Friday, April 15, 2011

MTU Weekend Ed. - Stocks, VIX and DX (4/15/11 Close)

*** The stock market decline from its April high is likely a second wave, a correction of the advance since the March low (Chart 1, green). The implication is that the March low will hold and benchmark indexes will advance to new recovery highs once the current pullback ends (if it is not already complete).

This interpretation appears to be supported by
[1] the relatively more obvious action wave advance since the March low in RUT (Chart 2), INDU (Chart 3) and to some extent COMPQ.
[2] the big picture discussion in Unfinished Business 2011 (4/8/11).

The proposed second wave retrace may have ended at this week's low, tracing out a double zigzag in SPX/INDU. Note that the retrace low in RUT matches the textbook style level retrace following an extended fifth wave and the retrace is deep enough relative to the prior advance, at about 50% .

Alternatively, the rebound this week may be finishing up wave (b)-up of the proposed [ii]-down, with a potential target around 1294 in SPX where the lower Bollinger band and the 50% retrace reside. Regarding the rebound from this week's low, the cash index is working on a five-up (especially considering Friday's after-hour rally) (Chart 4), while futures has traced out a three-up so far (Chart 5), while futures has traced out a three-up so far.


*** The top alternative count labels the advance since the March low as wave [x]-up of a larger correction since the February top (Chart 1, blue) which is yet to be completed . The implication is that the current decline will likely continue with potential to breach the March low. No recovery highs are in sight for the near term.

This interpretation appears to be supported by
[1] the relatively weak market internals during the rebound from the March low
[2] the lack of uniformly obvious impulse wave structure across indexes
[3] potentially bearish developments in VIX and the USD index:
(a) VIX is likely finishing a five down and also approaching lows of the entire hope rally (Chart 6).


(b) The USD index is approaching another logical spot for a low after a post-"triangle" thrust lower or the low is already in place (Chart 7 and Chart 8).

*** A remote possibility is that the recent high represents a major top (or double top). The implication is that March low will not hold, with potential for significantly lower lows.
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