There appear to be various indications that we could have a small pullback before the stock market moves higher. Such a pullback might last for only one day, so be aware of that. The FOMC is coming up next week, and normally we would also expect the new months, new money effect to produce higher prices in the later part of the week, August 1-3. At this point, be prepared for the possibility of a dip on Monday, and then be alert for whether Thursday, August 2 will be a high or low. A pullback may only retest SPX 1350's to 1360. Be sure to read Tony Caldaro's Objective Elliott Wave weekend update at http://caldaro.wordpress.com/2012/07/28/weekend-update-355/. He mentions the importance of SPX 1344 in case there's an overbought pullback. He also addresses bonds, currencies, commodities, and other countries' indices.
A potential wildcard in all this is that today, July 28, is a Bradley turn date. I'm told that the Bradley turn dates have been having better accuracy this year. Normally, I don't put much stock in them, and even today we cannot be certain whether this is producing a high right now, or will it simply give us a pullback before a further move up. Just something to keep in mind with all else.
One concerning note is that the McClellan Oscillator didn't make a higher high than it did early July, which looks like a non- confirmation so far. It's early yet, so just another reason to consider a pullback. It'll become more concerning if the indices advance higher without higher highs in the oscillator. It's the one chart I wanted to include with this post (other charts I already posted last night via Twitter) but having technical difficulty click on the Twitter pic link to see it: . The Summation Index is also rolling over, which supports the concerns that the longer term might not be so good either. There's a similar point about the VIX, it made a higher low (not a lower low) so that's a bearish divergence. Also there's a short- term trading signal on VIX that bought Thursday and closes out Monday. Again just something to consider for the weeks ahead. It's also noteworthy that the Dow Industrials $DJI $INDU are stronger, while the Nasdaq 100 $NDX and Russell 2000 $RUT are weaker.
Assuming we pullback a day or so, before we move higher, how high? There seem to be various reasons to expect the SPX to rise above 1400 again.** After that, it's a matter of whether this really is a bull market that will carry on to new higher highs, or at least rise above 1500 again. Or, will the market roll over again and retest the June 4 lows about 1260's to 1280, or go even lower. Personally, I think it can go either way. That's why I think it is increasingly important to be flexible, and to pay attention to timing since the timing of a low or high - rather than absolute price - can be the way to decide whether to hold or fold, and when to re-enter.
**NOTE - I just watched and do recommend Chris Ciovacco's charts analysis video at http://ciovaccocapital.com/wordpress/index.php/stock-market-us/bulls-still-in-control/ covering the SPX, equities in general such as other countries and financials, the VIX, internals and breadth, and DeMark indicators status & projections. I'm impressed by the quality and clarity of his analysis; so I highly recommend watching it. Doesn't change my thinking but he does a great job of showing why this market is more bullish than many realize - if support holds!
One cycles source that is proving to be very interesting is the "Change in Trend" blog, and you should take a look at the new post there, at http://changeintrend.wordpress.com/2012/07/28/the-drop-zone/. Their information suggests that August 9 may be a high, and I am also seeing from various cycle methods that August 6-9, and especially August 8 or 9, may be a very significant high.
The week that includes August 8 and 9 is also an important week in terms of the Tom Demark indicators, I've been told. I'm no expert in that method, although I have begun to study up. It is my understanding that, since that will be week 9 after the June 4 low, and so long as the Demark support levels are not violated (seems no problem now), the market will be set up for a "Wave C" down to retest the June 4 lows. So that's something to consider too!
This is all in context of the bigger cycles. It's important to understand that the four-year cycle may or may not have topped out. If it has, then the idea of retesting and moving under the June 4 lows becomes quite serious. Otherwise, if the four-year cycle has not topped out, then we could see higher prices around October to November 2012, and even during the year 2013. I've seen good analyses that would project an important peak either in the spring, or in Jun, or August 2013.
