I wasn't able to post Andre's weekend update until this evening, but do read it because his stock market views are invaluable and we really appreciate being able to share his weekly updates here. Of course his subscribers received it Sunday, as well as his intraday updates that he emails out. You can get more info at his website http://www.marketurningpoints.com/ ....
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September 5, 2010
Week-end Report
Turning Points
By Andre Gratian
The SPX may be in the process of challenging its intermediate downtrend. In the Weekly Chart (below) that trend is delimited by the red down-trend lines. There are three points on the lower line and, after last week’s rally, there are now three points on the top line. If the rally continues, and especially if we move through the 1130 level, the intermediate trend will have probably come to an end. Should this happen this would mean that the long-trend from March 2009 is either resuming, or that the index will be moving in a sideways pattern until the 4-year cycle has made its low.
On the weekly chart, only one week is up and this is not enough to have turned the indicators decisively. Let’s see what they look like after next week.
The indicators of the Daily Chart are telling a different story. They are in a strong uptrend and give no suggestion that the index has arrived at its short-term high. Nor does the price. However, we have moved up over 60 points without a consolidation, and we have reached an area of resistance. On Friday, we closed on the top line of the intermediate downtrend channel which, by itself, should be able to temporarily stop the rally. But we are also at a resistance level that has affected prices since mid-may. And, we have also reached the median of the green (long-term) channel. One more thing which could have an influence on the market is that there is a 39-td cycle bottoming, ideally, a week from Monday. Friday’s price action gave us a hint that this could be a level at which traders decide to take some profit. We may already have began to build a near-term top. We’ll know better when trading resumes on Tuesday. The various notations on the chart are clear and do not require further explanation.
Because of the strength of the rally and the projection implication of the P&F base that was built at 1040, I have to revise my former forecast. If the 4-yr cycle is still set to bottom in mid-October, it is very unlikely that the formerly suggested projection of about 960 will be reached. This target was contingent on the index breaking below 1040 decisively. Now that the intermediate trend has the appearance of a completed corrective pattern, all former forecasts and projections have to be revised. We’ll have to see what kind of distribution we get at the end of this rally in order to establish a new target for the 4-yr low.
Let’s now look a the Hourly Chart to see if we can find some hint that a near-term top is forming. On this chart, the base formation above the 1040 level is very clear. The SPX formed this base after trading in a down-channel which ended in a triple bottom. After the second bottom, it moved from the bottom of the channel to the top portion, found support on the median, and broke out of the channel decisively. Since then, it has moved higher with only very minor interim pauses while the indicators kept moving higher and the middle one became, and remained, overbought. As of Friday, the lower (A/D) oscillator, started to show some significant divergence to the price movement. Also on Friday, the index gapped open, was immediately met with some profit-taking, but managed to crawl back to near its high for the day by the close.
Considering the fact that the index has now moved up over 60 points without any consolidation, has reached a significant resistance level, and that the A/D oscillator is showing negative divergence, it is very possible that it has started a consolidation pattern which should become more evident next week. If so, it is possible that this consolidation will last until the 39-td cycle low is reached, but the index could also break-out first, and then use the bottoming cycle for a back-test of the red channel line.
Since there is no evidence of an important top forming in this area, and since there are higher projections, it is probable that a break out of the intermediate channel is just a matter of time.
Gold
After violating the bottom trend line of an almost 2-yr long channel, GLD almost immediately rallied back above it and stayed above, re-testing its former high last week. GLD is in a long-term uptrend, and this channel is only a secondary channel within a much broader one whose lower trend line is currently at about 98. Technically, this is the reason why the first sign of weakness did not result in any major correction. However, if GLD fails to make a new high and breaks below its channel line one more time, it will probably enter a more protracted period of weakness.
Both indicators are now showing negative divergence and the lower one is overbought. This condition puts pressure on the ETF to move to a new high quickly, or it will have missed the opportunity.
The original projection for GLD was 122, but there was also a potential target of 128. The latter is what GLD may be trying to reach before starting an extended correction. If a top is forming without reaching a new high, we should soon have a P&F count which will determine how much of a correction lies ahead.
As you can see, the weekly chart is telling the same story, except that in this chart, although divergence clearly shows on the upper indicator, the lower one is overbought but is not close to giving a sell signal. This could give GLD the time needed to make a new high and fill its higher count of 128.
Andre
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