Market Update for May 5th 2009

Today the market made a higher high, broken out of the triangle, both with increased volume.  Simply speaking, the market is currently trending up and there is no obvious sign of weakening.

Wave counting update: the preferred scenario turned out to be valid which are on the following ESM9 (S&P 500 Index Futures, Jun 2009) 2-hour chart, the other two are not shown here.  Take a closer view, we can see that ES has hit the upper edge of the original ascending channel and formed a steeper for this impulsive wave, and possibly it has reached a level where a pullback is needed.  However considering the current market sentiment and bullish movement from other parts of the worlds as well as the forex/commodities, the pullback might be quite shallow.  From waves’ perspective, we cannot rule out the possibility of extended wave 5, and the pullback target will be the top of wave 3, which will be 50% retracement and also a support level.. and EMA50 too. Note that falling below 880 will negate this scenario.

ESM9 2-h wave counting zoom in

Crude oil: on the hourly chart of the crude oil futures, it has broken out the overhead resistance.  However RSI gets overbought, and a bit of negative divergence can be seen on both MACD and RSI.  A pullback to breakout level 53.5~53.8 will be very healthy.  Note that the pullback may be done during the midnight, tomorrow morning the technical indicator may likely be corrected.

EUR/USD: Today Euro was extremely bullish, and US dollar is the opposite.  The pattern on the chart looks like a bull flag although it looks too big.  The rising of Euro is bullish to the stock market especially the financial sector.

Financials: XLF has broken out from the ascending triangle and made a new high.  From waves’ perspective, intermediate wave (A) and (B) have completed and a new upward wave is unfolding.  Wave counting will be adjusted later.

XLF hourly

Market Breadths: today is a major accumulation day, typically tomorrow’s high will be higher than today’s close, and a consolidation or small pullback is expected.  Note that CPCI:CPCE is at a high level which means institutional investors are holding long positions and hedging using index put options.

CPCI:CPCE