No Comments Written by Anthony Truong on September 2, 2008 – 5:49 pm

Just a (relatively) quick update: US markets were closed overnight due to the Labor Day holiday, but will reopen tonight. Overnight trade has taken the Dow and S&P500 down somewhat, but nothing that would help to clear the current wave count. The ASX200 finished essentially flat, after the Reserve Bank of Australia cut official interest rates by 25 basis points. It was rather amusing that Ninemsn.com.au had an article on its website in the morning stating that stocks should rally once the widely expected cut was announced; following the cut, it released another article stating that stocks rallied following the rate cut. But anyone with access to a chart can see that the ASX200 did anything but – it was in positive territory leading into the announcement, but fell post-announcement. Let’s see how the economists fudge the “causal relationship” between the cut and stocks falling flat on the day…

My last update called for further gains in gold before it continues its downward trajectory. However, price action overnight and today has suggested that a top may have already been reached. The charts below shows the original count we were following:

… and the following chart shows an alternate count that implies wave 2 topped 28 August and the subsequent fall is the beginning of wave 3 (not labelled on chart).

This latter count shows wave 2 as a double zigzag (depicted by the “A-B-C-X-A-B-C” labels) – this interpretation is strengthened by the fact that the blue supportive up-sloping trendline for the past week or so has been broken decisively. This view actually concurs with my original forecast on 19 August, which called for gold to rally back up into the “$830-$840″ region before heading back down. Confirmation that wave 3 down has begun will be a break of the previous low, $773.20, which occurred on 15 August.

Below is an hourly chart of the EURUSD for your viewing pleasure.

This shows the very impulsive looking downward movement the Euro has endured against the USD in the past month and a half. We have a subdividing wave 3 (the most common wave of the three impulsive waves [1, 3 and 5] to subdivide, i.e. be significantly longer than the others) that extended the move, and we seem to be currently in the last 5th wave of the sequence. In either case, the sentiment readings are very very oversold, so it seems that the only thing left to do is rally, at least short term. I am looking for the EURUSD to bottom very soon, perhaps in the region 1.4360 – 1.4460, before a rally takes the cross rate to at least 1.4800 – 1.4900. Beyond that, I am not too certain, as I am still working on an interpretation of the long term wave count – I will continue to update the charts in subsequent newsletters.

Happy trading!