Thursday, November 4, 2010

Market Timing Update (11/4/10 Close)

[1040PM] Thoughts on the USD index, and also in response to JD ...

Objectively speaking, the current June-Nov decline in the DX is no less a five than the prior Dec-June advance if one trusts that the current decline is a five. Conversely, the current decline is no less a three than the prior advance either if one trusts that the current decline is a three. So the consensus count on the DX may very well need to be tweaked (See Chart to the right). From this fresh perspective, the main counts are the blue (bullish) and the red (bearish), with the consensus count (green) now a more distant contender.

Subjectively, if one wishes to take a bearish view on USD in general and the DX in particular, one may find re-reading the long term analysis on the Euro in Range Busting Stocks and Bottoming Euro (6/4/10) still a pleasure some 5 months after it was written.

Subjectively, if one wishes to take a bullish view on the DX, one takes consolation in the remarkable fact that the late 2009 low in the DX is still intact - in the sense that
[1] both QE-0 and QE-1 announcements started to devalue the dollar around the peak in the DX,
[2] QE-2-lite and QE-2 communication started around the mid range in the DX,
[3] but the actual QE-2 announcement took place when DX had fallen to the bottom of the range. (See Chart to the right).

Finally, the blue count (bullish) above suggests that the late 2009 low may not/should not matter after all to dollar bulls.

[4PM Stocks] The big picture
The Dow, Wilshire 5000 and SP500 break above their respective April highs today. It's a major indication that the landscape has changed with respect to odds associated with market timing.

As discussed in Moment of Truth II (10/29/10), once the April high is breached, the baseline scenario is that the advance since the July low is intermediate wave (C)-up of primary wave [2]-up for the broader indices and intermediate wave (C)-up of primary wave [Y]-up for the Nasdaq indices.

Moment of Truth II (10/29/10) also discusses the target zones. Roughly, the target area for the baseline scenario is around 1350 in SPX and 2450 in NDX.

More exotic counts (such as a terminal upward expanded flat to end [2]-up or a downward expanded flat pullback being in progress ) are probable but are of lower likelihood at the moment.

Approaching a near term high
Within the baseline scenario, I have levels around today's high as iii of (v) of [iii] of 3 of (C) [Chart 1 blue]. The alternative (less likely) count suggests that 3 of (C) is ending at levels around today's high [Chart 1 red].

Chart 2 (SPX) and Chart 3 (ES) offer squiggle counts with respect to the baseline scenario.