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June 7, 2009
Turning Points
Weekend Report
By Andre Gratian
A 3-dimensional approach to technical analysis
Cycles - Breadth - Price projections
“By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another’s, and each obeying its own law … The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." -- Mark Twain
Current position of the market
Long-term trend - Down! The very-long-term cycles have taken over and if they make their lows when expected, the bear market which started in October 2007 should continue until 2012-2014. This would imply that much lower prices lie ahead.
SPX: Intermediate trend - Sideways! The counter-trend rally which started on March 6 has been undergoing a consolidation.
Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends.
Daily market analysis of the short term trend is reserved for subscribers. If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at ajg@cybertrails.com
The rally from March 6th may be beginning to show signs of wear and tear! Perhaps not enough to give us a major reversal yet, but by mid-July, in conjunction with the Bradley date of 7/15, we could be ready for an important top. Some signs of deceleration are beginning to appear, and they should become more and more frequent over the next 6 weeks, perhaps starting as early as next week.
After two months of rally, the SPX had three weeks of sideways consolidation. A week ago, it broke out of that pattern and moved about 20 points higher, but already appears ready to pull back. The prior high, on 5/8/09, was 930.17. On Friday, it traded as high as 951.69, but closed at 940.51, a meager 10-point gain in a month.
Let’s take a look at the hourly chart. It was my opinion that the move from 667 on 3/6 would be a corrective A-B-C wave, followed by a resumption of the bear market. It looks as if “A” either ended at 930.17 on 5/8, or it just did on Friday at 951.69. We will have to wait until 6/17-- when the next low is expected -- to determine which it is.
Friday looks like a completion of the move which started after the a-b-c correction on 5/21. It was expected to be a 5- wave move with a target of about 956/960. On Friday, the cash index only traded up to 951.69, but the futures went as high as 957.20 in pre-market trading . Since I do not think that the futures are always reliable in meeting a given projection in pre or after-market trading, I waited all day for confirmation from the cash index to determine that we had completed the move, but It never came. For confirmation, the SPX would have to break its trend line and close below 934. By the close, it had done neither.
You can see how critical a position the SPX is in! It has good support just beneath it: 3 moving averages, 4 trend lines and the 880 level which held twice before. The resistance above is equally fierce: The index is up against the top descending channel line from the major October 2007 high (better seen on the daily chart, below). It has presumably just completed a 5-wave move and met a projection target, and there are signs of negative divergence in all 3 indicators below. It HAS to pull-back and challenge all trend lines and support levels, and it has about a week to make good its challenge, since it will presumably decline until the 6/17 cycle lows. If the bears are successful in breaking through all this support, it may be difficult for the SPX to regain its intermediate momentum.
Here is additional proof that we may be beginning to put in a top on the rally: The relative weakness between the financial index and the NDX (and other indices) is increasing. Like the SPX and the NDX, it is also ready to reverse after completing a 5-wave move, but unlike the other two indices, it did not succeed in breaking out from its consolidation phase, only making a terminal (diagonal ) pattern.
On the SPX daily chart, below, we’ll find more reasons to have a correction from this level. Take your pick! We’ve come up against the top trend line of the secondary channel from October 2007, as well as the resistance of the former short-term peak in early January, and the 200-day MA. We also have divergence in both indicators and the immediate downward pull of the short-term cycles bottoming directly ahead.
It is true that there is no relative weakness in the NDX, but we are not expecting the beginning of a major decline from here, and perhaps by mid-July some will have formed.
As far as a target for the low, I have none at this time and expect the 880 support level to hold again. But let’s keep our minds open.
The EW structure is still in doubt. The length of the rally and the amount of ground that it has traveled is beginning to stress the notion that we are still in a wave 4. I will let the EW experts argue over that one, but whatever it turns out to be, there is still a good possibility that after it reverses, the SPX will be looking for new bear market lows.
Friday did not give us a conclusive sell signal and we will have to wait till Monday for it.
Andre
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Ajg@cybertrails.com
The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.
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