One more note: Terry Laundry passed away earlier this month. His remarkable T Theory - which many appreciated, and others don't agree - often pointed to important tops. He used to provide audio commentary about this at TTheory.com. His last commentary July 7, 2012 described a mega-T that topped mid-2011 and another (40-year vintage) that topped March 2012. He seemed to think that was it, and the market shouldn't produce any new higher highs for a few years. The work will be left to Parker Binion who's carrying forward Terry's work to help determine if there might be any more ancient T's that might produce higher highs, or was the early 2012 peak all that we get before the bear market sets in.
May as well note also that Martin Armstrong has written a new post at his blog, at http://armstrongeconomics.com/2012/07/28/dow-jones-rally/. He doesn't get very specific for free, but mentions both the ideas of a high August or September, along with a possible panic but not clear if that might be during August or more in September, even October.
These are ideas to ponder until we get past mid-August. For now, it's a matter of navigating the next two weeks.
Showing posts with label Confidence Model-Armstrong. Show all posts
Showing posts with label Confidence Model-Armstrong. Show all posts
Saturday, July 28, 2012
Sunday, June 17, 2012
A contrarian, pro-Treasury bonds point of view
Last week started with US treasury bonds moving opposite of stocks, almost tagging a Fibonacci target below while stocks were well up. By the middle of the week, stocks had swooned though trying to recover, and bonds had stabilized. Then they both moved up together into the end of the week. This leaves the US treasury bonds not having traced a trend reversal pattern. At the same time, stocks have potentially traced a bearish trend reversal pattern, and only if they can make last week's highs into support do they have the potential to make new higher highs. Stock market numbers to watch include the Dow at Friday's high; or if above, then at 12,840 to 12,850. Given this potential bearish reversal in the US stock market, and the fact that other stock markets in the world are at much lower levels, this has a lot to do with why the US treasury bond market is holding up so well.
On a Fibonacci basis, it is possible for the US long bond ($USB or the futures /ZB) to actually make higher highs even up to the level of 160. To instead make a downward trend reversal here, it would have to move under 148 and even better 146 on strong selling volumes. We haven't seen that yet. The bond market may be smelling something that many stock investors haven't noticed yet.
Below are daily and monthly charts of the US long bond. I've also added a daily chart of TLT, the ETF that tracks the US long bond. The TLT chart shows that the selling volumes on the recent dip didn't even exceed the buying volumes that preceded during the most recent run up. We would also want to see more negative divergence going into the highest price, whenever "the top" does arrive.
You can see that, although there was a consolidation, a trend reversal pattern has not yet occurred. A trend reversal pattern would require lower lows on increased selling volumes. Until we see that, it's one clue that smart money is remaining in bonds, and may be avoiding stocks. There are even analysts now saying the stock market has topped out, and will only make its own pattern of lower highs the rest of this year and into next year. If that's true, then it supports the idea that US treasury bonds will do well for a long time. Even Martin Armstrong has recently (http://armstrongeconomics.com/693-2/2012-2/mirror-mirror/) explained why, in these uncertain times with other markets drooping and capital fleeing to perceived relative quality, the US dollar and US bonds may be one of the last holdouts of strength; at least until stocks reached whatever bottom they're going to find and finally make a long term cycle low-perhaps sometime next year or in 2014.
A similar discussion about why bonds are holding up so well is available from Terry Laundry in his audio commentary this weekend, at his "Best Bond Strategy" website at http://www.bestbondstrategy.com/.
All in all, given the uncertainties in stock markets and even commodities under pressure, it may not be such a great surprise that US Treasury bonds have proven resilient so far. They may continue to do well in the coming months. And if next year proves to be the significant risky time we've been bracing for, they may hold up into next year as well.
On a Fibonacci basis, it is possible for the US long bond ($USB or the futures /ZB) to actually make higher highs even up to the level of 160. To instead make a downward trend reversal here, it would have to move under 148 and even better 146 on strong selling volumes. We haven't seen that yet. The bond market may be smelling something that many stock investors haven't noticed yet.
Below are daily and monthly charts of the US long bond. I've also added a daily chart of TLT, the ETF that tracks the US long bond. The TLT chart shows that the selling volumes on the recent dip didn't even exceed the buying volumes that preceded during the most recent run up. We would also want to see more negative divergence going into the highest price, whenever "the top" does arrive.
