Monday, July 19, 2010

Where do we go?

Well Friday was an incredible day in terms of price power. Its been a long time since we have seen such a relentless selling day without any attempts to buy the dip. I have to admit, while I was assuming a shakeout was occurring such price action is extremely bearish.

On a SPX cash basis we retraced a full 38% which can be considered bullish as a W4 retracement. On the other hand when major bottoms are made the second wave retracement of a new bull leg generally retraces a lot less and many times does not even hit the 50% or the "valid" 61% level - again bullish. When looking at specific sectors many have seen healthy pull backs but remain above key support that was broken out of sharply the week before last.

From here its quite simple - a break of Fridays cash hours low and any upside this week should be sold, if however we can remain above Fridays cash low and are able to recapture 1080SPX on a close basis by wednesday we are likely going to see a break of our recent highs around 1099SPX.

The market still has to overcome the bearish weekly and monthly charts - however, both of them will turn extremely bullish if the weekly can manage to take out last weeks high and the monthly can see a close above 1114SPX. We have 2 trade weeks left and a break of those levels will pave the road for new highs to come.

So - believe it or not - a LOT is riding on Fridays low.

USDJPY seems to be working in my favor now, on the first counter trend attempt - could it be? Its likely we may see a retest of the current lows on that pair but it could just keep on running from here. As posted last week, this pair has done quite sharp and strong reversals in the past and if you are able to catch one of them you have a chance for some great gains. Ultimately I am looking for this pair to break out of the 1.5 year down trending channel and continue on the upside. First target is 92 and after that re-capture the 98 levels.

EDIT: If we are to see a retest of 1058 it can only be "allowed" today and needs to reverse above 1064 within 120 minutes of cash hours.

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