aother leg down and support @ 1.5530 could be tested.
USDX wave structure is very similar to EURUSD and believe a of Y is nearing completion, expecting b of Y down before c of Y up to 79.04 to complete the B wave. USDX, should then turn lower and could reached as low as 76.50 -77.00 to complete a 3 wave correction from Nov 25 high (79.68). Provided we don’t get consecutive daily closes below 76.50 support, USDX should turn up and start a sustained rally.
AUDUSD was stuck in triangular consolidation below 1.0329 high and appears to be breaking lower after RBA cut benchmark rate by 25bps. Price has also taken out Monday low and given the fact that SPX500 has completed 5 waves up from Nov 25 low, we expect to see further weakness in this pair and believe support at 1.0050 – 1.0100 could be tested before the pair starts moving in conjunction with other risky assets.
HG (Copper) wave count shows that a 5 wave rally from Nov 23 low is complete. We could get some more extension in this move but implications are for a 3 wave pullback to 50-61.8% pullback before another rally above Oct high to an ideal target of 4.03. This should be a major peak in Copper, market should then turn lower and decline for several months.
Trade Safe & Good Luck !
Elliott Wave Forecast Editorial Team