You can see that, although there was a consolidation, a trend reversal pattern has not yet occurred. A trend reversal pattern would require lower lows on increased selling volumes. Until we see that, it's one clue that smart money is remaining in bonds, and may be avoiding stocks. There are even analysts now saying the stock market has topped out, and will only make its own pattern of lower highs the rest of this year and into next year. If that's true, then it supports the idea that US treasury bonds will do well for a long time. Even Martin Armstrong has recently (http://armstrongeconomics.com/693-2/2012-2/mirror-mirror/) explained why, in these uncertain times with other markets drooping and capital fleeing to perceived relative quality, the US dollar and US bonds may be one of the last holdouts of strength; at least until stocks reached whatever bottom they're going to find and finally make a long term cycle low-perhaps sometime next year or in 2014.
A similar discussion about why bonds are holding up so well is available from Terry Laundry in his audio commentary this weekend, at his "Best Bond Strategy" website at http://www.bestbondstrategy.com/.
All in all, given the uncertainties in stock markets and even commodities under pressure, it may not be such a great surprise that US Treasury bonds have proven resilient so far. They may continue to do well in the coming months. And if next year proves to be the significant risky time we've been bracing for, they may hold up into next year as well.
Sunday, January 1, 2012
A-Z financial market forecasts for 2012: stocks, gold & silver, currencies, bonds, oil & more
Happy New Year 2012! Here's a review of forecasts across the financial markets, and we'll cover what we and our go-to featured analysts are seeing; as well as a review of other analysts and approaches that we think our readers will appreciate. Browse these now, and bookmark this post to refer back to from time to time. Odds are you'll even find some ideas and approaches that you may want to give more attention to in the future. The chart first at right here is actually from a cycles projection by Jim Curry (back in Feb. 2011 and still very telling for 2012!), and I'll discuss it in more detail later below. My own general views are based on Fibonacci time and price projections as well as my understandings of Elliott Wave and cycles. These have me bracing for stock market weakness in January, a rise (lower high?) into March, lower again in the summer (June-July), and then I'm less certain right now about a potential rally into late 2012. For KI$$ investing, I've just gone long again on gold and silver, so long as they respect last week's lows, and that should last most or all of 2012. Crude oil could turn bullish, but unless it strengthens fast, I'm tilting bearish on it because it could retest not only the $85 area but even down to $62/65. I'm bearish the euro as it could head toward a Fibonacci retrace level around $112 $XEU. The dollar is tricky because I do expect it to strengthen further, despite the efforts to push it lower; but at some point it may destabilize downward (fueling gold most likely); we'll assess that once we see how it reacts after a rally of perhaps 10%. But since my views are informed by also surveying the contributions of others, let's see what these talented analysts have to offer! For some I'll indicate or include their forecasts; others I'll include as resources."A" is for Andre Gratian whose Market Turning Points update we're glad to share each weekend. He's been referencing long-term cycle lows the stock market is heading toward bottoming around 2014. I'll post his next update Monday, so check back to get all his current think on stock indices, the dollar, bonds (TLT) and gold (meantime you can see his most recent update posted here on December 26).
"A" is also for Afraid to Trade, a site by Corey Rosenbloom at http://afraidtotrade.com with his blog at http://blog.afraidtotrade.com. This weekend he's showing a very interesting chart analysis of Google (GOOG) at that blog.
"B" is for Mike Burke - he publishes a weekly Technical Report analysis for the US stock market. It's posted at Safe Haven, and if you read it you can also see his info on how to sign up to receive it weekly by email. Not really the only thing I'd use but a good adjunct to weekly preparation.
"B" is also for the Bradley siderograph which produces turn dates. But I'll put it at the bottom as "Z" for Manfred Zimmel who produces a forecast chart (warning, the highs/lows aren't absolute - only consider the strong dates as turns; I've even seen them result in a continuation twist rather than pure turn). Under Zimmel below, you'll also find Manfred's explanation of the Bradley siderograph.
