The stock market was weakening as we knew, and after hitting resistance levels last week tumbled substantially lower. And lower again this week into Wednesday. What's next? Technical analysis gives us some very good clues. One technician we're sure to follow is Andre Gratian who focuses primarily on the S&P 500 index ($SPX) but also reviews gold as well. I'm sorry that I wasn't able to post his weekend update until this morning - and here it is, opex Friday morning! But my readers will still want to see what his analysis shows for the stock market and gold. (And I'll be more timely this weekend with his Nov. 21 report!) Certainly his analysis answers one set of questions, relating to the meaning of the declines we're seeing. And I recommend looking closely at his charts, because not only did he discuss the 1185 level in the SPX, but his trendlines also have some indications in the 1170's which the market certainly tested on Wednesday. We'll have to consider what happens next week - will the market high today be another crest before the market tests the 1160's area? That question will be another great reason to review Andre's next report this coming weekend!
Andre deployes a full array of technical analysis methods including technical indicators, breath and strength, trendlines, cycles, Fibonacci and P&F projections. I wasn't able to post Andre's weekend update until this evening, but am very glad to share it now because his stock market views are invaluable and we really appreciate being able to share his weekly updates here. Of course his subscribers received it over the weekend, as well as getting his intraday updates via several emails each trading day. You can get more info at Andre's website http://www.marketurningpoints.com/. And now, Andre's update:
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November 14, 2010
Turning Points
Week-end Report
By Andre Gratian
The index has been traveling in a narrow channel since shortly after it established its uptrend from 1040. It is probably ready to move out of this channel into a wider channel which will still be representative of a short-term trend within its intermediate uptrend.
On Friday, the indicators confirmed a sell signal, and it should take a little while for them to get back into a buy position. One of the reasons I believe that this is only a short-lived correction is because the top indicator (MACD) showed no negative divergence at the high, and is still trading well above its zero line. One can also see that there was no deceleration in prices; they went right up to the top of their channel, and even slightly beyond, before correcting.
Another, is because the distribution phase which has been built at the top is not large enough to send the prices into a prolonged decline. We can see that on the next chart, which is the projection chart which shows the various accumulation and distribution areas and what counts they project when translated into a P&F chart.
As was discussed earlier, the re-accumulation phases established between 1272 and 1296 give us several potential projections. The SPX decided to correct after reaching 1227, which was also the top of its channel where it found some resistance. For the time being, I will continue to consider the higher projections valid as long as the index remains in an uptrend, especially if confirming counts develop along the way.
Right now, let’s focus on what kind of targets we have for the undergoing correction. There are two red bars at the top which represent two areas of distribution from which to establish a target for the decline. The first one gives us a total count to 1195. This was reached on Friday around 1:00 ET and, as you can see, prices held that level for the remaining 3 hours of trading, and even started a small uptrend. This area may be retested on Monday, or the index could go down to about 1193 which is a phase count marked on the chart by the heavy purple horizontal line. We could also see prices start rising right away, and this would indicate that some sort of a low was made at 1195.
The lower of the two red bars at the top represents an extended phase of the top formation. If we have some additional weakness beyond 1193, we would then be looking for a potential move down to about 1185. Even if prices were to drop down to that level, they would still be well within the confines of the expanded channel. I have lowered the bar for the level which would need to be penetrated in order to suggest that a more important reversal has taken place.
Now let’s move to the Hourly Chart to see if the indicators are ready to support a rally from the 1193-95 level. Besides stopping at the 1195 projection, the decline also stopped at a very substantial support level -- the former top formed by the various earlier attempts at moving beyond 1196. If that level is not penetrated any further, it will attest to the market’s strength.
Analyzing the indicators, we note that the lower one (A/D) retained its small positive divergence, which is a good sign. The top one is in the process of turning up, and ready to cross over. Furthermore, the raw data of both the daily and hourly A/D as oversold down to a level which normally brings about a rally. All these signs suggest that the index may be ready to give a near-term buy signal, and to challenge its downtrend line. However, even if it were to close outside of the down channel, it would have to move beyond 1219 before confirming a new uptrend. Considering the degree of weakness that has taken place over the last few days and the condition of the daily indicators, it will probably be necessary for the index to either form a base in this area before attempting to extend its uptrend, or even move lower, down to the 1185 projection.
A move down to the 1185 projection would also bring the index down to its 200hr MA where it would find additional support.
GOLD
The GLD chart which appears above has been shortened in order to fit, but it is still readable enough for our purposes.
Just as it did when it reached its 122 and 134 projections, GLD immediately reversed when it touched 1139. However, it may behave differently at this price level. Since there are several confirming counts to 1139, this could turn into a correction of greater magnitude than some of the recent ones, but perhaps not yet one of intermediate dimension. In order to do this, it would have to break below its trend line, which is currently a little below 120 with the 200-DMA immediately below it. That will provide substantial support and a move to that level would probably generate another rally which could even reach a new high.
In the last thrust, GLD has almost reached the top of its long-term channel and does not show any deceleration, and the intermediate trend indicators of the weekly chart do not look ready to give an important sell signal. Until they do, the risk of an intermediate-term correction is still low.
If GLD develops a congestion area around this level and breaks below it, we’ll have a sense of how much of a retracement it is capable. For now, it may re-test its high before rolling over.
Sentiment
I am happy to see that after being un-accessible for a few days, the SentimenTrader (courtesy of same) is once again available. As you can see, the short-term indicator supports a rally, but the longer-term is telling us that we are approaching an important top -- although we are not quite there, yet. This matches my view of the market position.
Andre
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