Last week we posted our bearish stance, and nothing has changed. The drop below the lower line of the trend channel, on a Friday close, suggests lower prices are to come. Daily RSI has almost reached Sustainable Bear territory (lower grey zone), which would be the nail in the coffin for the bulls. Use any bounce to become bearish.
It appeared that prices were going to push back above the down trendline drawn off of the August and September highs. But, last week’s sharp reversal leaves us looking lower. At least, that’s the case while prices remain below last week’s high. A drop below the near term up trendline will set up a test of the line drawn off the low. A drop below there leaves little doubt that new lows are in store.
We pointed out the lack of bullish divergence into the low, but the push above the down channel suggests that the five wave decline from the wave B high is complete. Prices have only traced out a three wave rally, and prices are still below the down trendline and the prior fourth wave extreme. But, it seems that the tenor of the market may have changed. We’re not going to fight higher prices on a push above the down trendline, as we may have traced out a series of ones and twos up from the low. Uncertainty reigns for now.
Not much has changed from our mid-week update. Prices still have support beneath current levels, and a new high is needed to begin to think the tide has turned. But, RSI is in Sustainable Bull, and prices are above the prior fourth wave high. We aren’t interested in fighting higher prices though. The action in the AUD and NZD might have something to say for a commodity dead cat bounce.
Prices traced out a five wave decline from the high, so a bounce is taking place. The nature of the bounce will determine the larger view, which is still in doubt. The count is complete, but with prices finding support at the breakout of the wave 3 high, we can’t rule out an expanded flat interpretation for wave 4 of 5. That’s the alternate for now, though, given the bearish divergence from below Sustainable Bull into the high, and the fact that RSI touched Sustainable Bear into the mid-October bottom.
Prices appear to be heading higher to complete wave (B), which makes sense in that the correction for wave II should last several more months. As it is, wave II started in June, and since wave I lasted roughly 51 months, we should expect wave II to last at least 12 months. That doesn’t mean it has to, but that would make it 23.6% time-wise. We’re looking to get long yen, here at some point, perhaps against the European currencies or even some EMs.
The time zone we reference on our charts is Pacific Standard Time. Therefore, the U.S. cash market opens at 6:30 AM PST and closes at 1:00 PM PST.