Stock market toying with potential top: Andre Gratian's Turning Points update 1/30/12

The stock market has reasons to top in this time-and-price area, although it might be merely stalling rather than truly topping. For insight into this, here's Andre Gratian's latest Market Turning Points update. (He had computer trouble that prevented his usual weekend update a couple of days ago - so he's sharing his expanded version of an evening update after yesterday's market close - thanks again, Andre!). You can get more info about Andre's work at his website (including his intraday update subscriber series), at http://www.marketurningpoints.com/. And now, Andre's update (click any of his charts to see it as a larger image):

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MARKET TURNING POINTS
by Andre Gratian

MARKET SUMMARY
January 30, 2012

SPX 1313.01 -3.32
QQQ 60.45 +.05
Weekly trend: up – ending?
Daily trend: SPX unconfirmed sell – QQQ no sell signal
Hourly trend: Trying to turn back up. No buy signal yet.

Point & Figure & Fibonacci projections -

UP: SPX Potential targets: 1336 -- 1333 may be the best that the SPX can do.
QQQ has a legit (near-term) count to 61.50, but may fall short of reaching it.

Down: Top may not be complete

Comments:

My heading for the newsletter this past week-end was going to be: “UNCONFIRMED SHORT-TERM TOP” – and after today’s trading, it remains that way. The QQQ may have to weaken before the SPX can trade lower and give a confirmed sell signal. I had already written the “Market Overview” and will reproduce it here:
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Last week’s activity added to my suspicion that the SPX is ready for a pause.
After meeting the extreme near-term Point & Figure projection of 1322, the
index went into a small re-accumulation pattern which projected to 1336 when it
was completed. After the Fed announced its intention to extend the low interest
rates period to 2014, another wave of buying took prices to 1333.47, but could
go no farther and started to retrace. Friday was mostly and extension of the
consolidation that started the previous day with an attempt at resuming the
uptrend after 13:00 ET. There has been enough consolidation to allow the SPX to
re-test its former high but, with a small cycle bottoming on Monday, more
consolidation could take place.

Or, we could first decide to re-test the 1307 low. SPX would need to have a decisive break below 1306 to give a sell signal . However this plays out, it looks as if we are forming a short-term top.
Certainly, it could develop into something more, but when we look at the advance
from 1075, and then from 1159 and 1203, each advance denotes market strength,
including the last segment. With all this strength it is difficult to see how we
could be starting an intermediate correction without first seeing more obvious
signs of distribution.

EW theorists had expected that the SPX would make an A-B-C (zigzag) pattern from 1075 to complete minor wave 2. Zig ended at 1292 and Zag started at 1159. A cursory analysis would see the move from 1203 as a wave 3, to be followed by wave 4 and 5. If so, it is likely that we may have completed wave 3 and started wave 4 after which, we should form a much more consequential top at the end of 5 that would lead to an intermediate correction.
If this turns out to be the pattern, we should only be looking for a short-term
correction at this time.

So, how much of a correction? Since the top is not complete, there won’t be a reliable P&F projection available until it is. But we can guesstimate with Fibonacci retracement measurements. A .382 pull-back from 1203 would take the index down to the level of the 1292 peak where it could find support. If it decides to go lower, a 50% retracement would take it to about 1245, which is the level of the early December peak (wave 1 from 1259). Of course, if we are making an incomplete impulse wave from 1159, there should not be an overlap, so the move would have to stop higher.

One more note! There are some strong Fibonacci projection converging around 1376. We’ll keep that in mind for the top of wave 5 from 1159 -- if the above analysis is correct.

As you can see below, some of the contrary indicators woke up today. All three (VIX, TLT and UUP) were up for the day. I have comments next to each one. They all appear to be getting ready for a short-term reversal which would help to confirm the short-term top in equities.

The leading indicator is only neutral at this time.

VIX: (19.40) Threatening its intermediate trend line again, but probably not quite ready to overcome it.

UUP: 22.07) Woke up, but still below its short-term trend line.
TLT: (119.42) Challenged its down trend line and was also repelled.
GLD: (168.12) Fibonacci suggest about 170. High, so far, 169.07.

Charts (see below):

Andre