"C" - hey, a three-fer! Tony Caldaro, ChartsEdge, and Jim Curry. We'll take 'em one at a time. Tony Caldaro is the greatest Elliott Wave analyst of our time, in my humble opinion. He's reinvented it and calls it Objective Elliott Wave (certainly distinguishes his detailed work totally from that discredited permabear Robert Prechter of Elliott Wave International). We're honored to feature Tony's updates here on a regular basis. Currently he's depicting the stock market at a serious juncture, which you can read about and see in his update posted here yesterday.
ChartsEdge by Mike Korell produces keen cycles forecasts for different time frames,. Mike developed unique ways to systemetize the forecasts via a neural network incorporating cycles of varying lengths. He also (for subscribers) incorporates pattern recognition and physics (geomagnetics) for daily and weekly charts that work uncannily well. We're pleased to feature his week-ahead cycle-based forecasts each weekend (and I like to use his daily subscriber charts for intraday trading).
Jim Curry does methodical cycles work. Sometimes he shares a free article that we post. Hey, his February 2011 article was a tour de force with chart projections that are still working! (though his subscriber updates will have been targeting the choppy action since summer). The chart at the top of this article is just one of many you'll want to see in "Stock Cycles Looking for a Peak!" posted 2/22/11 at http://cyclewave.homestead.com/stockcycles.html.
"D" is for DecisionPoint by Carl Swenlin. A solid set of chart work that readers may want to look at from time to time.
"D" is also for Tom DeMark; and interestingly you can often get DeMark signals info for US and other stock markets, even other tradable assets, from Kevin Depew via his Twitter @kevindepew and sometimes that and/or other insights from Joshua Demasi tweeting @joshuademasi.
"D" can also be for Daneric's Elliott Waves at http://danericselliottwaves.blogspot.com/. It's his hobby, so not as complete and rigorous as Tony Caldaro of course. But if you enjoy seeing what it's like to work through Elliott Wave analysis and probabilities, you may enjoy looking at it from time to time. Daneric is talking about a bearish wave 2 up scenario, so that implies a substantial stock market drop looming just ahead! Still, I've gotta say we do turn to Tony Caldaro for Elliott Wave projections, addressed below.
"E" is for the Economic Confidence Modeled pioneered by the iconoclastic Martin Armstrong. It's been awhile since we dug up his updates, but now he's out (literally) and about, and prolific. I have the general understanding that June 2011 bottomed Martin Armstrong's 8.6-year business cycle. That doesn't mean the cycle has to make a higher high, even though the early stage of any cycle is bullish. Note that the next low in that cycle will be in early autumn 2019 (interestingly, some project gold to be bullish, with weak stock markets, into 2020). If you want to study Martin Armstrong's work, including his current and new reports, go to Writings | Armstrong Economics at http://armstrongeconomics.com/martin_armstrong_writings/. Some you may find rather interesting are:
Gold and Reversals, 12/27/11, at http://armstrongeconomics.files.wordpress.com/2011/12/armstrongeconomics-answering-questions-gold-reversals-122711.pdf.
Martin Armstrong's December 27, 2011 report at http://armstrongeconomics.files.wordpress.com/2011/12/armstrongeconomics-financial-border-controls-122711.pdf.
Armstrong's interesting discussion and forecasting levels regarding the demands and prospects for gold, the US dollar, and US bonds in these turbulent times - why they're going up (and what'll make the dollar and bonds go down): http://armstrongeconomics.files.wordpress.com/2011/10/armstrongeconomics-30-yr-rates-record-lows-100711.pdf.
Also his 11/4/11 "Financial Armagedon" report with discussion of debt, currencies, and gold as a hedge and investment including a detailed analysis of gold forecasts for the coming months and years: http://armstrongeconomics.files.wordpress.com/2011/11/armstrongeconomics-financial-armagedon-110411.pdf.
