December 7, 2008
Turning Points
By Andre Gratian
The long-term trend is down until about 2012-14
The intermediate trend is decelerating, but still down
The short-term trend is up to sideways.
We are going to look at our trilogy of charts, once again, starting with the SPX weekly.
I have re-adjusted the blue channel which I now consider to be the intermediate trend channel. The SPX is now trading in the lower half of that channel and although there are signs of deceleration, there is no confirmation that we have made an intermediate low. The red dotted lines represent a medium trend price channel -- between intermediate and short -- and we have to get out of that, first, before we can challenge the blue channel. This is what we are currently attempting to do.
All charts show that the SPX found at least a temporary short-term low at 741 and has been in an uptrend since. In the weekly chart, this is reflected in the fact that both price and the lower indicator have not yet reversed, but the upper indicator is just beginning to stabilize and is not near generating an intermediate buy signal. At this stage, the market is still vulnerable to another reversal to the downside and possibly to new lows before that is accomplished. We'll turn to the shorter-term charts to tell us how vulnerable we are.
The daily chart shows the uptrend in a little more detail and, analyzing the indicators, the top one is still positive and moving up. The middle one is not quite as positive. It is close to being overbought and tells me that the short-term trend is closer to a top than to a low. The lower (A/D) oscillator, is the least positive, because it is beginning to show signs of negative divergence. The price is trying to overcome a very short-term top and has a more significant one directly above, around the 900 level, which would need to be surpassed if we are to extend the short-term rally to the next projection of 935-940. This is also where the price would meet the top line of the red channel and encounter resistance.
What are the odds of even moving above 900 before we reverse? For an answer we turn to the hourly chart.
Even with the strong rally on Friday, and although prices did overcome the 875 level, it was not done convincingly with full support of the A/D and, by the close, minor negative divergence was appearing in all the indicators, suggesting that a short-term top was being made. Therefore, unless we have a very strong opening on Monday, we will most likely begin retracing the move or, at least consolidate before another attempt at moving higher.
One of the hourly momentum indicators is already overbought, but not yet in a position to reverse.
Since the Friday move was obviously a news or expectation of news-driven rally about a deal for the auto makers, it may not have the necessary follow-through to trigger a projection to 935 by moving above 900.
The structure of the move to and from 741 is unclear and has the Elliott analysts expressing several different opinions, so we won't get into that. I believe that Monday's action will do much to clarify what the market wants to do from here.
There is a minor cycle due about 12/11 which should soon exert some downward pressure.
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I have placed the three charts of the NDX under the SPX. As you can see, they are very similar in perspective and there is no sign that that index is becoming stronger than the SPX.
One more thing: look at the sentiment indicator below. It has lost practically all of its positive reading in the longer term, and is neutral in the short term. This is no longer supportive of a strong up move, and both readings could soon turn negative.
In conclusion, I think that we are only in a short-term bear market corrective move which will soon come to an end, and that more work will have to be done, either by re-testing the 741 level -- or making a new low, before we can start an intermediate uptrend.
Andre
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