Technical measurement on how much farther this stock market can go: Andre Gratian's Turning Points report

How much farther can this stock market go in price and time? It's a big question now that I've found challenging. Fortunately we can share Andre Gratian's weekend report (thanks again, Andre!) combining numerous technical analysis methods. Andre shares his weekly update with us, below. This presents his forecasting insights, focusing primarily on the S&P 500 index ($SPX) plus the dollar and gold as well. He uses a full set of technical analysis methods including technical indicators, breadth and strength, trendlines, cycles, Fibonacci and P&F projections. Andre also keeps a good eye on sentiment. You can get more info at Andre's website (including his intraday update subscriber series), at http://www.marketurningpoints.com/. And now, Andre's update (click any of his charts to see it as a larger image):

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December 12, 2010

Market Turning Points Report
By Andre Gratian

Here is what we think we know about the current market trend:

A bull market started on March 9, 2009. The trend is still intact and prices are expected to go higher before the new bear market begins.

After an intermediate-term correction, a new intermediate uptrend began on 7/1/10, from 1011 on the S&P 500 index (SPX). It may be coming to an end.

What we don’t know is what that intermediate trend high will be and when the following reversal will occur. The short-term trend which started at 1173 on 11/30 is either the final phase of that trend which, when complete, should be followed by an intermediatereversal; or, it may only be part of a sideways correction which started at the 1127 top on 11/05 and which has more work to do before the start of the final phase into the top of the intermediate trend.

It is premature to expect an intermediate top in the near future. My original analysis called for such a top to occur after mid-December, but some pieces are missing and a reversal in that time frame may only signal a short-term top.

We have some potential price projections which originated from the Point & Figure base above the 1173 level, but they may only be applicable to what would be the “b” wave of an a-b-c pattern.

Since the intermediate structure lacks clarity, it is best to confine our analysis to the move which started at 1173. The following Hourly Chart of the SPX examines the potential pattern which is under construction. Let’s go over it in detail.

The premise is that this phase will have to complete a structure consisting of three different channels, or sub-phases, before it is over. The first channel, which was narrow and steep, is outlined in light green. Prices moved outside of its boundaries without consolidating and began to form the second channel, outlined in blue.

This is the channel which defines the current trend. It is much broader than the first one and the SPX is currently trading in its upper half – a sign of strength. The top channel line begins at the half-way point of the base pattern, and connects two other points of the price chart in perfect alignment. The bottom trend line is drawn as a parallel to the top line from the last low of the base.

It is more than possible that the high made within the blue channel will not be the final high of the move which started at 1173 because, when prices come out of that channel, they will be contained by another, even broader channel which is outlined in purple. In other words, prices moving within the third channel could find support, first at the purple mid-channel line, and then on the lower purple channel line which will have to be broken before that move comes to an end.

If this premise is correct, the current phase from 1173 could last for a while longer, reversing at the 1248 or the 1260 projection targets.

Let’s now take a look at another version of the Hourly Chart to analyze the current market position. The SPX’s inability to move to the top of the blue channel reflects deceleration, which also shows in the two loweroscillators. The top indicator is overbought and close to giving a sell signal.

Since we’ve gone past the 1236 projection, the next logical target is 1248. That’s only 8 points away from Friday’s close, but there could be another pause at the 1240 level.

The intermediate trend will be addressed fully in the next Market Turning Points Newsletter. By then, there may be a little more clarity in the market’s intentions.


GOLD

In the last newsletter, I had suggested that GLD (the gold ETF) might re-test its high with a move back up to 138. It actually went one point higher and formed a double-top before retracing. Considering the pattern which the SPX is making, it is likely that GLD will do the same over the near-term, and trade in a sideways pattern with the price remaining above 130.

Dollar

Above is a Weekly Chart of the dollar ETF, UUP. It shows 3 bottoms which occurred at about the same level with a reversal at each level. Although the last reversal cannot yet be completely confirmed, it has a bullish tone, but may require some additional consolidation before moving higher.

The UUP chart is a little misleading, because it shows the last low being lower than the October low. In the dollar chart, that low is actually higher. Even more significant from a long-term standpoint, all three lows are higher than the low established in May 2008. Is the dollar just about ready to embark on significant uptrend?

The near-term is a little murky, and there could be a little more upside before any additional correction, and base building sets in.


Andre