Once prices pushed about 1.0968 they wasted little time. Since they pushed about our cited critical resistance, we’ve altered the larger count. Certainly, the Sustainable Bear readings allow for prices to collapse to a new low, which is exactly what our count suggests. It’s just that we’re likely to see prices push back into the 1.1750 area first.
The action brings up an interesting point, what’s more important, the right or left side of the chart? In other words, how much weight should we give to the fact that the rally from the 1.04 area looks corrective and the Sustainable Bear readings, versus the fact that we had a very bullish candle on Wednesday? Sorry folks, there’s really no easy answer to this question, but here’s my answer. The more active you are, the more you should be paying attention to the right of the chart, and the less active you are, the more you should give weight to the left side. As with most things in life, though, it’s good to have balance, giving about equal weight to your observations about what the market’s message is.
We’ll use the short term up trendline as critical support, and we’re looking to get bullish into any weakness, especially since we’ve seen a short term “Sustainable Bull” reading late last week.
Unlike the euro, GBPUSD is still below critical resistance at the wave (1) low. Notice that the pound failed to register a Sustainable Bull reading (upper blue zone on RSI) last week. So, momentum’s message is that the pound is still weak as it runs into resistance from the March and April lows. The ending diagonal could be counted complete, although that wouldn’t have the “right look.” A better alternate could be an expanded flat for wave ((B)) with the 1.4080 low representing the wave (B) of ((B)) low. We’d rather be bearish the pound versus the dollar than the EUR.
Here too, prices appear to be running into stiff resistance, with a breakdown from two down trendlines and the retest of the broken line. The combination leaves us bearish against Thursday’s high, especially considering the recent Sustainable Bear reading on RSI, and its lack of divergence at the low. Wave (v) looks like an ending diagonal given the overlap of its wave i low, or the alternate count is playing out with wave (iv) still underway. We prefer the former since wave (ii) was a flat correction, which means wave (iv) shouldn’t be a triangle. That does leave open the idea for an expanded flat for (iv), and on a push above Thursday’s high, that count would be best.
Same call in kiwi. We have a three wave rally up from the wave i low, and prices rallied into trendline resistance with a bearish engulfing candle on Friday. We are bearish against that high, as a push above it would also break the down trendline. It’s not exactly clear what prices would be doing in that case, so we’d just stand aside. Until then, place weight on the Sustainable Bear reading and the lack of something impulsive to the upside from the wave (iii) low.
Prices found support on Friday, and while the count is complete into the high, there was no divergence, and RSI was far into Sustainable Bull territory. That, and the fact that AUDUSD and NZDUSD look weak, suggest it might be a little too early to declare the commodity bust over. Notice that prices broke two trendlines on Thursday before staging a substantial reversal. In fact, if one wanted to argue that the Sustainable Bull reading is more important, we could be bullish versus Thursday’s low. For some reason, I prefer the AUD and NZD weakenss outlook than the CAD higher for now, but that may be myopic. A push above the wave ii high would argue that prices are intent on hitting a new high with Thursday’s low being (iv) of 5.
There’s little mistaking the market’s message here. Despite the “weak yen” policy accommodation out of Japan, the market decided that the “risk off” play outweighed the money printing par excellence. Should prices drop below the 115.80 area, which seems likely, that would activate a head and shoulders pattern that would suggest prices will return to the 106.50 area. I’m not sure if prices will go that low, but the three wave rally from the wave (C) low is telling – the larger trend is still lower.
Interestingly, even a move down to 106.50 would still have prices above the February 2014 low, which means our top count could still be correct – that prices are in the wave ((2)) decline rather than the wave II. Should we see some more devaluation coming out of China, there’s little reason to think that Japan would fail to retaliate.
The clowns running policy in Japan are running a Martingale betting system where they simply will double down on each weak yen policy maneuver, regardless of the actual results. One would think that they’d pay more attention to the fact that its policies are ineffectual, but they don’t, and they won’t. Print, print, print, deficit spend, deficit spend, deficit spend, ad infinitum in Japan. This cognitive dissonance is the reason we think significant inflation will come to Japan far sooner than any other major economy.
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.