Market Forecast for 06-04-12

Overview: As we have been forecasting, the US Dollar has been flying, with the EURUSD dropping the 500 points that I expected and then some.

The GBPUSD and other major pairs, except the USDJPY, have also been getting killed against the Dollar. I have been a dollar bull since 2011 (except for the obvious cycle pullbacks) and I believe that the USD has further to go before it blows up a bit later in the years to come. But for now, on a big picture basis, we should see 85 to 8700 on the US Dollar Index and perhaps much higher into the 900s or 100s if the Euro implodes. However, on a shorter-term basis, we are coming into support areas that could temporarily slow the USD's rise sometime this week or next and see nice pops in the European currencies that we can sell into further.

The US stock market is also getting pummeled, and will either make a 5th wave low for this Wave (1) decline, or possibly (a bit less likely) have a huge acceleration into a massive wave (3) of a larger wave [3] decline.

EURUSD: Euro may find a bit of short-term support in the 1.24 area (where it is now), with stronger support at 1.2016 and 1.1510 areas (see charts below). However, should 1.15 be broken in the weeks to come, then the big picture target would become .9300.

ACTION: For now, keep shorting rallies as long as the 60-240 minute trends are heading down, but be prepared for a 200-300 point bounce beginning this week or next to sell largest positions into.  Short-term traders can look to make some pips on the long side during the coming bounce, but do follow the 60 minute trend.

eurusd daily chart

eurusd daily p2 lower targets shown

GBPUSD: The British Pound keeps getting pounded by the USD which, along with bonds, are the new bubbles – but at least with the USD (not bonds).

Stocks: As I mentioned in May, we are on crash watch into mid June. So far, stocks too are getting hammered as is crude oil, yet metals rallied.

Taken together, these are signs that the markets are interpreting this selloff as serious and a prolonged economic slowdown is rolling across the globe. 

Buckle down…

DJ "DOW Industrials" should find support in here–around 12000–or at the 1165 area. Any break below 1160 will likely leave the DOW in "crash-ville" territory of open water on the downside. See the weekly chart below with the complete analysis.

dj dow industrials weekly chart

ND "NASDAQ Stock Index" should find support on this wave down between 2420 and 2370. Any break below the lower number puts the ND in "crash-ville" mode also. See daily chart below.

nd nasdaq chart daily

The VIX stock market volatility index, currently at 28,  is moving up with  targets of 40 to 52, indicating that stock volatility with stock moves to the downside likely have much further to go if this trend continues as we expect. See daily VIX chart below.

vix daily

One caveat, again there is an interest rate cycle that suggest that stocks COULD bottom between June 3-7 and stage one last rally for the year. However, since some very important old highs have been broken on the downside in the stock indexes, a strong rally is looking less likely and only a corrective bounce is more likely (See ED COT chart below – Eurodollar Commercials' Position [COT Report]).

eurodollar cot report chart versus sp500

XAUUSD "GOLD" rallied from our suggested support area and followed the predrawn path of previous posts. It just tagged the upper resistance channel and may pause or pull back here on its way potentially to 1653 to 1698. Short-term trend has turned up, medium-term trend is still down, the long-term trend is now flat.

ACTION: Look for a $10-$25 pullback to buy into for the potential pop up to 1653 to 1698. Breaking 1541 would likely negate any bullishness and then portend much lower prices. The 8-year cycle was due to top in 2012 and may have topped in late 2011, yet still may prove out for one more move up. After the 8-year cycle top, we will expect a 12-25 month pullback before the next run up into 2020 8-year cycle top, which is likely to end this mammoth bull move. See the gold weekly chart below.

xauusd weekly chart

XAGUSD "SILVER": Perfect setup (not necessarily a prefect trade). Gold has popped and Silver is a bit oversold and COULD have a pop up here as well:

ACTION: BUY 28.80 stop to open, use 27.94 stop loss, move stop to breakeven at 29.40 and exit 1/3 or position. Cover another 1/3 at 30.08, then trail stop up to 29.45. Cover final 1/3 at 30.30 and/or trail a tight stop with exits around there or a bit higher.

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