WEEKLY CHART: We find this chart useful to gauge the general risk appetite in markets. As per previous posts, we have a thesis that revolves around a FINAL RISK RALLY. If that is to be the case, CADJPY (and other Cross-JPY) will offer a tremendous opportunity after the extension is met, close to the WEEKLY CHART’S FIBO. These set-ups are potentially the ones that make your PL for the year.
WEEKLY CHART: This corrective move has been long overdue. We are almost at 15% territory, making the corrective move substantial, but not uncommon form a historical perspective. We will break the chart down into different time-frames to determine where this may be headed and where the RISK REWARD becomes compelling form the LONG SIDE.
DAILY CHART: If we measure the index from the last corrective move (similar 12.5%) to the yellow line we drew, which would be the hypothetical wave-4 end, we see a potential troublesome breach. The index is closing right on the FIBO line, which should offer some kind of support, at least let the index consolidate. This is a troubling close and we have to be vigilant for MONDAY’S price action. If we see some follow through, we might be in for a deeper sell-off (12,500 or so).
Next week we have the FED (01/26), we have to add that to the mix. They will probably signal tapering and give us a ROAD MAP to when to expect rates to start moving higher.
They can also walk back the HAWKISHNESS a bit, if they see a bigger than expected correction.
They are all live meetings now, so we need to pay close attention to their actions and specially to their statement.