Sunday, February 21, 2010

Bullish channels in the S&P 500 interacting with cycles: Turning Points update by Andre Gratian

Thanks to the fine analysts who have agreed to share featured excerpts of their work on this blog. It's an honor to proceed with the blog under the new name "ChartLines" with such experts sharing their insights. Of course I also post my own charts and technical analysis; maybe cross-comparing from time to time against other technical methods, or seeing how the various financial markets interrelate. And we share the goals of helping readers to gain new insights and in some cases learn more about some technical methods (and the list at the right side of the page here is where readers can get more information about many of those, as well as subscription information for those situations where readers may choose to go deeper with some).

So - here's Andre Gratian's weekend report with his technical analysis of the S&P 500 (SPX), sometimes looking at related markets like the Nasdaq (QQQQ) and the dollar. He takes an objective approach using classic technical analysis together with cycles, Fibonacci work and some thoughts about wave counts, in his Turning Points reports. Andre's website is at Market Turning Points (always included in the sites list at right side of the page here). He 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.

Here's what Andre is sharing this weekend:
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February 21, 2010
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

Current Position of the Market

Very 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 2014.

Long-term trend - Up! We are in a medium-term bull market, which is a corrective move within a long term bear market. This bull market should last until 2011-2012.

SPX: Intermediate trend. Technically, the index is still in an intermediate move.

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 atajg@cybertrails.com.

Overview:

In the last newsletter, I showed how the current price trend fits in a bullish "Pitch Fork". Here is another way to show that it also fits in a bullish channel. Two channels, in fact! The longer term green one, and the intermediate term blue one. The correction which started at 1150 stopped at the intersection of the lower blue channel line and one of the inner parallels of the green channel. That was not only strong enough support to arrest it, but possibly to re-kindle the intermediate trend which started in March ’09. In other words, there is a good chance that we will see new highs before we have a reversal caused by the 4-year cycle making its low in the Fall.

There is also a good chance that the green channel will contain the 4-year low, but that’s for another day.

For now, why is a new high likely? The reason lies in the current cycle configuration.



The 9-month cycle bottomed earlier this month at SPX 1044.50 and has given it a good initial push. Look at the pink index above. It has just made a break-out move which matches the beginning of previous rallies of substance, almost reaching the oscillator top for the (previous) rally which took us from 1030 to 1150.

The 17-week cycle is probably within a week to ten days of making its low, after which it will join the 9-month cycle in pushing upward. Finally, in mid-march, the 22-wk cycle -- if it makes a low and not a high -- will add its strength to the other two. The three rising cycles should continue to take the SPX higher until the 4-year cycle becomes strong enough to reverse the trend.

Granted, the bottoming of the 17-week cycle will have to be mild, and the 22-wk has to make a low or be a non-event, and not invert. But this is the scenario which potentially lies ahead and the market should soon tell us if this is the path it intends to follow.

So far, the initial signs are bullish. The SPX has just moved through the 1104 resistance level with ease and last Thursday, it passed an important fundamental test when it ignored the Fed’s first move to increase interest rates. But the Hourly Chart is saying that the index is overbought, losing upside momentum, and in need of consolidation. After all, the 17-week cycle is due to make its low in about a week. We can’t keep going up until that is out of the way. Let’s look at the chart:


We may have given a sell signal on Friday. All the indicators are on the verge of confirming it, but we need a little more downside; and if we don’t get it on Monday, the index will continue to the 1116 resistance point.


The sentiment readings (at left, courtesy of the SentimenTrader.com) have been short-term negative for 3 days, confirming the chart indicator patterns and adding to the anticipation for a short-term correction.

But notice that the long-term signal continues to be positive...

which supports the view that we should move higher after this correction.

Summary: The current cyclic configuration is short-term negative for the market until the 17-wk cycle has made its low in a week or ten days. Then the 22-wk cycle may also have an effect in mid-March. But the 9-month cycle which made its low in the first week of the month has given the bulls a good start and after mid-March, it looks like clear sailing for the bulls until May or June.

Andre

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