Technical analysis of the S&P 500 with price projections and levels to look for in the week ahead - Turning Points update by Andre Gratian

My readers know that Andre Gratian is my go-to expert for putting it all together with technical analysis of the S&P 500, including trendlines, projections and turning points, Fibonacci and Elliott Wave views, cycles timing, and indicators. His website is Market Turning Points (always included in the "other sites of interest" at the right side of the page here), and you can find his prior weekend updates using the "Turning Points by Andre Gratian" label in the labels list at right. He makes his weekend reports available openly (thanks again, Andre!), and often offers a free trial of his intraday analysis (e.g., via his emailed intraday commentaries) for those who contact him at ajg@cybertrails.com. Here's his weekend report with comments for the upcoming week:
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June 21, 2009 - Weekend Report

Turning Points
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

The two cycles which were supposed to bottom last week did so right on time, but they are not providing much of a lift to the market. It’s beginning to look as if we will have to wait until the next one has made its low before we can have a decent rally. That will be the 6-wk cycle, and my best estimate for its low is about 6/26. This cycle has not been very well defined in its past few phases, and I am not absolutely certain of the date.

Both the price action and the look of the daily oscillators are intimating the same thing. The SPX has broken its uptrend line and dropped to the bottom line of its up-channel where it has found support. But even with the assistance of the two cycles, it has not been able to gather much upside momentum. This most likely means that the decline is not complete and that it will require one more small phase down to complete it. That would give the oscillators the
right profile for a low, especially if both develop some positive divergence.

Completing the declining pattern would take the price outside of the up-channel and signal that the rally from 3/6 may have ended and that we are either going into a temporary correction or an extended decline. But we are getting ahead of ourselves.

I was expecting the rally to end about mid-July on the Bradley date of 7/14-15. This might still be the date when the high will be tested, so let’s see how the next 3 or 4 weeks might look. For that, we’ll turn to the hourly chart.

The last top had a projection of 956-960. The high of the move came at 956.23. From there, it was estimated that the decline would go to 908/909. But the index had to go to 903.78 to find support, which was beyond the target and a sign of mild weakness. The weakness of the index is also evident in the pattern that it is making. Even if it is able to get out of its channel, it would have to develop some real upward momentum to change the image that it is currently
projecting which is to go lower into the 6-wk cycle. That does not seem likely, but we do not have to turn down right away; we could have another couple of days of sluggish uptrend outside the channel. The bottom oscillator is still showing some good strength, and some divergence may have to appear before we can turn down.

We can’t make a downward projection until we roll over. Worst case scenario would be a drop down to the daily 50-DMA which is currently at 897 and still moving up. After finishing the decline, we would be in a much better position to test the highs, and perhaps to make new highs.
There has been so much strength in this rally that it is challenging the idea of its being an intermediate wave 4 of the decline from the 2007 top. I am still going to keep that possibility in the back of my mind, but I’ll be watching for developments along the way that might negate that concept. It fits the anticipated cyclical pattern which is that after July, longer cycles will turn down into the Fall.

Summary: The current decline appears to need one more down phase to complete its pattern from the 956 high. After that we will have a rally that will either go to make a final high, or that will be a test of the 956 high. If this turns out to be wave (4), it should be followed by a move to new lows by the Fall.

We are making assumptions about the course of the market, both short-term and intermediate-term. Our job now will be to see if they are verified by the market action and, if not, to adjust our projections.

Andre