Technical analysis update of the S&P 500, including indicators, cycles, trendlines and Fibonacci: with Turning Points by Andre Gratian

Folks, here is Andre Gratian's weekend update - he's the analyst who combines trendlines, cycles, Fibonacci projections and technical indicators on the S&P 500. His website is Market Turning Points (always included in the list of "other sites of interest" at the right side of the page here), and he makes available a free 4-week trial of his daily/intraday analysis comments if you contact him at ajg@cybertrails.com. You can find his previous weekly newsletters and reports using the "Turning Points by Andre Gratian" label in the labels list at right. So let's see what he's saying today:
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July 12, 2009
Week-end Report
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

Ever since it touched 956, the S&P 500 (SPX) has been in a declining pattern which, so far, has reached 869.32 in two distinct phases, and appears to be trying to hold before starting another uptrend. If it holds at this level, it has a chance of being a corrective a-b-c.

I had anticipated longer-term cycles to support prices into the end of the month or early August, but it looks as if they peaked earlier. Let’s analyze the daily chart (below).

I am not very optimistic that the index can get back in an uptrend, even for a short period of time, but there are enough “green shoots” existing or appearing in the indicators, that I have not totally given up entirely on getting some sort of a rally before we move lower. What green shoots, you ask? In the momentum indicator, the histogram of the MACD (top oscillator) is showing some faint positive divergence to the price. In the lower indicator (breadth) the
divergence is a little more pronounced, but not much. Finally, the middle oscillator is oversold and ready to turn up.

In order to give a buy signal, these oscillators would have to turn up immediately and decisively, price would have to climb above 885, and continue above the 50-day moving average (DMA) . Considering the almost total absence of interest by buyers in the past couple of weeks, it would take a sudden change of sentiment to achieve the above.

The index has moved down to a support level (dashed red line) in a fairly shallow channel. If it is going to hold, it must start moving up right away and go challenge the top of the channel. Breaking below the channel line would be a negative, indicative of a steepening of the downtrend.

Another reason that I am not entirely convinced that we are ready to go into the tank is because the Nasdaq (NDX, below) looks very much like the SPX, except stronger. In late May, it broke above its 200-DMA and the correction has brought it back down to rest on it. The 50-DMA has broken above the 200-DMA and the price is trying to remain above both.


Note that for both indices I have drawn a potential larger channel which represents roughly twice the width of the initial channel. If we cannot hold at the current level in both indices, it is likely that both would decline to meet the support provided by the wider channel.

We’ll also take a look at the hourly charts of the SPY and QQQQ (below). These are representative of the SPX and NDX. At first glance, the charts are not bullish. Both have come down to the bottom of the larger channel where they found support, they have had a bounce that has taken them outside of the smaller channel which depicts the “C” wave, (if this is what we are doing) and they have come back to test the lows and are attempting to move back up. The last few hours on Friday were not strong and indicative of a move up on Monday, but if we are going to resume the uptrend, we will have to open up on Monday, and keep moving high enough to clear the previous top and the 50-hr MA (blue line). That’s a lot to expect of an index whose momentum oscillator is already in the overbought range.

Unless we start tomorrow with some bullish incentive which gets us moving to the upside, we’ll either have more sideways moves inside the larger channel until the indicators have corrected and are ready to move up again, or we’ll break the support level and move lower.

A couple of cycle analysts see short-term cycles continuing to decline until the end of the month. I also have the 20- week cycle bottoming on the 28th of July. Moving down into that time frame would present an alternative to holding at the current levels. As stated previously, if we break below the 870/80 support level, I have a projection down to 840.

Monday could turn out to be a pivotal day for the short-term trend.

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.