Turning Points for the S&P 500: Andre Gratian's fine lines for short-term and big-picture perspectives

Market investors and traders benefit from channel lines, trend lines, and support/resistance lines. They're used in many methods and guide us, even if other analytics give differing interpretations. Andre's comments and charts, below, show us a great set of lines to signal us when the rally is continuing and if and when the rally gives way to downside action. Andre has also kindly commented to me, when sending this weekend report, "Note that I have drawn the parallels to the November-March lows on the daily chart and that the one that is drawn from the October high is quite a bit higher than you show on your chart." Thanks Andre! I've been thinking of doing some more work on my charts and this is likely to be a great improvement. Meanwhile - let's see what Andre has for us, in preparing for the week ahead:

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April 26, 2009
Turning Points
By Andre Gratian

A 3-dimensional approach to technical analysis

Cycles - Breadth - Price projections“By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another’s, and each obeying its own law … The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." -- Mark Twain

Current position of the market
Long-term trend - Down! The very-long-term cycles have taken over and if they make their lows when expected, the bear market which started in October 2007 should continue until 2012-2014. This would imply that much lower prices lie ahead.
SPX: Intermediate trend - The index is in a counter-trend rally of a corrective nature.
Analysis of the short-term trend is done on a daily basis with the help of hourly charts. It is an important adjunct to the analysis of daily and weekly charts which discusses the course of longer market trends.

Daily market analysis of the short term trend is reserved for subscribers. If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at ajg@cybertrails.com

Overview:

This past week, the market has made us a little nervous because the anticipated weakness has yet to manifest itself, so this week-end, with the help of a few notations, I am going to let the charts speak for themselves.

The 8-week cycle which bottomed 4 days ago has pushed us back toward the high in a move which is very reminiscent of what happened on December 29. So, are we to move higher before we collapse? If we did, it would be sheer coincidence. For one thing, on that past date the 6-week cycle bottomed at about the same time as the 8-week, providing the condition for a stronger rally. This time the 8th week is alone and other technical and cyclical circumstances are also quite different.

That does not mean that we cannot move higher. Although conditions are nearly perfect for a turn, until real weakness appears, we are still in an uptrend. If we were to replicate the December move exactly, we would need to move to 895 before reversing. The minor cycle bottoming on Monday could be the spoiler.

If its impact is more than just a few points, and if the corrective structure is complete -- assuming that the pattern is correct -- we should reverse and decline until we have completed the “B” wave labeled on the hourly chart. The 15m chart shows that there are two projections a little higher which could be filled before we start down, and the MSO [momentum indicator] on the 15m chart could use one more small up wave to make it completely similar to the previous reversal patterns. Also, the A/D showed a little too much strength at the close.


Next is the hourly chart. On that one, I show what lines and levels must be broken before we have a confirmed decline. The dashed line has been the primary support to prevent a meaningful reversal. If penetrated, it should trigger some good selling and we have nearly 3 weeks to go before all the cycles which lie ahead have made their lows. Note that indicators are still moving up and that the MSO (middle), in particular, appears to need a few more hours to complete its topping action.


The 15m chart (above) also shows that, ideally, a few more hours might be needed on Monday to reach the 874 projection and complete the topping process.

As mentioned before, the NDX has been leading the SPX higher. It made a new high on Friday, and although the near-term pattern is the same as that of the SPX, this new high gives this short-term move a different meaning in the context of the longer term which could bring about the need to convert the current a-b-c into a 1-2-3-4-5, requiring another short-term correction followed by a final move to a slightly higher high -- not just for the NDX, but for the SPX as well.

To nullify this possibility, all indices will have to break below their April 23rd lows on the next pull-back. If they don’t, there is a very good possibility that the top of the move for the SPX will be 895-900, and not 875. This will not change the fact that a correction will take place afterwards. There is nothing that can make the cycles bottoming until mid-May go away. It will simply delay the correction by another 2 or 3 days. To prevent a new high, 835 has to be broken on the next decline.

I am going to hold off making a final projection for the correction until the top has been reached for certain.

Andre