Trend and cycles analysis update by Andre Gratian for the S&P500 equities markets

Here's the weekend summary analysis from Andre Gratian addressing trend analysis and cycles for the S&P500 equities markets:
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February 1, 2009
Turning Points
By Andre Gratian

A 3-dimensional approach to technical analysis
Cycles - Breadth - Price projections

When the SPX moved above 860, it signaled that it might want to continue up after a consolidation. However, since reaching 878, it has rolled over, broken its uptrend line, and has been declining ever since. This is too much of a decline to be just a correction in the short-term uptrend, especially since it has already broken below 825, although it closed above it on Friday and there are some signs of positive divergence appearing in the indicators. The odds, therefore favor that, after a short rally, we will move lower.

Let's look at charts! I have placed the daily and hourly side by side to give us a better perspective. You will remember that I was suspicious of this being an important reversal because the daily indicators had made an untypical pattern for a good low. Although the two lower indicators moved up from their oversold position, the upper one never confirmed the buy signal. Now they have turned down again, and will be able to make a much more orthodox low pattern, possibly with positive divergence for added assurance.

Another reason to give the market the opportunity to define itself, is that it has made a low at the bottom of a potential broad (blue) channel which could have turned out to be an ABC wave correction. But the potential "C" wave was stopped by strong resistance at 2 parallels: 1) one derived from the lower trend line, and 2) a much more important parallel to the descending (dark blue) trend line from the top. The rally was stopped at the point of intersection of the two parallels which created mucho resistance.

In technical analysis, trends become clearer as the market continues to shape its patterns. I think that we can be fairly certain that the first wave of the long-term trend is now represented by the dark blue lines [see daily chart on the left side of the image below], and that the dashed line represents the middle of its channel. We will not get a confirmed intermediate rally until the SPX has moved above that line.

Let's now look at the hourly chart [right-side chart in image above]. The index has one last chance to prove that it wants to re-establish an uptrend, and not make a new low. Even though it has broken an important support level and may add to the break on Monday, it will still have to go below the blue trend line to confirm that it has resumed its intermediate downtrend. The oversold, bottoming, hourly indicators suggest that it will, at least, find some temporary support on the line. These indicators (all three) are also beginning to show some positive divergence. This means that a break of the downtrend line is imminent! However, if the index reverses with this little divergence, it will also suggest that the reversal is that of a minor low, will be short-lived, and will only bring about a short rally.

I had forecast a low for Monday in connection with the 6-week cycle. I have to revise this. The low will occur, but not because of a 6-week cycle, only its half span. And, speaking of cycles, there is now good indication that we are still under the influence of the 18-month cycle.

As suggested earlier, I'll pass on the EW count, but it looks as if we are putting an end to the intermediate trend, and this would mean completing intermediate wave 3 [note - Andre discussed this in some more detail in his update last weekend].

If we break below the blue trend line and go on to break the former 804 low, the decline should take us to about 770-775, still not enough to go below the 11/21 low. Therefore, this should still be a successful test of the low, although the index, after another rally, may decide to move lower before establishing an intermediate uptrend.

Andre

The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.