This was an interesting week in the markets. To me the most outstanding feature was the fact that even though the Dollar rallied strongly off of its almost 3 year low and broke above a downsloping trendline, stocks did not break down but continued to move mostly sideways.
It is beginning to look as though the [i] [ii] (i) (ii) count that I have presented is not going to hold up. It now appears that the March low was a 4th wave with stock markets developing various forms of triangles in preparation for the final leg up from the July 2010 low. I suspect we will be fortunate if the SP500 makes to 1400 before it tops out. Below is one possible scenario for the IWM.
After the June high the expected correction should take the market down to the primary trendline for the entire rally with the SP500 targeting 1220+/-. I do not think that most intermediate term trades will hold up to that deep of a correction so it may be prudent to go mostly to cash by mid June. The only exception would be if we saw a sudden explosive move higher to above 1440.
As far as the Dollar is concerned, the rally so far may only be a sharp 4th wave rally with a retest of the low yet to be seen in a 5th wave down. This would be the most likely scenario that fits the possibility of a continued rally in stocks. Later this year we may see a positive correlation between stocks and the Dollar develop.
It may be worthwhile to pursue short term long trades as the market breaks out in the next leg up, but it may also be prudent to take profits early.