It looks like a 3-wave decline has unfolded from the July peak. Price has carved out a brutal and extended correction with few bounces. However, notice that WaveC formed as an ending diagonal. Volume has been dropping throughout WaveC and MACD is showing strong positive divergence.
Also, COT data shows that commercial traders are extremely long natural gas. See this link for a COT chart (select "Natural Gas", "Commercial Hedger", and "Two Years" in the drop down menus). They are more net-long than they were last winter when price started it's strong spring rally.
There could be one more low, but I think if price rallies above the upper descending trendline, it will head up to $41 or even $45.
Notice that price has been carving out a long and painful ending diagonal formation. These are so annoying because prices stay at depressed levels for an extended period of time and trend slightly downwards, providing no relief. An ending diagonal is composed of 5 waves, 4 of which have completed thus far. A 5th wave drop that undercuts today's low (and possibly the 10/10/08 low) would complete the pattern and lead to an explosive, unrelenting rally to 1050 and higher. Today's rally washed out the bears. One final decline would washout the remaining bulls, and undercutting the 10/10/08 low would respark the "crash" fears.
However, there is also some good evidence for this rally sticking. Notice that there have been 3 high accumulation days (higher volume up days) and only 2 distribution days since 10/10. This is pretty constructive. Also, see the following chart:
Notice that only 4 waves have completed from the 141.73 top. I think one more down wave is necessary to complete this downtrend. Completing this wave would also finish a larger 5-wave downtrend from 169.96. One more low is necessary to washout the last bit of longs before a rally. This would also create divergences on the oscillators.
I am not sure where Wave-v will end, so I am placing two entries in between the range which I expect will contain price. There is a HUGE confluence of support at 118-120:
- 119.60-70: 61.8% fib of the move from 88.94-->169.96
- 119.60-119.80: previous resistance highs
- 118.41: Wave5 =Wave1 (Wave1 is 169.96-->147.01, Wave5 is 141.73-->now)
- 118.16: Wave5 = .618*(Wave1-->3)
- 122.15: Wave-v = .618*Wave-i
- 118.83: Wave-v = Wave-i
I would like to believe that price made a bottom on Oct. 10th, but the Wave pattern is indicating otherwise. There was a 3-wave rally from 132.26 to 141.73. Then price dropped in what looks to be a trucated 5-wave rally. Over the past few days, a choppy upward consolidation was carved out, and finally, price is starting to break down again. I will try to go short as price temporarily corrects upwards.
There is significant resistance at 137, and I will short in that region:
- Wave-a highs
- 61.8% fib of the drop from 138.55-->134.89
- Weekly pivot point
- Channel resistance
My stop is above the labeled Wave2 high.
On the 1h chart above, you can see that price has formed a mini Cup & Handle pattern, and is breaking above this level. It is also breaking above the first resistance trendline. I think a double-zigzag is forming from the Oct. 10th low, so I will sell if price gets to the next resistance trendline, around 103.75.
Notice the 3-wave correction that has thus-far ensued. WaveC is roughly equal to WaveA, and price was supported by the 78.6% fibo. As long as price stays above 133.35, a new uptrend should have started. I noticed that the SPX dropped on lower volume today, so hopefully it is just retesting the low and will now bounce upwards. This would support the EUR/JPY pair.
I also noticed that retail short interest for USD/JPY increased as the pair dropped, which means that perhaps retails are beginning to switch to the obvious downtrend. This is bullish for USD/JPY and thus EUR/JPY.
Wave3 of 5 has finished, and I sold halfway through the Wave4 correction. There could be one last rally for Wave5, and then a decent downwards correction. I will try to buy this correction.
The ending diagonal scenario unfolded nicely and price has now started to trend upwards, breaking the bounds of the ending diagonal. This should portend a strong upmove, and stronger equity markets should support the currency pair as well. It looks like a series of 1st and 2nd waves has formed thus far, so I would expect the Wave-ii of WaveII at 136 to hold. I will continue to trail my stop as the trade unfolds in my favor.
Notice that price is carving out a bottom as MACD and RSI both show postive divergence. The rally from 134.14 was retraced in 3-waves, but did not make a new low. Now price is rallying again, breaking the downtrend line. I am moving my stop to below the Wave2 low at 134.80. If the stock market picks up, the EUR/JPY should rally strongly from it's oversold state.
I think the stock market could bounce near term, which should support the EUR/JPY. It has had a major selloff since it peaked at 170, but thus far, it has occured in 3-waves. I will try to call a bottom around 134 as there is a confluence of strong support in this region:
- 133.95: 78.6% fibo
- 133.87: WaveC=WaveA
- 133.80: trendline support
My stop will be below the Wave2 low around 130.
Notice the lowest study on the 15y weekly chart of SPX (above). It shows how far the current price is from the 4wk moving average. At today's close, the market is further away from the 4wma than it was at the worst of the 2000-2002 bear market. As Will Rahal pointed out, a regression to the mean would seem likely at this point.
No one is bullish anymore. With all the expected support levels broken (1060, etc.), it is hard not to be bearish. I think (and hope) that this will support a rally.
Notice that 5-waves have formed from the $5.68 top. The indicates that we should see an upward correction at this point followed by another trend low in the next few months. Right now, MACD divergence has formed, but is not yet confirmed. My plan is to sell a decent portion of my holdings on the anticipated rally. I would imagine it could rally to the 38.2% or 61.8% fibs around $3.20-$4.20.
Fundamentally, TISI is strong, as it meets the rigid CANSLIM criteria. It is also forming a decent Cup & Handle base that should lead to much higher prices as the overall market bottoms. Notice that, generally speaking, volume shrunk into the bottom of the cup. Volume then began to increase as price recovered, forming the right side of the cup. Price has made a slightly higher high, which is not ideal. However, most recently, the volume has dried up as the handle wedges downward.
The safest way to trade this is to wait for a follow-through day in the overall market (+1.7% on higher volume), followed by a close for TISI above $40.55 on much higher volume. My stop will be 7-10% lower, and my initial target will be $48-50.