Our top count continues to lead, although we’ve altered the count up from the July low. It’s now a flat correction with a couple of more waves to go. Should 1.1200 give way, something more immediate to the downside is likely forming, and that likely would mean bad news out of Europe (perhaps out of the banking system).
Friday’s bearish engulfing candle keeps the bears in control, despite the big early week rally. We’re lowering critical resistance to that high for aggressive bearish views. Even a push past there doesn’t mean we head materially higher, just that wave 2 is underway in a flat correction. We remain structurally bearish.
It’s hard to say what count we’ll be looking at should the wave 2 high give way. Is there a triple zigzag forming for wave 2? Or, are we going to see .8000 before a bigger decline gets underway? We want to see the red up trendline break prior to committing against the downside. Perhaps there’s a leading diagonal down from the 2 top, but with impulsive confirmation, pressing bets to the downside is a bit too aggressive.
There’s no evidence that a top is in place, which puts the top count in jeopardy. In fact, the alternate is about equally as likely. Let’s wait for evidence of a top, and considering RSI is still diverging, a break of last week’s low would likely mean things have turned back to the downside. Until then, respect the potential for a choppy grind into the upper trendline.
The benefit of the doubt is to the downside now that the up trendline has been broken, along with the downward base channel line. It’ll take a move back above both to suggest wave (B) is still in progress. Until then, we’ll have to assume that prices are headed lower in (C), and considering oil’s decline appears corrective, meaning another push higher is coming, a drop to 1.2000 or so here makes sense. But, a range has persisted, so betting on a break of the range means we should see clear evidence, and have a good spot for risk control. Those aren’t present yet.
We’re closer to the wave (a) low, and lasting low, but it’s not in place yet. Almost all risk assets have been rallying, with Japanese stocks being a noticeable laggard, on the back of a lot of yen strength. We are agnostic with respect to Japanese stocks, yet we think the USDJPY is headed to 150.00 over the next year or two. But, there’s still nothing to indicate a lasting low has been struck, and without a clear behavior change, “lower into a bottom” remains the call.
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.