Most of the fine analysts and technicians we're proud to feature here, specifically including those who allow us to post their updates and public commentaries, have become increasingly bullish on the stock market, at least through the end of 2010 and/or into early 2011. So I'm not going to raise a contrary argument as such. Just want to point out that "the bears" do have a spare card to play here. It may not be a "wild card" that promises to turn everything around into a bear market overnight. But IRS definitely worth keeping an eye on - it's the euro currency index ($XEU) which is also tracked by the ETF, FXE ($FXE). The euro moves almost in mirror, inverse waves to the U.S. dollar (which has an ETF also, UUP ($UUP)). As I tweeted last week, the euro has moved just above and then faltered from a 61.8% retracement from its prior swing high in a way that raises the spectre of a wave 2 (or b) up. If that's the case, it paves the way for a wave 3 (or c) down. That would almost certainly be bearish for the stock market.
There can be other possibilities such as the markets gyrating temporarily until the trend resumes as it's been in recent weeks. But given the implications, you should keep an eye on this whichever side you're on. Volumes in FXE don't signal a reversal yet, but some buying in UUP has picked up. This is just an early warning, so a "sell" on the euro and equities would be very aggressive without confirmation occurring, and may be negated by the euro resuming its recent upward trajectory.
My monthly $XEU chart (underneath the UUP daily chart, below) shows how the euro broke back above the channel trendline it had previously broken under. But along with the Fibonacci 61.8% retracement, it's also paused at its 50-month moving average. Yet the indicators don't say that it's necessarily going to reverse downward. So once again, just consider this a warning alert, and we'll see if it leads to anything more.
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