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August 9,2009
Week-end Report
Turning Points
By Andre Gratian
Long-term trend: Driven by long-term cycles, the indices should essentially continue to decline until 2014 with good intermediate rallies in between.
Intermediate-term trend: After it resumed on 7/13, the counter-trend rally which started in March 2009 was given a basic projection of “about” 1000, but it has already gone beyond to 1018 . The reaccumulation pattern which was created between 7/23 and 7/29 on the Point & Figure chart had told us to expect a potential rally extension to at least 1013 and perhaps 1021-26 which would be completed by late July, early August.
Unless there are radical changes in the market behavior over the next couple of days, it’s very likely that the projection will be (has been) met and that a reversal will take place in this area. A short-term sell signal will be given when we close below 995.
The weekly chart shows an extremely overbought index condition which has retraced .382 of its entire decline. Because there has been so much strength, it is unlikely that we will have a sudden reversal with a great deal of immediate weakness. Either we will correct and go back and test the highs or, after a short-term correction, even go a little higher before rolling over and begin a serious decline.
There is a good possibility that we are at the top of the 4-year cycle, and that we could decline from here into next year’s late Summer or Fall. This is based on cycle analysis alone and will have to be confirmed by future market action.
Negative divergence has begun to appear in the histogram, which is one of the most sensitive momentum indicators, but it is still in its early stages. The chart pattern has the appearance of a wedge and is not an indication of continuing strength.
Let’s go to the daily chart for more detailed analysis. I have sacrificed the bottom of the index so that we can see the top more clearly, and what we see is this:
1) We are up against resistance.
2) All indicators show negative divergence and the A/D is the worst.
3) There are several small cycles bottoming within the next two weeks.
That should be enough to put some doubt even in the most ardent bull about the odds of continuing the rally without a correction. The short-term sell signal should come when we have broken the thin black trend line shown on the chart, and closed below 995 (red horizontal line), with A/D in the vicinity of -1500 or more.
A retrace to about (940) or lower is possible.
Let’s look at the hourly chart to determine our state of readiness to reverse.
Here also, I am focusing on the top of the chart. The red arrow shows the level which we have to break in order to give a short-term sell signal. Since Friday was an up-day which retained most of its gains, and since we are still shy of the P&F target by a few points, we could push a little higher on Monday morning before turning down. All the signs are pointing to an imminent reversal, but we have to wait until we get it.
Perhaps Goldman Sachs, which has been a leader and which had a weaker close, already pointed the way on Friday.
We’ll get a hint of what we might get after 6:00 pm ET on the Globex today.
We’ll get into what comes next after we’ve seen what form the correction takes.
Andre
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