"K" is for Samuel Kress, though it could almost be for Kondratiev, because Kress analyzes long-wave cycles (such as 60 and 120 years). His updates are sometimes summarized by Clif Droke in articles at Safe Haven. Clif has stated that the 6-year cycle peaked around October 2011, and suggests that the stock market may not make a new high before the long-wave cycles bottom in the years directly ahead.
"M" is for the incomparable Raymond Merriman whose public weekly previews we're delighted to feature. If you don't already have his Forecast 2012 book, go to MMACycles.com and get it now. There's a wealth of great forecasting for the stock markets, US bonds, currencies, precious metals, crude oil, and grains, plus other bonus features like forecasts for the US presidential elections, the US and the world socionomically for the years ahead, the Federal Reserve, and annual horoscope forecasts for individuals under the various astrological signs. Fascinating stuff.
"M" is also for McClellan - we greatly appreciate using the Oscillator and Summation Index invented by McClellan ... Did you know they have a website? Maybe I won't agree with them 100% but they're doing a lot of great work. Check out their latest "Copper Weakness Is a Warning Sign - Free Weekly Technical Analysis Chart - McClellan Financial" sounding, a warning based on weakness in "Dr. Copper" at http://www.mcoscillator.com/learning_center/weekly_chart/copper_weakness_is_a_warning_sign/. But copper isn't gold - see their post earlier this year, One to Three Years Left For Gold's Run - Free Weekly Technical Analysis Chart - McClellan Financial, at http://www.mcoscillator.com/learning_center/weekly_chart/one_to_three_years_left_for_golds_run/.
Another to consider is Marty Chenard who has a website service and occasionally posts at SafeHaven. His work is good but he isn't very open in public about forecasts for the future.
"M" is definitely also for Mr. Top Step, veteran traders of the ES_F (S&P futures), bonds and more, and if you're seriously trading you'll want to follow those tweets @mrtopstep.
"N" is for the Najarian brothers, Jon and Pete (yes, same as on CNBC's Fast Money, and along with Rick Santelli (also a veteran featured on CNBC many mornings), in the movie Floored). Again, if you're seriously trading, you'll want to keep in touch with their optionMONSTER, and tweets via @optionMONSTER and especially @optionMONSTERfd.
"O" is for the Outlook, that is, the Monday Morning Outlook posted (and can be received by emails) by the excellent Todd Salamone and of course Bernie Schaeffer and increasingly Rocky White at Schaeffer's Investment Research. Todd Salamone helps keep and eye on the technical and sentiment backdrop each weekend, mainly for the US stock markets.
"P" could be for Phil Davis who has his Phil's Stock World website with subscriber services, and occasionally posts at SeekingAlpha. His work is very good, but he focuses almost entirely on heavy-duty options trading, and isn't very open in public about forecasts for the future other than for the immediate future.
"P" will also be for Prieur de Plessis whose "Investment Postcards" updates often contain good alerts and interviews. Such as the next one, below:
"R" goes to the venerable Richard Russell. You'll want to know this: “Upside gold crescendo lies ahead,” says Richard Russell « posted at Prieur de Plessis' Investment Postcards from Cape Town, December 31 at http://www.investmentpostcards.com/2011/12/31/upside-gold-crescendo-lies-ahead-says-richard-russell/. Russell also issued a bearish alert on the stock market recently, indicating he doesn't expect it to make new highs.
"R" can also be for Alex Roslin who creates trading signals for 8 markets (SPX, Nikkei, gold, oil, natural gas and more), at his http://www.cotstimer.blogspot.com, using the weekly Commitments of Traders reports. He's improved his analysis and signals during the four years he's been posting and you'll want to keep an eye on his signals.
"S" we'll assign to Sentimentrader - they produce a neat gauge each day ( which Andre Gratian includes often in his reports). They also have other free and paid services, including a blog and a Twitter (I do follow them on Twitter).
