AUD About to Go Down, Under

The AUD was the great beneficiary of the Dollar Carry Trade, and now is becoming its first great victim. The Santa Rally down under would be more Oh Oh Oh not Ho Ho Ho. The grinch is Nic Lenoir, who posted this over at ZH: 

AUDUSD overnight has triggered its H&S breaking 0.8965. ... The medium term target remains around 0.82 where we have the 38.2% retracement of the 2009 rally as well as the wave 4 of lower order which should act as support. Eventually I think there is a risk we go even lower. Also watch the 200-dma which is in that same support area.

The USD has run up pretty fast (see chart, courtesy Jesse's Café Américain). A major breakout has occurred which confirms a change of trend that should drive it above DX90 (the top of the chart!). On the way there it will reverse, and a reversal is becoming overdue. The reversal might drop 61% of the rise, pushing the DX back towards 75. The AUD will also reverse back up if so. After that we should see a dramatic rise in the USD and a drop in the AUD. 

 

What Nic has added to this is that the AUD may drop to 82c first before the reversal, meaning the USD may keep going towards 79 first. He of course caveated his report to allow for that, so no near term guidance from him. We can learn more by looking at the chart:

• H&S neckline around DX82 
• Retrace so far broke the 38.2% level
• More typical 61.8% retrace targets DX79.04 

Now, Jesse's neckline view would cap a DX rally at 82. A wave view of this also looks at the DX82 level, but not as a neckline; instead, it is where the long ending diagonal started around Jun11 (DX81.42 on the chart). Hence the 38% retrace is sound, but of the ED wave down. This view would not cap the rise next year at 82. Given the larger wave pattern, which has five waves down from the DX89.42 level on Mar6, the rebound wave can and should go to higher levels - above DX90. 

A reversal next week would mirror the Santa Rally. Given that equities are still in a tight trading range since mid-Nov, the break out of it (up or down, I am betting up) should be sharp. 

If we break below Sp1084, the break may be down and the retail investor will get a huge lump of coal for their Santa Rally. Oh Oh Oh becomes Ouch! Today is pretty strongly down. Neely put out an emergency bulletin to recommend day traders go short (with suitable stops and limits that I leave to his subscribers). We remain well above Sp1084 nonetheless. 

The STU counts this trading range as a completed expanding triangle, and would count the recent run up from Dec9 as a fifth wave failure if indeed we break below Sp1084. If we head towards that level (and Dow10235) and bounce, this triangle could be recounted as a more conventional one. Take a look at the final chart, from the STU. What they count as legs ABC would become a leg A flat. Leg D becomes B, leg E becomes C, and the recent run from Dec9 would be leg D. Today's drop would be E, and would complete the triangle at around Sp1084 or somewhere short of there. THEN we have the Santa Rally. 

Targets remain Dow10700 and Sp1135 (where C = 61% of A), based on the Santa Rally being wave C of a third zigzag since Mar6. Tony Caldero has a target around Sp1160 given he views this as not a third zigzag but a wave 5 of C completion of the second one. 

 

Comments

[Sean]

Yelnick,

"Tony Caldero has a target around Sp1160 ... completion of the second one."

Does Tony think SPX 1160 is the generation top like SPX 1570? I just not sure what is implied as "second one".

Does Tony has a long term bottom target of SPX? Thanks!

[elskid]

This is a great article. Do you think gold will also resume its uptrend? When or what circumstances will lead to the decoupling of gold / equities / dollar?

[Virginia Jim]

Appears to me the Euro has one more wave down to the lower trend channel to complete it's first larger wave down. Hence, the equity indices should have another leg down before a significant bounce or resumption of the 'thrust' out of the expanding triangle. I prefer to believe the supposed 'thrust' has truncated at yesterday's high.

http://www.screencast.com/users/Virginia_Jim/folders/Jing/media/6f2dec93-f5cd-4b55-a314-7aa8f3f7f706

Jim

[joe]

It appears something is going to come out of Copenhagen about the time our markets open tomorrow - and its going to cost us about 100 billion dollars.

I think there is some kind of deal made.

http://news.yahoo.com/s/nm/20091218/ts_nm/us_climate_copenhagen

[Wave Rust]

USD might get back to 77.700+ to cover the gap today.
that will probably close the es gap, and then bulls will have their pockets full for the next big move up.
no escape for the bears till summer 2010.

it was a 4, it is a 4, but not 4 long.

wave rust

[Roger D.]

Yelnick,

The pattern should be counted as A=1,a=2,b=3,c=4,d=5,with the the 5th wave extensions evident. B is wave 1 down and then a corrective wave up a,b,and c;which looks to be by the untrained eye a failed 5th,but it is not.

Go get a copy of Magee and edwards and look at the chart on page 175. I believe it is air research's broadening top. The chart will clear up a lot of confusion about this pattern.

Next is a large C down or 3, should get a old fashioned panic decline, historic in nature.

Roger

[jeff]

Pretty much agree with "WaveRust"...

USD range 78-74 between now and mid-February 2010.

[MHD]

Bonds up, dollar up,gold up, oil up....what the [email protected]#k?

[joe]

"Given the larger wave pattern, which has five waves down from the DX89.42 level on Mar6, the rebound wave can and should go to higher levels - above DX90."

I agree - and should be realized within the Q1 timeframe.

Joe

[joe]

On the S&P - it should drop for several more days - below 1080 - something of a bounce but below 1100 (where it is currently) and that should set up the larger wave down. 1100 would become resistance if the drop continues -

Roger - do we have about the same take?

Joe

[Brian]

Dollar topped 78 today. (Friday)

[Dave]

Nice little pullback in the dollar to get in just in time for the 5th of 3 in this first wave up from the bottom in the dollar (USA! USA! USA!). I have Gold in a third wave down that will smash through 1000 imminently as hedge funds unwind ahead of the second week in January - Do you smell the fear in those freshly opened foreign gold trading exchanges yet? Stocks are a distraction - they are lagging the move, but they'll catch up in spectacular fashion - try watching emerging markets; more exciting. Ever heard of a frontier market? Don't worry, you didn't miss anything, except a massive sell opportunity. The action is in the dollar index right now - and that's what's determining the larger trends across all asset classes as we finish year end positioning. Seriously, take a step back. Don't be so U.S. centric. We're just getting started - open a few extra screens and watch the fireworks!

[Roger D.]

"On the S&P - it should drop for several more days - below 1080 - something of a bounce but below 1100 (where it is currently) and that should set up the larger wave down. 1100 would become resistance if the drop continues -

Roger - do we have about the same take?"

Joe

Hello Joe,

yes exactly, that larger drop should be a doosey.

Roger

[Mike McQuaid]

SPX has support at 1029 from Nov 2. The continuation pattern from Nov 16 is sideways in form. Today marks 34 days from Nov 2 suggesting the index had fib opportunities to turn down and didn't. SPX volume was inconclusive today yet the NDX, COMP, Dow 30 and DJ Transport Index all showed buoyant action and elevated volume. The SPX trend from the March reversal is intact.

[Anon]

Seems highly likely we will tag 1075 early next week if not first thing Monday. That should complete a first wave.

[Roger D.]

For the bearsish case the Dow futures count best.

Roger

http://www.screencast.com/users/fast996/folders/Default/media/50556c8f-3764-46d2-877b-07e9e0a53591

[Roger D.]

Yelnick,

This is the patter I am talking about.

Roger

http://www.screencast.com/users/fast996/folders/Default/media/2d8f5195-bd6f-4ecd-afcf-7bc84d84a583