Wednesday, August 11, 2010

Trading "sailors" riding stormy waves: Andre Gratian's Turning Points technical analysis update

Oh readers, we had warnings from various corners and starkly from Raymond Merriman (whose weekly preview comments we post each weekend) that the market movements could continue to be very strong - and they certainly have been so far this week! I wasn't able to post Andre Gratian's fine technical analysis Turning Points update over the weekend, but finally here it is. You'll note that today's market movements such as the S&P 500 ($SPX) index have indeed violated last Friday's low, along with the euro ($XEU and FXE) dropping below its own Bollinger Band midline today in what looks rather bearish. If the $SPX goes below 1082 - and the futures currently are below that, so we'll see if that proves out tomorrow - that could send the equities indices still lower, but we'll have to see when the cycles finish their work because we have some reason to think that next week could have positive movement ... that will depend on where next week's starting point ends up! So - read on, traders - you'll want to know what Andre Gratian is seeing in his technical analysis:


August 8, 2010
Week-end Report
Turning Points
By Andre Gratian

At the beginning of the last Week-end Report, I wrote the following overview. I am leaving it in place with a few alterations because it still applies.

Overview: 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 suggests that the uptrend is still in place.

Best estimate at this time is that the uptrend will end during the week of 8/23.

SPX projections: 1122 (reached) - 1141 - higher ??? To be determined later.

Each projection should bring an interim reversal after it is reached. The last one will bring a reversal of the trend and the start of a decline into October.

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

Let’s look at the Daily Chart. On Friday, with the negative jobs report providing a trigger, the market had an opportunity to sell-off and continue its intermediate decline. The SPX was down 15 points in the first hour, but could not follow through. Instead, after basing out for another 3 hours, it started to rally into the close and finished down only 4 points for the day. Unless it resumes its decline on Monday and breaks Friday’s low with very negative breadth [Ed.: Traders NOTE, that low was taken out today (Wednesday)], the odds are that it has more upside to travel. The base formed on the P&F chart had suggested a potential of 1141, and cycles call for a continued uptrend into the week of 8/23. This is what we should expect until proven otherwise. There is a Fibonacci extreme target of 1175, but since it is not backed up by a P&F from the base, it is only semi-reliable.

The chart shows that the index is currently moving in a broad pitchfork (outlined in blue trend lines), and that it has been hovering around the median for the past few weeks. The green trend lines denote a steeper channel in the form of a wedge which started in early July and which remains unbroken, although the hourly chart shows that it has been violated.

Two of the three indicators are showing divergence, telling us that a top may be near, but we don’t have a sell signal. It will come when the indicators turn down, and the index comes out of its green channel and breaks below the former low of 1088. The decline will be fully confirmed when prices come out of the blue channel.

Let’s now turn to the Hourly Chart. On Friday, the index nicked the green trend line, but it provided support in conjunction with the bottom trend line of the near-term down-channel, and a rally into the close ensued.

Since the top red channel line has not yet been broken, and the indices have not given a conclusive reversal sign, the SPX may spend another day or two finishing its consolidation before extending the uptrend. The fact that 8/10 is a Bradley date could work either way for the market and we’ll just have to wait to see if it ends up as a near-term high or low.


After dropping 10 ½ points from its high, GLD became short-term oversold and is having a bounce which has retraced 50% of its decline. It could still go higher since the indicators are not yet showing a top formation. Until they do, anything is possible, including fetching the 128 P&F target which is still valid until the intermediate decline is confirmed. Although the ETF has broken below a former low and severely violated its long-term uptrend line, it has rebounded above it.

One factor that does not give much credibility to the possibility for a new uptrend to a new high is the volume pattern which remains very low on the re-bound. For some reason, the volume is showing downvolume for the last 3 days. That is not correct since the index was up two of those 3 days.


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