Week-end Report
Turning Points
By Andre Gratian
Current position of the marketA 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
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 2014. This would imply that much lower prices lie ahead. This will not be a straight-down decline, but a series of intermediate-term rallies and declines until we have reached the low point.
SPX: Intermediate trend - near reversing! The counter-trend rally which started in March is soon coming to an end. The price objective for a high is being reached and, to deceleration, we have now added negative divergence. But we cannot call a top until we have a confirmed reversal.
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
In spite of its appearance of strength, the best label for the rally from March is still that of a correction of the decline from 1576 and not the beginning of a new bull market -- and it is probably living on borrowed time.
The second phase “c” of the rally is encountering resistance primarily from an internal trend line, parallel to the major trend line just above it. Since there is a string of cycles bottoming directly ahead, it is likely that we will form at least a short-term top in this area and start a correction. A correction starting here would have a negative effect on the histogram, which is already beginning to show some negative divergence.
For this to turn into an intermediate top, we would have to see the index break the green trend line as a result of this correction. Not all the “normal” signs for an intermediate top are in place, so we’ll let the market decide when it’s ready. The fact that we went slightly beyond the top line of the wedge pattern is not much of a concern if we start retracing right away.
We are still waiting for the longer-term cycle to peak. It was ideally due in August, but was probably delayed by favorable economic reports.
Let’s now turn to the daily chart. The two pink horizontal lines just above the index are projections for the “C” wave of the entire rally or, at least from the phase from 889. They are drawn at 1061 and 1085. The last rally stopped between the two, reaching 1074.77 last Thursday.
As mentioned above, the index met resistance when it touched a main trend line from the top, but there were also some other trend lines which contributed to provide resistance. At the same time, there is divergence showing in the momentum indicators. That, and the cycles making their lows ahead should be enough to start a correction. There are two trend lines to break if we are to turn this correction into a serious reversal, both green lines. The minor one from 969, and the major one from 667. Let’s just see how the market treats them in the next couple of weeks.
The hourly chart (above) only illustrates the last phase of the move, from 992 and is meant primarily to show where the cycles will be landing next week. After that, there could be some end-of-quarter buying taking place, followed by more selling into the 22-wk cycle which bottoms around 10/10, and 2 other smaller cycles before it.
If we start selling off on Monday, I’ll come up with a projection for the first phase of the decline.
Andre
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