"T" has to go to Terry Laundry with his trademarked "T Theory™" (incorporating breadth/strength analysis) as well as incorporating some cycles has definite opinions regarding the path of the stock market, gold, and US Treasury bonds. Yes, he's talking about a projected low date in January, and has thoughts about price and time both then and as 2012 will progress. Terry also has projections for stocks and gold (and probably bonds) that go out for years ahead. You can hear Terry's free T Theory weekend updates at http://www.ttheory.com/observations.php, which also has a link to his free public charts at Stockcharts.com.
"V" is definitely for VIX and More, analysis by Bill Luby on the volatility index. You can follow his VIX signals and informative discussions at http://vixandmore.blogspot.com, and via Twitter too. Anything you want to know about how the VIX works, "and More", you can learn there.
"Z" is for Manfred Zimmel with his work on the Bradley siderograph, at Zimmel's Amanita Market Forecasting site. Here's a quote of his Bradley chart discussion at http://www.amanita.at/FAQ/FragenzumBradley-Siderograph/Bradley-Siderograph/
The Bradley [astrology-based] siderograph was developed in the 1940'ies by Donald Bradleyto forecast the stock markets (link book). Bradley assigned numerical values to certain planetary constellations for every day, and the sum is the siderograph. It was originally intended to predict the stock markets. The noted technical analyst William Eng singled out the Bradley model as the only 'excellent' Timing Indicator in his book, "Technical Analysis of Stocks, Options, and Futures" (source: Astrikos).It is crucial to understand what the siderograph is about since many traders (and even financial astrologers) misunderstand it. Over the decades it has been observed that the siderograph can NOT (!!!) reliably predict the direction but only turning points in the financial markets (stocks, bonds, commodities) within a time window of +/- 4 calendar days (in some cases up to +/- 1 week with the exception of Amanita pivots (+/- 1-2 days). Inversions (i.e. a high instead of a low and vice versa) are quite common.
In 2011 the Bradley siderograph could not beat random probabilities by much, when taking all turning points into considerations. Only the major turning points (bold & large in the chart) continue to be valuable timingtools *today*.
2011
2012
This is the Bradley standard model (original formula according to Donald Bradley) from December 2011 through January 2013:
In 2012 there are 4 major turning points:
- March 3, 2012
- June 12, 2012
- July 28, 2012
- December 22, 2012
Strictly speaking the siderograph dates are potential turning dates, bifurcation points in the language of chaos theory. In addition to the standard model there are 3 other models in the premium area, which may be quite different. All Bradley analyses in the free area since 2007 can be found here.
Raw data for your own research
Premium subscribers of Amanita Market Forecasting get the data of the four Bradley models for the period 1990-2020 as a .txt file (click here to subscribe). Another possibility: you calculate the data yourself with the aid of a financial astrology software ('Financial astrology is the use of astrology to analze and forecast the financial markets. Here financial astrology is understood primarily as an empirical-statistical discipline. The probably first financial astrologer in history was Thales of Miletus who is viewed as the father of science and philosophy (together with Aristotle). With the aid of astrology Thales foresaw an excellent olive harvest, so he hired all olive presses that he lent out with a huge profit, which made him a rich man.') - please go to the software-page. I mainly use the Market Trader von Alphee Lavoie, which is too expensive for the average hobby researcher though.
Enjoy the forecasts and educational analysis offered by the above array of great folks - it's enough to last you through 2012 in more ways than one! There certainly are others who do great work, I'm not intending to diss anyone by exclusion. I'm just including those that either we consistently refer to (readers will recognize as such here over time), or that I know my readers will find interesting for their views and/or analysis. I may augment this later this weekend and as the year progresses. Happy New Year all!
Sunday, June 19, 2011
Will cycle cluster be market buster? Technical & sentiment analysis update by Andre Gratian 6/19/11
The Armstrong date last week was just one reason among others to consider a turn low in the markets. Does sufficient strength exist to send the markets up again? And will sentiment support such a turn? To assess all that - and review breadth and other technical indicators, cycles, Fibonacci and point-and-figure projections, wave counts, sentiment and more, Andre Gratian's Market Turning Points weekend report (thanks again, Andre!) combines numerous technical analysis methods, plus sentiment. This weekend's extra treat is Andre's review of US bonds via the ETF, TLT. 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; essentially as shown in Andre's article as also published at http://www.safehaven.com/article/21389/market-turning-points today (image renderings this week, copyright SafeHaven.com):
Very Long-term trend – The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive, cyclical bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved into a bull market. Cycles point to a continuation of this trend for several more months.
