Technical analysis can show timing, probabilities, even price projections. Andre presents his points of view by conducting classic technical analysis focusing on the S&P 500 index together with cycles, Fibonacci work and some thoughts about wave counts, in his Turning Points reports. We appreciate his work because it is always unbiased! His website is at Market Turning Points (always included in the sites list at right side of the page here). Andre provides his weekend updates also to his subscribers, and on occasion at Safe Haven as well. And of course his intraday updates and comments to his subscribers.
Let's see what Andre is showing about the stock market now:
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February 7, 2010
Week-end Report
Turning Points
By Andre Gratian
In spite of the recent market weakness, technically we are still only in a short-term downtrend, and in a correction in an intermediate uptrend. What would it take to confirm that we have started an intermediate reversal?
-- Trading outside of the green channel! As long as we remain within the channel, we are still in an uptrend. On Friday, both indices tested their channel lines and found them to hold. We had a good rally at the close which turned the market from negative to positive.
-- Breaking decisively below 1029, the low of the last short-term correction. We are still in a pattern of higher highs and lows, hence, in an uptrend.
-- The SentimenTrader would have to be much more bearish than it is. On the contrary, both the short-term and long-term trend are bullish, indicating that we are more likely to be at a low than at a high.
-- A larger increase in the 52-week lows and a larger decrease in the 52-week highs.
That does not mean that we are ready to go to new highs on the SPX. It could simply mean that we will have a test of the highs without surpassing 1151. Considering the way that we ended the day on Friday, there is a good chance that we already have started a rally -- that is, if the dollar is ready to have a correction.
I stopped following the dollar closely a few weeks ago, and that was a mistake. Since March 9, the dollar index and the equity markets are still in very close inverse synchronization and tracking the dollar continues to give important clues about the SPX’s short-term trend. Let’s look at the chart of the US Dollar Bullish Fund.
In early March 2009, it started a decline which closely paralleled, inversely, the SPX’s rise. In early January 2010, it reversed its downtrend and, so far, has had a 3-wave rally which appeared to top on Friday precisely at the same time that the SPX made a low. This caused the index to convert a 19-point loss into a 3-point gain by the close.
Analyzing the UUP’s trend since its reversal at the beginning of January, it appears to have completed 3 waves, which begs at least a short-term reversal if it is now starting a wave 4 correction, and much more if it just completed a corrective a-b-c pattern. Correspondingly, if we assume that the pattern of inverse relationship will continue for a while longer, the SPX should have at least a short-term rally or continue its rally to a new high if the dollar resumes its weakness.
Of course, other factors will be affecting the SPX‘s price action, and we can’t depend strictly on the performance of the UUP, but it will certainly bear watching.
Looking at the Daily SPX Chart! Both lower indicators met resistance at the tops of their channels and pulled back in conjunction with the sharp re-adjustment in prices; but did not go, relatively, as low as the price, thereby creating positive divergence. That, and the sharp bounce off its trend line at the close, is a potential signal that the index has found a low and is ready to start a rally. Confirmation would be the normal trend line break, and overcoming the last high in both the indicators and price.
I had expected a 9-mo cycle low in this time frame. If this is it, we should have a reversal for sure. But we will probably not know for certain until the 90-day cycle -- which has been very dominant and is still ahead of us -- has bottomed.
We have about two more weeks to wait. If last Friday’s low has not been exceeded by then, and the dollar has not made a new high, we can feel much more confident that we are not yet finished with the rally from March.
The Hourly Chart will show us more clearly what must be done to end the downtrend and begin a new rally. A big positive is that the bottom of the channel (green line) held the last two day’s vicious assault by the bears and created a strong end-of-day bounce on Friday. This has turned all the indicators, two of them from a position of positive divergence -- another positive. If we are making a true reversal, the SPX should continue up with an hourly close above 1075, sending the MACD histogram in the green. These are minimum requirements that should lead to a rise out of the red channel.
The bullish case sees the pattern that is being made as a reverse ascending triangle in which, when prices rise above the flat top line (1104), they continue to the triangle’s projection (it’s width) which is 1161.
The mild bearish case states that the index has already made a top, and, that the rally only takes it to 1130 before it turns down again and (this time) penetrates the green channel line and eventually moves prices below 1030.
The strong bearish case keeps prices from rising above 1104 before they turn down again and continue the precipitous decline, as the dollar rises to new highs after only a short correction.
(SentimenTrader gauge at left, courtesy of SentimenTrader.com)
Since the SentimenTrader has a bullish reading right now, I believe it favors the first two options.
This would require that the 9-mo cycle has truly bottomed, and that the 90-day cycle does not bring about a new low.
The above analysis shows the possibilities, depending on the market and dollar action. We now need to let the market choose its future path.
Andre
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