Tuesday, July 27, 2010

Taking the stock market's pulse to see just how healthy it is (or not): Andre Gratian's Turning Points update

Dear readers, I'm pleased to say that I finally struggled through and got the time to post up here, Andre Gratian's Turning Points update on stock market technical analysis (plus his gold chart update)! Whew - it's been difficult, but I'm glad I managed because Andre's stock market views are invaluable and we really appreciate being able to share his weekly updates here. Of course his subscribers received it Sunday and already have two days' worth of his daily/intraday commentaries. But let's definitely take a look at his weekend report with its full overview on the S&P 500 plus gold.

By the way, I've updated Andre Gratian's website link (http://www.marketurningpoints.com/) in the sites list at the right side of the page here. So you can always check there to see what's going on with him and his website.

July 25, 2010
Week-end Report
Turning Points
By Andre Gratian

If you have visited my new website, you have probably noticed that it is still a work in progress. However, it can already be used for the purpose of subscribing to my service. To access the site, click on http://www.marketurningpoints.com/


The indices gave a short-term buy signal when the 2-yr cycle made its low on 7/01. After a short pull-back caused by the bottoming of the 78-wk cycle, the short-term trend resumed its uptrend, and Friday’s close almost conclusively re-affirmed the buy signal. There is enough technical clarity to make the following forecasts:

Best estimate at this time is that the uptrend will end during the week ending 8/21.
Projections: 1122 - 1144 - 1175. The first two projections are the most probable, the third is possible.

The first two projections should bring an interim reversal and consolidation after it is reached. The last one should reverse the trend and start of a decline into October.

As always, we’ll let the market confirm the proposed scenario.

Let’s look at charts, starting with the Weekly Chart. An important thing to notice is that the long-term uptrend which started in March 2009 is still intact. The SPX is still trading within the confines of the green rising channel, and although it briefly broke below the mid-channel line, it has now moved back above.

Only the middle indicator -- which is usually the early bird -- has (barely) given a buy signal, but due to the strong diverging pattern of the lower oscillator on the last price low, and the near-confirmation by the daily indicators, I am going to assume that the other two weekly oscillators will soon follow. They may only give a very weak buy signal, and then turn down. It’s important to note that only the lower one showed divergence at the bottom. This means that we have probably only started a corrective upward move, and that this rally is not likely to overcome the 1220 top. Now, we’ll analyze each indicator individually.

The top one (MACD) met with support at the bottom of its up-channel (green) and has turned up, but not yet given a buy signal. In order to do this, the histogram will have to become green and the MACD lines will have to become positive. This can only be achieved if prices move higher.

The middle one (MSO) has barely given a buy. To confirm, it will have to move out of its down-channel. The bottom one is a more complex indicator and I won’t delve much into it, except to point out the strong diverging pattern at the early July low, and the fact that the weekly A/D (based on this oscillator) is still in a downtrend until it breaks out of the red down-trending channel. That appears to confirm the fact that we are likely only in an interim rally within the downtrend which started at 1220.

Now the Daily Chart. This gives us a better view of the budding uptrend. The SPX is challenging its last resistance levels, but with the push of two important cycles behind it, and all of the indicators in an uptrend, it should not have any trouble overcoming them. It is also trying to get out of the red downtrend channel and closed just outside of it on Friday. Breaking out of it does not necessarily nullify entirely the intermediate downtrend, but it shows that the corrective pattern is milder than was (is?) previously assessed by some analysts.

I have drawn the potential short-term uptrend channel with green trend lines, but these are within a larger Andrews pitchfork channel. The 3 target levels mentioned earlier are represented by a small pink horizontal line. The highest one (1175) lies at the top of both channels and near the potential time frame for the top. There are also two red-dashed resistance lines crossing near that level. So, if prices even make it up there, it’s unlikely that they will go higher.

The lower oscillator is based on the A/D (advance/decline). It’s quite accurate at calling tops and bottoms when it diverges from the price, and the beginning of a reversal when it crosses over the center line to either positive or negative territory. Combining the signals that it gives with a trend line break takes a lot of guesswork out of analysis.

We’ll now take a look at the Hourly Chart. It gives us the same picture as the other two, above, but we can see more details of the trend and get an advance warning from the indicators.

The SPX met with resistance at the top of its red channel near the close on Friday. The channel is drawn across the two lows of 5/6 and 5/24, with a parallel initiated at the 1220 top. Other parallels are drawn from interim highs and lows. They are effective at providing support and resistance.

Since there is some divergence showing in the hourly indicators -- but not in the dailies -- it is possible that the SPX will have to consolidate one more time before moving out of the channel line. However, because it did not meet with heavy selling on Friday when it touched the line and closed near the trend line, it is more likely that it will move to its first target of 1122 before starting a consolidation.

The current uptrend is also indicated on this chart by the various trend and channel lines. I did not replicate the Andrews pitchfork -- which can be helpful, but is only a mechanical approximation of the true channel. I prefer to draw my own trend and channel lines.


After reaching its minimum H&S and P&F projection of 122, GLD continues to consolidate slightly above a major trend line. It has come very close to printing the 115 (115.11) initial P&F downside target. It may find some temporary support on that trend line, but since neither the daily nor, more importantly, the weekly indicators are anywhere close to giving a buy signal, it may only have a brief bounce before eventually moving below it and extending its decline into an intermediate correction.

If GLD is making a top, there is already enough P&F distribution to send it down to 106. After (if) it breaks the trend line, this count may have to be revised.

[Monday’s opening will determine if the SPX is immediately on its way to 1122. We’ll get a sense of that on Sunday afternoon when the futures start trading on Globex.] [Note - this comment by Andre has been updated of course, in his daily/intraday comments to his subscribers.]


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