Here's what Andre is sharing this weekend:
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May 15, 2010
Week-end Report
Turning Points
By Andre Gratian
In order to achieve the proper perspective when performing technical analysis, one should first consider the longer term trend. So let’s start by looking at the Weekly Chart.
The trend from March 2009 is up and the SPX has begun to correct after reaching 1220. For now, we can say for certain that it is at least a short-term correction. However, all the indicators are in a downtrend, and some made new lows last week, suggesting that the correction may not be over and that we may have started a decline of intermediate proportion. In order to suggest otherwise, the indicators would have to turn up. Until they do, the index is vulnerable to extending its short-term downtrend.
The middle indicator (O/B-O/S) is oversold, so we could be near some firming in the downtrend. But we will need to see some clear evidence that the indicators are about to reverse and, so far, we have none.
Based on this basic analysis, our conclusion has to be that the SPX is vulnerable to making new lows, especially since the cycles that lie ahead could exert downward pressure on prices all the way into the Fall and turn the short-term trend into an intermediate decline.
Because the next turn in the Weekly Chart should first show up in the Daily Chart, let’s see what it tells us.
We hade a big sell-off followed by a big rally. That rally took us outside of a steep channel line and now, we appear to be re-testing of the lows.
These indicators tell us that the re-test is not complete. The top indicator never crossed over the heavy line and, after doing so, the middle indicator has re-crossed to the downside. Until both indicators have decisively turned up, we are still in a downtrend.
The lowest indicator may be the most revealing. It is moving in a well-defined down-channel. In the rally, it went to the top of that channel and turned down again. Until it can reverse there will be no confirmation that the pull-back/test of lows is complete. What we need is to see deceleration. If the oscillator reverses before it gets to the bottom of its channel -- the higher, the better-- it will be a sign that the decline may have come to an end.
Now let’s see if the Hourly Chart gives us some clues about the state of readiness of the daily indicators.
Here, we find the same pattern that we did in the Weekly and Daily Charts; the indicators are oversold, but they still have not reversed. Until they do, we can assume that we are still in a downtrend. In order to improve their profile, the index does not necessarily have to make a new low, but it could get in a better
position to rally just by going sideways a day or two longer.
Looking at the price chart itself, note that the rally stopped at the 200-hr MA and turned down. That was only two points away from the 1175 projection given by the P&F chart. Since it did not rise to the top red trend line before turning down, this could mean that the SPX is accelerating on the downside and starting
a new, weaker trend.
Potentially adding to the downward pressure is a16-wk cycle bottoming around 5/24.
Until we see some improvement in the price action, the odds of going lower are pretty good. No indicator, in any time frame, has completed its bottoming pattern, which means that the market has not either.
Let’s now turn to the P&F chart and analyze the distribution pattern that was made at the 1173 top.
The first minor phase of the pattern had a projection down to 1127-29. This was reached on Friday and, as I suggested, that level has provided some support for the time being. However, if it doesn’t hold, the next phase of the pattern should take the SPX down to about 1108-1110. This might be a more logical count.
There was a large distribution pattern made between 5/10 and 5/13. The projection to 1108-1110 would satisfy the distribution phase from the 5/11 low to the 5/13 high. You can see the phases clearly on the hourly chart. If one were to take the entire count across the top from the huge rally of 5/10 to the end of the wedge on 5/13, one would come up with a count of 110 points across which, if filled, could drop prices down to 1059, 4 points below the decline of 5/6.
Because of the size of this distribution pattern, there is a chance that we have made an intermediate top and that we are not going to see any new highs for a while, but that is conditional on breaking below 1127 and subsequently below 1108. However, if we can hold either one of those levels, we can have a rally that could alter the present trend, perhaps significantly.
There are a couple of factors that suggest that we might. First, as you can see below, the SentimenTrader (courtesy of same) has become bullish. The short-term indicator is only neutral, but the longer-term has climbed decisively in the positive camp. That does not assure us of a hold at 1127, but it does give us a
reasonable chance of doing so, and if we drop to 1110, the positive reading is likely to increase.
The other factor is the dollar. The recent strength in the dollar has been the driving force behind the weakness of the equity indices, and the dollar index has probably started a move which should eventually take it to about 92. On Friday it reached 86 and it may now need to consolidate. Look at the chart of its ETF (UUP)below.
The UUP broke out of a consolidation pattern at about 23.70 and has been moving up ever since. That move now looks complete, or nearly so. We can count 5 distinct waves and it’s only a question of whether the 5th wave is finished. The upper indicator is showing negative divergence, and the lower one is overbought, has turned down, and looks ready to give a sell signal.
Since the dollar P&F chart had an interim count to 86-87, this would coincide nicely with the chart pattern and suggest that the dollar is now ready to go into a period of consolidation before it moves higher. If it does, it will give the equity indices a reason to rally.
Summary and conclusion:
The bearish view: The fact that all the indicators, from weekly to hourly, have yet to turn up puts the SPX at risk of going lower. The 1127 level was a good count, but it only satisfies a minor phase of the distribution that has taken place around the 1173 level, and 1108-1110 is a more logical projection. Since there are counts which extend considerably lower, the index will have to demonstrate that it intends to form a base at 1127 or 1110 from which it can rally.
The bullish view: If the SPX can hold the 1127 or 1110 levels, form a base, and begin to move up, it would reverse the hourly indicators. This could set off a chain reaction which also reverses the daily and the weekly indicators and be bullish, at least for the short-term.
For those of you who are interested in gold, here is a chart of the daily GLD ETF with structure and P&F projections marked on the chart. It should be self-explanatory.
I will send you the Weekly Chart in the near future. It suggests that gold may be approaching a significant top.
