Holiday markets are always slow and it's hard to gain much insight from them. I continue to monitor the USD trade like a hawk. Sunday night, the dollar gapped down and price has since filled the gap in today's trade. There's support just below the market at 76.7 that should limit any further downside. Looking at the wave pattern, it is clearly an ending diagonal. Now may be a great opportunity to go long with a limited capital exposure against the crowded dollar down trade.
If the Dollar has made it's w.2 low, equities and commodities should come under increasing pressure to trade lower. Turning my attention to the ES_F market, the following market position as of the close is:
Momentum: Remains OB on weekly and daily time frames. No turn down.
Pattern: Ending diagonal of wave.c of W-X-Y pattern
Time: No change from previous comment, "The weekly chart level, H-H time relationships indicate that momentum highs range between 6-8 weeks +/- 1 week. That indicates that the top of wave 2 should occur at the end of this week or the week ending 10/15/2010. In addition, L-H time relationships of 4-5 weeks indicate that a significant top should occur at the end of this week +/- 1week"
Trade Strategy: Remain flat but looking to establish a bearish position against the termination of the ending diagonal that coincides with the turn in the US Dollar. Looking at the daily chart of the ES_F , I've labeled a possible expectation for the next few days as well as the previous wave.4 red resistance level. There are certainly other ways to label the diagional that would allow for the termination of the pattern to end tomorrow. Either way what's important to understand is that confirmation that the pattern had ended is a swift move below the trendline. When it does, the minimal expectation is a move back to the origin of the pattern (1117.25) and often much further. This should be a great set-up for shorts against the high of the pattern.
Best of Trading
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