Week-end Report
Turning Points
By Andre Gratian
From the early March low of 667, I had expected a simple A-B-C rally for intermediate wave 4, then wave 5 to a new low. It’s turning out to be a little more complicated than that. Either that scenario is no longer valid, or it is much more complex than originally foreseen.
875 appeared to have been the top of “A”. The cycles bottoming in the middle of May would have been a good place for “B”, and then “C” would have completed intermediate wave 4. However, 1) the index recovered immediately from a sharp 48-point drop and went on to make a new high. 2) The cycles are not having the anticipated impact on the market, and 3) The long-term sentiment indicator is giving us a reading which would be more appropriate to “C” than to “A”. In other words, I am not sure what kind of a top we are in the process of making, but there is overwhelming technical evidence that we may be just a step away from the end to the rally -- or this phase of the rally.
The NDX reached its 200-DMA before beginning its correction. The SPX has still not reversed, but the signs that it will do so imminently are everywhere. Let’s review its technical position, and decide on the criteria needed to confirm a reversal.
They are easy to determine! Look at the indicators. A sell signal will be given when the upper oscillator breaks its rising trend line, and the two bottom ones break below the red horizontal line. Price-wise, a reversal below 900 would do it since it would break a support level as well as the main trend line. But a move below 912 might even be sufficient to get things started.
How far can we expect to go before this happens? Friday created a double-top, and if we start down on Monday morning, it could attract serious selling. However, the last hour momentum and the strong closing in the A/D, warn that Monday could open up instead and prolong the time of capitulation.
Based on recent Fib measurements, these are potential upward projections where a reversal could take place: 931-933 and 941-43.
On the downside, if we achieved a top on Friday and the 900 level is broken, the first downward projection would be about 888. It would have to be adjusted if we go a little higher. Others will follow.
The SPX is currently at resistance and will find more if it moves higher. The indicators have been in a divergent condition for some time, but started to move back up when the 8-wk cycle made its low. They are trying again after the 6-wk cycle bottomed on Thursday/Friday. It broke the uptrend of the NDX, but was not able to do the same for the SPX.
Here is a comparable chart of the NDX, which has given a sell signal. Look at the lower indicator. This is what I expect that of the SPX to look like, very soon. The upper indicator has yet to give a sell signal, but has turned red for the second time.
Next, the sentiment index (courtesy of Sentimentrader) is -- literally -- flashing red! Between the reading of this indicator and the position of the NDX, above, I just don’t see how the SPX can keep moving up for very long.
What is holding it up are the BKX and financial index. If they have been helping the SPX to move up, they should help it to move down when they reverse. So, instead of looking at the hourly SPX, let’s look at the hourly BKX. The SPX started in a little accelerated uptrend at the same time as the BKX did. Now, the BKX looks as if it has reached its projection while its indicators are showing negative divergence, which is the sign of a top. If the BKX is finished, the SPX is probably finished as well.
Summary:
Signs of a top are everywhere, and the NDX has already reversed. The kind of a top we are making here is unclear. If we are only at the top of “A” and, after “B” is complete we move above 943 decisively, “C” could go as high as 1083.
On the other hand if, as the sentiment indicator suggests, we are making an important top here, it’s possible that we are now completing “C”, or the end of some comparable corrective pattern to end intermediate wave 4.
Andre
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