Andre
May 15, 2010
Week-end Report
Turning Points
By Andre Gratian
In order to achieve the proper perspective when performing technical analysis, one should first consider the longer term trend. So let’s start by looking at the Weekly Chart.
The trend from March 2009 is up and the SPX has begun to correct after reaching 1220. For now, we can say for certain that it is at least a short-term correction. However, all the indicators are in a downtrend, and some made new lows last week, suggesting that the correction may not be over and that we may have started a decline of intermediate proportion. In order to suggest otherwise, the indicators would have to turn up. Until they do, the index is vulnerable to extending its short-term downtrend.
The middle indicator (O/B-O/S) is oversold, so we could be near some firming in the downtrend. But we will need to see some clear evidence that the indicators are about to reverse and, so far, we have none.
Based on this basic analysis, our conclusion has to be that the SPX is vulnerable to making new lows, especially since the cycles that lie ahead could exert downward pressure on prices all the way into the Fall and turn the short-term trend into an intermediate decline.
Because the next turn in the Weekly Chart should first show up in the Daily Chart, let’s see what it tells us.
We hade a big sell-off followed by a big rally. That rally took us outside of a steep channel line and now, we appear to be re-testing of the lows.
These indicators tell us that the re-test is not complete. The top indicator never crossed over the heavy line and, after doing so, the middle indicator has re-crossed to the downside. Until both indicators have decisively turned up, we are still in a downtrend.
The lowest indicator may be the most revealing. It is moving in a well-defined down-channel. In the rally, it went to the top of that channel and turned down again. Until it can reverse there will be no confirmation that the pull-back/test of lows is complete. What we need is to see deceleration. If the oscillator reverses before it gets to the bottom of its channel -- the higher, the better-- it will be a sign that the decline may have come to an end.
Now let’s see if the Hourly Chart gives us some clues about the state of readiness of the daily indicators.
Here, we find the same pattern that we did in the Weekly and Daily Charts; the indicators are oversold, but they still have not reversed. Until they do, we can assume that we are still in a downtrend. In order to improve their profile, the index does not necessarily have to make a new low, but it could get in a better
position to rally just by going sideways a day or two longer.
Looking at the price chart itself, note that the rally stopped at the 200-hr MA and turned down. That was only two points away from the 1175 projection given by the P&F chart. Since it did not rise to the top red trend line before turning down, this could mean that the SPX is accelerating on the downside and starting
a new, weaker trend.
Potentially adding to the downward pressure is a16-wk cycle bottoming around 5/24.
Until we see some improvement in the price action, the odds of going lower are pretty good. No indicator, in any time frame, has completed its bottoming pattern, which means that the market has not either.
Let’s now turn to the P&F chart and analyze the distribution pattern that was made at the 1173 top.
The first minor phase of the pattern had a projection down to 1127-29. This was reached on Friday and, as I suggested, that level has provided some support for the time being. However, if it doesn’t hold, the next phase of the pattern should take the SPX down to about 1108-1110. This might be a more logical count.
There was a large distribution pattern made between 5/10 and 5/13. The projection to 1108-1110 would satisfy the distribution phase from the 5/11 low to the 5/13 high. You can see the phases clearly on the hourly chart. If one were to take the entire count across the top from the huge rally of 5/10 to the end of the wedge on 5/13, one would come up with a count of 110 points across which, if filled, could drop prices down to 1059, 4 points below the decline of 5/6.
Because of the size of this distribution pattern, there is a chance that we have made an intermediate top and that we are not going to see any new highs for a while, but that is conditional on breaking below 1127 and subsequently below 1108. However, if we can hold either one of those levels, we can have a rally that could alter the present trend, perhaps significantly.
There are a couple of factors that suggest that we might. First, as you can see below, the SentimenTrader (courtesy of same) has become bullish. The short-term indicator is only neutral, but the longer-term has climbed decisively in the positive camp. That does not assure us of a hold at 1127, but it does give us a
reasonable chance of doing so, and if we drop to 1110, the positive reading is likely to increase.
The other factor is the dollar. The recent strength in the dollar has been the driving force behind the weakness of the equity indices, and the dollar index has probably started a move which should eventually take it to about 92. On Friday it reached 86 and it may now need to consolidate. Look at the chart of its ETF (UUP)below.
The UUP broke out of a consolidation pattern at about 23.70 and has been moving up ever since. That move now looks complete, or nearly so. We can count 5 distinct waves and it’s only a question of whether the 5th wave is finished. The upper indicator is showing negative divergence, and the lower one is overbought, has turned down, and looks ready to give a sell signal.
Since the dollar P&F chart had an interim count to 86-87, this would coincide nicely with the chart pattern and suggest that the dollar is now ready to go into a period of consolidation before it moves higher. If it does, it will give the equity indices a reason to rally.
Summary and conclusion:
The bearish view: The fact that all the indicators, from weekly to hourly, have yet to turn up puts the SPX at risk of going lower. The 1127 level was a good count, but it only satisfies a minor phase of the distribution that has taken place around the 1173 level, and 1108-1110 is a more logical projection. Since there are counts which extend considerably lower, the index will have to demonstrate that it intends to form a base at 1127 or 1110 from which it can rally.
The bullish view: If the SPX can hold the 1127 or 1110 levels, form a base, and begin to move up, it would reverse the hourly indicators. This could set off a chain reaction which also reverses the daily and the weekly indicators and be bullish, at least for the short-term.
For those of you who are interested in gold, here is a chart of the daily GLD ETF with structure and P&F projections marked on the chart. It should be self-explanatory.
I will send you the Weekly Chart in the near future. It suggests that gold may be approaching a significant top.
Andre
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