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 19, 2010
Week-end Report
Turning Points
By Andre Gratian
“The SPX may be in the process of challenging its intermediate downtrend… 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-yr cycle has made its low.” (in October)
That was the essence of the forecast two weeks ago. Last week, the SPX challenged the 1130 resistance level, moving above the June 21 high on Friday by 19 cents, but selling pushed it back down to 1125.59 by the close. The highest close at that level was on August 9 when the index finished the day at 1127.79. Therefore, we still don’t have a break-out of the 1040-1130 range in which the index has essentially traded since May. What are the odds of moving above decisively next week? That will depend on what happens on the next couple of days of trading. Let’s look at the Daily Chart and you will see why.
For the past 5 days, the index has stalled just below 1130. During that time, the A/D indicator has returned to almost neutral and showed its greatest negative divergence on Friday, as the SPX was making a new high. The index is in a well-defined channel and has moved sideways to the lower trend line. A break of that trend line would probably bring out some sellers, especially if the 1115 level is broken. This would turn down the momentum indicators, send the A/D indicator in negative territory, and start a downtrend. How much of a downtrend? That would depend on how much distribution has taken place just below 1130. Right now, it looks as if it could be as much as 50 points if the decline started right away.
This is not a forecast. It’s what could happen if the index began to decline Monday or Tuesday, and dropped the full extent of its potential distribution level. That is one possibility. The other is that the SPX moves decisively through the 1130 level and continues its advance. There are higher projection to 1148-1168 [Ed.: KUDOS to Andre for nailing 1148 !!!] and, if it does that, Fibonacci projections will also come into play with targets up to 1175. But besides having to overcome the former tops, the SPX is also very close to a resistance line.
To summarize, if we cannot go though 1130 in the next day or two, the odds are that there will be a pull-back of undetermined extent.
On Friday, I mentioned that the QQQQ had led the SPX upward since the 1041 low. It is stronger than the SPX, and if you doubt this, take a look at the NDX/SPX ratio (at right - courtesy of StockCharts.com).From this chart, we can draw at least one conclusion. Since it is normal for the NDX to peak first at important tops, we can pretty much assume that even if the indices are ready for a consolidation/correction, it is not likely to be anything severe -- certainly not the beginning of a decline which will take us to a new market low. And besides, the index has a potential P&F target of 52-53. But what does the QQQQ Chart say? Although it has already gone beyond its former highs, it also has a resistance problem from being at the top of the black channel, and the declining resistance line.
In conclusion, we can say that the odds strongly favor an interruption in the uptrend at the current level. This should be resolved on Monday. If it happens, we’ll have to decide later what kind of a pull-back is likely. The unknown factor is how much downward pressure the mid-October nest of cycle lows will exert. It is possible that a decline starting from here could last into that time period.
For good measure, let’s also take a look at the SPX Hourly Chart. The potential top formation is even more evident, here. The price pattern has been moving sideways for 3 days and all the indicators are showing negative divergence. The index has already come out of its green channel and is supported only by a re-adjusted near-term trend line. It looks as if there is only one logical direction for it to go: down!
GOLD
On the GLD Chart (below), I have identified the Head & Shoulders pattern which developed between (about )108 and 113. The Point & Figure chart yields three possible counts. Broken down by phases, they are: 122, 125, and 128.
The first count was filled in early May and brought about a 7-point reversal, but GLD went on to make a higher high to 123.56 before having a bigger pull-back which settled at 113.08 and violated an intermediate trend line in the process. However, there has been sufficient buying to move it back above the trend line and to a new high of 1125.03. Since this fills the second count, there is a good chance that another retracement will take place from here, especially since the new high was achieved with negative divergence in the MACD and an overbought MSO.
The ETF is not obligated to keep going to its final 128 target before starting an intermediate correction. Whether or not it does will depend on how well it manages its probable retracement from 125.
Andre
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