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S&P, Aud/Usd and Eur/Usd After the European Stress Test

Hello Traders!!

Equity market was higher this week with S&P 500 up around 3.55%, and finished the week above resistance line connected from May 11th, 2010. At the same time the prices moved and closed above the 50 day SMA, for the first time since early May when S&P was falling from its highs. Technically the stocks market is now headed higher, towards the 1140 region, as we also pointed out in our past newsletter (U.S. Dollar And Stocks: “Market Psychology and Wave Structure"). In fact, markets now have a reason to move higher as the European Street tests results were positive, and only 7 of 91 banks failed the test, less than analysts expected. But the next question is how high can the market go and how investors see the European Stress tests results. Was the stress test too easy, and markets may react negatively?! Well, I am not fundamental analyst, so all I can say that time will tell if banks have enough of capital or not. Anyway, let’s see what the Elliott Waves are telling us.

Technical and “psychological” turning point on the stock market is still on my radar as I count five waves down from 1220 top to 1010 lows, followed by an upward bounce, which I believe it’s only a correction, black wave II in our case. Recently the sub-wave (NYSE:C) of wave II got underway, which is now trading towards the 61.8% retracement level of a previous decline and also 100% projective level of wave (NYSE:A), measured from wave (NYSE:B) 1056 low. The upward target and also the significant resistance zone at the same time is around 1030-1040 region, around wave (4) top. If wave count is correct, then a turning point from there should send the S&P 500 back down, towards the 1010 region and even lower, while the 1220 top is in place.

S&P daily chart :

So, with S&P moving towards the 1030-1040 region, then Aud/Usd, which is one of the most correlated pairs with the U.S stocks market, should also move higher in the next week or two. Upside region that I will pay attention on is 125 pip range, 0.9050-0.9175 region, where upward price action shown from 0.8065 may find a top, since the structure looks clearly corrective, double zig-zag pattern.

Aud/Usd daily chart:

Euro is also showing a significant up-trend from 1.1875 low, and it looks that bulls are not done yet, either the upward structure is unfinished impulse wave or double zig-zag pattern. Move above the 1.3030 is expected considering to Aud/Usd and S&P wave counts, but the question is if wave (B) has already bottomed at 1.2730 region or not! On the one hour chart (shown a little bit lower) you will see that the price action suggests more upside to come, if you count a decline from 1.3028 as a three wave move. We will wait till Monday, before we send any signal to our subscribers, because firstly we need to see how European markets will react to stress tests results…test was for European banks, remember?! See you soon, Grega H.

Eur/Usd 4h chart :

Eur/Usd chart 1h:

Disclosure: no pos.