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| Intermediate Term Sentiment Indicator |
The wave count has this as a fourth wave correction, with new highs still on the way once overbought conditions can be worked off. The drop caused by the jobs report could be a nice opportunity to buy the dip. Earnings season starts next week.
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| Russell 2000 Index Futures Hourly |
A reasonable target for the wave four retracement is in the 1336 area on the S&P 500 or about 840 on the Russell. This would be in the area of the fourth subwave inside wave three, an Elliott Wave guideline. It would also align with a perfectly proportional wave where wave five = one with an ultimate target at 1376. It's not like we ever see perfectly proportional waves, but it's a good enough guideline.
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| S&P 500 Index Daily |
Daneric has an excellent chart up comparing the similarities of this short squeeze to the one that marked the top in 2007.
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| Wilshire 5000 Total Market Index Weekly |
Currency markets have been very volatile in general and even more so following the release of major reports. One would think a poor jobs number would be bearish for the US economy and by extension, the US Dollar. Typically that would be true, but the market we've been trading for the past few years shows an inverse relationship between equities and the Dollar. So in this situation one would think that a poor jobs report would be bullish for the Dollar, as risk comes off the table. This is initially what happened, but obviously "someone" had a large bid on the Euro at 1.42. This triangle looks close to resolution, and should resolve to the upside so long as Eurozone debt problems remain contained to the periphery.
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| EUR/USD Hourly |
The right way to capture risk appetite and play Euro strength may be to buy it against the Swiss Franc. The CHF has been relentlessly strong against the Euro, but it has broken a very key channel. I don't expect a long-term change in trend, but a very strong short-term technical bounce may be in the cards. Last week's risk on short squeeze was even more brutal for EUR/CHF shorts.
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| EUR/CHF Hourly |
This is a very risky play, because even though the currency markets have yet to price in Euro debt contagion (thanks probably to China), the peripheral Eurozone sovereign debt markets continue to travel sharply downward. And what's more worrying is that Italy and Spain are getting a lot more attention lately. Italian bank stocks in particular have been taking a beating in European trading.
I believe that China will continue to support the Euro so long as the debt problems remain contained, which will exhaust sellers and carry the Euro to new highs. Eventually, as the debt problems for larger and more important countries like Spain and Italy become untenable, China will not be able to hold this market up any longer.
10 year bond yields | ||||
12.83% | 5.29% | 12.96% | 16.87% | 5.66% |
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| PIIGS CDS Composite Index |