October 26, 2012; 7:15am
While the past month's recovery from 14-Sep's 78.60 low still falls well within the parameters of a (4th-wave) bear-market correction, we never bias towards a wave count that bucks a trend. And the fact that the market broke 11-Oct's 80.21 high and our longer-term risk parameter overnight exposes the new longer-term trend as up with indeterminable scope.
In geeky Elliott Wave terms, there is no way currently to know whether the past week-and-a-half's rally from 78.93 is the completing c-Wave to a Wave-4 bear-market correction or the 3rd-Wave of a more significant move north. And in this longer-term regard, the market has defined 17-Oct's 78.93 low as the new key risk parameter it is now required to fail below to confirm the recovery attempt from Sep's 78.60 low as a 3-wave and thus corrective affair within a broader bear trend from 24-Jul's 84.10 high.
At the bottom of the daily chart of the USD Index above is the correlation between the Index and the E-Mini S&P 500 market. For the past month or so these markets have been relatively negatively correlated, so it's not too much of a surprise that the daily chart of the USD Index looks like the daily chart of the E-Mini S&P inverted. And there is no question that the S&P market is in trouble with a clear break of the Jun-Sep uptrend that exposes a larger-degree correction or reversal lower. And just like a failure below 78.93 in the USD Index is required to render the past month's recovery a 3-wave, bear-market correction, strength above 18-Oct's 1460 corrective high in the S&P is required to mitigate any broader reversal count and chalk up the Sep-Oct sell-off attempt as a bull-market correction ahead of potentially significant gains.
These two markets have been virtual mirror images of each other- again, inverted- on a short-term basis detailed in the 240-min charts above and below. And as a direct result of the past couple days' strength in the USD and weakness in the S&P, these markets have defined tight but objective risk parameters at 79.69 and 1417, respectively. These are the two parameters around which shorter-term traders with tighter risk profiles are advised to manage the risk of long and short positions, respectively. And in lieu of failures below 79.69 and above 1417, the clear and present and at least intermediate-term trends are expected to continue and perhaps accelerate.
On the heels of Jul-Sep's steep, impulsive rally in the EURUSD shown in the daily log scale chart above, the past month's mere lateral 38.2% retrace of Aug-Sep's (suspected 3rd-Wave) rally from 1.2242 to 1.3172 falls well within the boundaries of a (4th-Wave) correction within the broader advance. A failure below 11-Oct's 1.2826 low and support remains required to threaten this view enough to warrant moving to a neutral/sideline position in order to circumvent the depths unknown of a larger-degree correction or reversal lower.
From a short-term perspective detailed in the 240-min chart below, the trend is clearly down. And as a direct result of today's resumption of that slide, the market has defined yesterday's 1.3024 high as the new key short-term risk parameter this market has to recoup to jeopardize the impulsive integrity of an immediate bearish count and raise the odds of our preferred count that the past month's mere lateral chop is a correction ahead of resumed gains. In effect, the EURUSD market has defined 1.3024 and 1.2826 as the key directional triggers and traders are advised to bias directional exposure around these parameters in a manner consistent with their personal risk profiles.
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