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S&P and Dollar index levels that matters! REVERSAL?!

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Sep 22 2010 08:15 EDT

Hello traders!

Yesterday, we posted the S&P 500 chart (click here) and mentioned that higher levels are expected, before an impulsive uptrend can be finished and reversed, as market was showing an unfinished five sub-wave sequence at that time in a red wave 5). Well before the FOMC meeting, we sent this 15min S&P500 chart to our members and wrote down that they should pay attention on 1135 level support region (previous fourth wave area) for a bounce into a new high.

S&P chart

Exactly at the Federal Funds Rate decision, the market reached daily low at 1136, before bounced into a new high and found top around 20 minutes later. At that time investors went Long on a risk (stocks in our case), but unfortunately too late as prices reversed sharply after that, which was expected from an Elliott Wave Perspective. Elliott Wave traders know, that correction follows once a five wave move is done!

On the updated chart below, we can see a temporary top in place at 1148, from where prices fell toward the daily low and closed around 0.26% in red yesterday, exactly in the support zone that was very important for the recent fourth wave reversals.

S&P chart

Today’s price action on S&P 500 should be very important, as we might see a move below the support zone, which will call for bears and put at least “deeper correction in play”. If the support is not broken then move back into a new high still possible…

Of course, traders should not keep an eye just on the support zone we mentioned, but also on the price action that will be unfolding at the time. If we get a sharp sell off today with a five wave decline from the top, then this should be a confirmation that top is in place! WHY?! Because a five wave, impulsive move, shows direction of a current trend! (Blue line on the chart)

The opposite scenario should follow if a decline from the top will be made in just three waves, called a correction (Blue line).
In both cases patience is needed, but traders will likely focus on long dollar move, if weakness on the stocks will be the case, especially as dollar index is showing a five wave decline from 81.50 top and suggests that bottom is near, at least temporary! For now however, we can’t confirm the bullish reversal yet, but we expect a higher prices. A five move up, above 80.10 and then 80.30 would be a next evidence that bottom is in place…

Dollar Index chart

Disclosure: No pos.