Walk the line(s) on the S&P 500 with Andre Gratian's Turning Points technical analysis update

Traders will want to "walk the line" with the trendlines that Andre Gratian is showing for the S&P 500 index (SPX)! Andre Gratian uses his trendline and technical analysis, along with reviews of cycles and sentiment indicators. His Turning Points 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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March 7, 2010
Turning Points - Weekend Report
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 daily and hourly charts of the SPX are clearly displaying a market which is in an uptrend. Channels are up, trend lines are up and price closed near its high of the week. The index broke out of a long-term downtrend in late October, back-tested the down-trend line in early February, and is resuming the uptrend.

It should have no difficulty in making a new high. The next objective is 1175 and possibly 1192, but we could have a retracement into the 22-wk cycle low about March 15 before moving on.

Last week the market passed a bullish test. The 17-week cycle ostensibly made its low with little fanfare and is now adding its upward pressure to the 9-mo cycle which bottomed on February 5. Furthermore, the Bradley turn date which was due on March 1, was either a low or a non-event. These two factors inspired caution until they were resolved successfully. And then, we had the jobs report!

The 22-wk cycle which is due around 3/15 was also a reason to tread cautiously. I know what that cycle is capable of doing under the proper conditions. Apparently the current environment has turned it into a paper tiger and it should not make much of a growl.


With the Russell 2000 and the Value Line indices already in new recovery high ground, and the QQQQ and the Financial index right on their heels and ready to follow suit, it’s only a matter of time before the SPX and Dow follow to join in the bullish celebration.

A quick look at the daily indicators will tell us that they are making new highs and that there is no divergence. In the last 3 days, the A/D indicator rose above its high point for the rally to 1151. This should mean that we are not ready to see a top of substance for at least a few weeks.

Switching to the Hourly Chart (below), there is no cause for the bears to rejoice on the short-term, either.

The SPX keeps moving up the ladder of projections, meeting one after the other with hardly a pause. On Friday, it met the 1135 target in an overbought condition with deteriorating sentiment readings. With the 22-week cycle so near, it may choose to start pulling back before moving on to the next objective.

If we cannot sustain a positive opening, we are probably ready to start our correction.




At left is a sentiment indicator (courtesy of SentimenTrader) which is giving us a strong warning for the short-term.

The fact that this is combined with a slightly negative reading for the long term makes it imperative that we proceed with caution.

Incidentally, when I advise “caution”, it is synonymous with a yellow flag: we are coming to a busy intersection.

Make sure you let the traffic go by before you cross the street!

Last week we had many reasons to be cautious: the uncertainty about the bottoming of the 17-wk cycle, the Bradley date, and the jobs report. The condition of the sentiment indicator and the nearby bottoming of the 22-wk cycle are two more reasons to stay alert.

The SPX Hourly Chart shows three distinct uptrend support lines. An hourly close below the red horizontal line should lead to a challenge of the steepest one. But this is a strong market which may want to go higher before correcting. It would be wise to respect its wishes.

Andre