Technical analysis points the S&P 500 slightly higher this week, before correction to cyclic lows: Turning Points update by Andre Gratian

Classic technical analysis together with cycles and Fibonacci are what Andre Gratian does with his Turning Points reports. This weekend, he's talking about what's on the mind of a lot of traders - the possibilities for a turn coming up in the S&P 500 equities market. We appreciate his work because it is always unbiased! His website is at Market Turning Points (always included in the sites list at right side of the page here). Andre provides his weekend updates also to his subscribers, and on occasion at Safe Haven. And of course his intraday updates and comments to his subscribers. So let's see what Andre is saying for what we might expect during the upcoming week:
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January 10, 2010
Turning Points - Weekend Report
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

The following chart clearly shows the current position of the SPX. The move which started at 667 completed its first phase in mid-June 2009, began a second phase in July and completed it in early November. The two phases are roughly the same in length (85 and 82 days), the result of an imperfect 90-day cycle. The next phase would bring another low around March 1st, except for the fact that the 9 month cycle low is due about February 1st -- give or take a few days -- and should preempt the smaller cycle.

If these cycles are ready to turn the market down, there should be some evidence showing in the indicators in spite of the January effect, so let’s look for it.


First, the indicators. The top oscillator could not be closer to giving a sell signal. As soon as the lines cross and the trend lines are broken, it will give that sell signal. The bottom one, which is the A/D indicator, shows double negative divergence. As soon as it turns down and penetrates below the red vertical line -- which would also cause it to break two trend lines -- we will have a sell signal. The action of the two oscillators should occur simultaneously.

The price chart clearly shows what is required, so let’s examine that next on the Hourly Chart where it is easier to see.

The move which started on 12/18 is in the process of completing a third phase up (5th wave ). Friday closed with a little spike to a new high which may continue on Monday. If it does, it will meet several trend lines above which should provide resistance.

The combined Santa Claus rally and January effect has taken the index past the projection level (pink lines), and any Fibonacci projection I could make at this point would be a guess, therefore let’s let the market decide when it wants to turn down. Frankly, considering the position of the indicators, it would be highly unusual to have much continued strength. It is rare that we have the daily and hourly indicators both screaming “sell” at the same time.

Nevertheless, we must wait for the trend line(s) to be broken beginning with the small wedge pattern which makes up wave 5 of the move. When it is, it should lead to a challenge of the 1130 level and more important trend lines, including the black trend line from the July low. A close below 1130 would most likely be a confirmed sell.


When we start down, the first target should be the light blue horizontal line which represents an open gap which was created when the SPX rebounded from its false sell signal given on Christmas Eve. Moving beyond would lead to the filling of a second gap around 1104.

The above are guide lines for a potential decline into the 9-month cycle low. Let’s see if the market adheres to them.

In addition to the cycles bottoming in the near future and the precarious position of the hourly and daily chart oscillators, both the short-term and long-term indicators of the SentimenTrader (courtesy of the same) are now on the negative side suggesting a topping pattern.


The QQQQ (ETF for the NDX (Nasdaq 100)) has already met its projection of 46-47 which stems from its Point & Figure chart base formation.

The chart also gives us a good picture of the move from March 2009 which seems to indicate that some distribution will be needed in this area before we can have an intermediate reversal. If correct, this would mean no serious decline right away, but instead, the building of a top formation over the next few weeks.

As far as the timing for the initial move into the 9-month cycle low goes, if we do not gap down on Monday but open up instead, we could extend the move to the red line before rolling over. A CIT (change in trend) is due toward the end of the day on Monday and it could mark either a high or a low. The market will tell us which.

While establishing a new Fibonacci projection is not dependable at this time, we do have a potential P&F projection to 1150-1151.

Andre