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January 24, 2010
Week-end Report
Turning Points
By Andre Gratian
The long-awaited top of the move from the 667 low has finally arrived. Or has it? Can’t tell until we see what kind of a rally the 9-month cycle will give us. The 9-month cycle is not an exact cycle and its estimated low target date of February 1 could be off by a week or two, which means that we could already be at its low (but probably not).
To see where we are after last week, let’s start by looking at the Weekly Chart. After completing 5 corrective waves from March ‘09, we now have a reversal which could be of intermediate nature, but will not be confirmed as such until 1) it breaks out of its green channel and 2) it breaks below 1029. For now, we’ll have to treat it as a short-term correction. As you will see, there are good reasons for this!
The last few days has caused damage to the SPX and more to the DJIA. But what about the Value Line index? Look at the chart! To begin with, it retraced about 90% of its bear market decline, much more than the SPX’s approximate 55%. Next, the current sell-off has been much milder in the Value Line than in the other indices. Coincidentally, it has been milder in the Russell as well.
Is the Value line -- which is a broader index than the SPX -- more representative of “the Market”? And if the Russell -- which is a market leader -- also shows less weakness than the large cap indices, shouldn’t we pay attention?
And here is something else. Look at the sentiment indicator (courtesy of SentimenTrader).
The long-term index is neutral, while I don’t recall ever seeing the short-term index so bullish!
Do you get a feeling that, perhaps, this panic selling might have been overdone? We’ll soon find out, but in the meantime, let’s look at more charts, continuing with the Daily SPX.
The phase that we should concentrate on is from 11/02, the last 90-day low, to the next 90-day low which is due on about 3/1. If, between now and the end of that phase we drop below 1030, we will most likely have confirmed the beginning of a decline of intermediate proportion with 1150 as the high of the move from 667. Although the 90-day cycle has been very dominant since the beginning of the rally, we don’t have any assurance that it will continue to be. The 9-mo cycle, which will ideally make its low a week from now, will, by then, exert upward pressure and could spoil the 90-day’s chances of making a new low. If prices remain confined to the green up channel after both cycles have made their lows, we will continue with our uptrend to a new high.
That is something that we will deal with later! Our immediate concern is to determine when this panic selling will end. In order to do that, let’s turn to the Hourly Chart.
Keeping in mind the extremely bullish sentiment index, the most interesting thing on this chart is the red asterisk which is 2 trading hours away. It indicates a CIT which has a very good record of bringing about a reversal of a current trend -- whether it is up or down. In this case, all indicators and market position considered, it would “appear” to mark a low point and reverse to an uptrend. Since our imaginations could get carried away with this possibility, let’s instead observe the market closely and see what it does at the opening. This can be tricky, because the reversal does not always take place exactly at the asterisk. It can be a little early or late, and it’s possible that we’ll open up, and keep on going. Or we open down … or …! In other words, let’s be aware of the possibility of a reversal on Monday morning, but make sure that we break the trend line and get out of the channel before we claim a reversal.
Structurally, there are two channels and we will need to get outside of both! Since the low of the 9-mo cycle should still be a few days away, if we get a bounce from here, odds are that it will be of limited extent and then we’ll go back down to a new low. There is no agreement among EW experts on the current count. Perhaps we still have a wave 4 and 5 into the 9-mo cycle low.
As crazy as it may sound considering the status of the sentiment indicator, we could open down, break below 1087 and run all the way down to about 1055 (which would then be the next projection) before we reverse.
The BIG OPERATORS who are in control of the market short-term will decide how they want to play this, and we must intuit their intentions.
Another thing that was uncharacteristic of this decline is that the A/D was never representative of the price weakness. It was showing minor positive divergence until the last two hours on Friday when we lost it.
That, and the sentiment which was already highly positive on Thursday’s close, led me to expect less weakness than actually occurred and the respect of the projections. Monday’s opening is up in the air, but we should get a glimpse of what to expect from the Globex figures this afternoon.
I have drawn the minor trend lines to break for a reversal on the hourly chart. The heavy line channel could be all wave 3 and we would need to get out of the larger channel to indicate that the 9-mo channel has made its low.
We need at least one more week of trading for the market to reveal its longer-term intentions, and perhaps we may have to wait until the 90-day low for that clarification.
Andre
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