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DXY and SP500-Put/Call Ratio May Indicate a Slow-down Of Current Trends

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Dec 09 2020

Hello traders,
As we all know the stock market has recovered very sharply and fast since March when we saw a strong drop following coronavirus lockdowns. The monetary policy has quickly changed and caused a rebound on financial assets after QE, stimulus packages, and lower rates. Stock indexes are higher, some even beyond March levels even though COVID is not anywhere near the end; in fact, we see more and more lockdowns and restrictions happening globally each day. It’s a clear evidence that QE is driving the markets and not real situation of the economy. But we have to realize that stock market is not an economy; stock prices are driven by supply and demand, and looks like more money printing obviously means more buying power.

I think that stock market is good indicator for overall market sentiment, and currently we see more and more investors trying to jump on the train despite prices printing new all-time high. On put/call index ratio we can see that investors are buying a lot of call as they believe that prices will be higher in the future. When calls move to extreme then it usually means the opposite as we know that market moves from pessimism to optimism and vice-versa. So if we respect past shift in trends on the S&P500 due to PUT/CALL ratio extremes then we shall also be aware of reversal now. I think there can be a risk-off, maybe in 2021. It can be only temporary turn or pullback before we go even higher, but I think that it will be much better opportunity to look for investments when PUT/CALL will be at the other side of the extreme.
 


*source IndexIndicators.com

We know that when there is risk-off the cash is king, so normally the USD will rise, which some may not agree because of money printing that drives down the value of the money. However, I believe there will be pullback even if dollar is going to crash, and this pullback may not be far away if we consider that DXY/SP500 ratio is seen in a fifth wave of a drop from March high. Based on Elliott Wave theory, the market is in final leg of current bearish development so next reaction is a contract-rend, normally in minimum three legs. And this goes perfectly with the PUT/CAL ratio view above.



The reason why people move into cash during the stock market sell-off is because of fear, they feel much better and safer with “cash in hand” rather than invested in some stocks during volatile and uncertain times. However, some will look to hide in metals or bonds but these requires patience. I think Gold is very interesting from the fundamental perspective, but when looking at the price and upward potential I really love Silver. TLT is also one option but there have been times when even bonds and metals fell “during stock market shock” but then quickly stabilized. The TLT is looking quite interesting while it trades above the trendline support, but falling trendline shall be broken to confirm the resumption of an uptrend.

Silver has a support here at 21/19 where current pullback can come to an end.

If you love the analysis or you are interested in market-sentiment cylces then you may want o look at our Elliott Wave charts and members-research at www.ew-forecast.com, or follow me on twitter @gregahorvatfx

All the best.

Grega





 

BLACK FRIDAY EDITION- Elliott Wave Video Analysis

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Nov 26 2020

Hi there!

If you celebrate Thanksgiving Day then I hope you have some lovely time with your family despite global lockdown.

Below you will find some of my latest analysis and opinion on markets, based on current conditions.

Talk to you soon.
GH


VIX Cycle: “Shock-Reversal-1-2-3-4” Repeat

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Nov 26 2020

“Shock-Reversal-1-2-3-4” is a model or cycle that occurred on VIX a few times since 2018. What is important is to recognize in which stage of that cycle the VIX is currently positioned. We see fear dropping as stocks are recovering since March as investors are less concerned about the potential risk-off because of QE and vaccine solution to coronavirus. But we know that markets are moving from pessimism to optimism due to different global events which are the main reasons for change in investors mood. Now we see optimism increasing, which is the first but important evidence for the next important upcoming cycle. When reading the current model of VIX cycle then we shall be aware that there can be slightly more upside left on stocks, but then maybe in 2021, cycle may change with a jump in fear especially if VIX goes even lower. We think that “shock” is the next leg, and that increase in volatility may cause a new turn on stocks. However, this may not be the case just yet, maybe sometime in 2021, but we think that even if stocks will continue straight to the upside it is much safer to join the ride after a higher degree retracement.

GH

VIX, daily chart CLICK ON IMAGE TO ENLARGE


 

XRPBTC: The Power Of the Ending Diagonal Pattern

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Nov 25 2020

In this article we want to show you how powerful can an ending diagonal be.

In conventional technical analysis they call it “wedge”. In Elliott Wave analysis we call it “ending diagonal”. Both terms imply the same thing – reversal ahead, but since we work with the Wave Principle, we will refer to it as an ending diagonal.
The ending diagonal is a special type of wave that occurs in wave 5 of an impulse, or wave C of a correction. This wave often occurs when the preceding move of the trend has gone too far, too fast and has run out of steam. An ending diagonal pattern is a type of pattern that can occur at the completion of a strong move. It reflects a “calming” of the market sentiment such that price still moves generally in the direction of the larger move, but not strongly enough to produce an impulsive wave. Ending diagonals consist of five waves, labeled 1-2-3-4-5, where each wave subdivides into three legs. Waves 1 and 4 overlap in price, while wave 3 can not be the shortest amongst waves 1, 3 and 5.
The reason why they are so interesting is because they are indicating a reversal, usually a strong one. That said, after a completed ending diagonal, prices are expected to go back to the level, where the pattern had started.

As you can see, we have followed the wedge pattern on XRPBTC pair within wave 5 for the last couple of months. We can see that when it was completely over, a strong rebound occurred back to the starting point and that is why an ending diagonal is a powerful pattern.


XRPBTC, daily (before and after charts) CLICK ON IMAGE TO ENLARGE


Elliott Wave Analysis On BTCUSD (VIDEO)

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Nov 24 2020

Hello traders!

BTCUSD is trading close to all-time highs and after recent strong rise within a wave III, seems like ATH is going to be taken out before we will see a slow down into a higher degree wave IV correction. Currently we are tracking wave (5) of 5 of III that can stop around 20k area and from where longer and deeper pullback may occur.




Gold Is Coming Into Strong Support Area

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Nov 19 2020

Hello traders!

Gold is in consolidation mode since August, but we see price now approaching strong technical support. The daily technical chart is showing us that gold always breaks 100SMA before the uptrend resumes and if we consider the same wavelength as in March, then we should keep an eye on support around 1800 level.

Gold Technical, Daily


If we take a look at the 4h chart and its wave structure from the Elliott Wave perspective, we can see a bigger, bearish triangle pattern in wave B of a higher degree wave IV), so watch out for another decline to projected support around 1800 level for a wave C, ideally once the final wave E of B fully unfolds.

Gold, 4h


We believe that gold may find support somewhere at the end of the year, which means that we can expect a bullish continuation back to the highs for a wave V) at the end of 2020 or at the beginning of 2021.
 

DAX Is Bullish again, But More Gains After A Short-Term Pullback

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Nov 17 2020


DAX made nice and impulsive bounce from projected support after we noticed a three-wave A-B-C corrective decline, so it's turning back to a bullish mode, mainly because of recent break above trendline.

However, watch out for a temporary short-term pullback to fill that open GAP, which can actually retest that daily trendline with potential support around 12300 level. In fact, if current 13300/13400 zone will also hold as a resistance, then we may see a potential inverted H&S pattern, where right shoulder is still missing.



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