SPX: Intermediate trend – The SPX has met its 1370 projection and appears to be making a fairly shallow intermediate correction.
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.
Market Overview
Week seven and counting…! After a decline of 112 points, the SPX finally had an up-week – by 52 cents! WOW!
The SPX and the QQQ both essentially met their potential Point & Figure projections for the decline when they dipped to intra-week lows. Now we must wait to see if these will work their magic again and give us a worthwhile reversal.
The VIX finally awoke from its torpor and rallied past the 20 mark to which it had been confined for the entire decline until the past three days when it finally rose to 24.65 last Thursday, and promptly reversed to 21 on Friday, before closing at 21.85. What does this mean? Is it bearish or bullish? It depends on what it does next week. It is now in an uptrend channel and would have to close below 19 on an hourly basis (below 18 would be more convincing) to get out of it.
That’s one! Two, is the QQQ. Last week, it dipped and closed slightly below its March low and slightly violated its 200-DMA, finishing right on it. This is obviously a level which it must hold if it is going to rally right away. Just the fact that it is underperforming the SPX is a negative.
Three, concerns the dollar! Last week, it challenged its weekly downtrend line from the April high, closing right on it. Exactly 7 weeks ago (when the decline in the SPX started) it bounced off a two and a half year channel bottom and, although it has not given a convincing weekly reversal yet, the daily trend will be doing so if it can move outside that trend line. Granted, the dollar and the SPX have not always trended in opposite directions, but they have most of the time. On its daily chart, the UUP (dollar ETF) has met with strong resistance every time it has rallied to its 200-DMA. On Friday, the moving average was at 22.26, and UUP closed at 21.45, so it has some room to move up before hitting it. When it does, it will also meet with other resistance lines, and possibly complete an a-b-c correction in a downtrend. If it breaks above its downtrend line, this could take another week or two to accomplish. Would the SPX be able to rally, or even stand still, during that time?
Four, the XLF (financial sector) which has never convincingly reversed from its long-term downtrend, and which has now been in a decline not seven, but seventeen weeks, has yet to show that it has bottomed. Last week looked more promising; it kept its weekly range slightly above the previous one, and closed a little higher on a weekly basis. Also, the good news is that it, too, seems to have met its downside P&F projection, and on the daily chart, it looks like it has made a double-bottom.
And that’s not all! We are in the middle of a cycle cluster (which will be discussed under “Cycles”).
By contrast to these potential (or real) negatives, the SentimenTrader is showing some very bullish readings which are usually indicative of a low in the market.
Therefore, when we consider the above, we are left with a lack of certainty as to whether the decline is over, if there is more to come, or if the indices need to do some base building. It would appear that the third option may be the most likely one, especially considering the current cycle configuration. We’ll find out next week!
As we do every week, let’s look for clues in the charts.
Chart Analysis
I won’t show the weekly chart of the SPX, but I can assure you that the MSO, being flat on its bottom is not giving us any indication that it’s ready to reverse. Its MACD is still declining with the histogram also in a downtrend-- not exactly a sign of strength! But, at 15.86, the MACD it is still positive! (I would feel much more bearish if it had already gone negative.)
Below is the Daily SPX Chart. There are a lot of technical clues on that chart, and they are not all negative.
Let’s start with the price pattern itself. When you are watching the market all day long, time passes sooo slowly and the down-trend seems interminable, with the hourly chart making lower low after lower low! It’s no wonder that traders have to guard against getting into a bearish funk as the decline progresses! One way to get your perspective back is to look at a daily chart.
At a glance, you can see that the current pull-back has the profile of a short-term correction -- just like the others that you see on the chart -- only a little more extensive. And, although deceleration of the downtrend is obviously occurring, a little more time may be required to turn things around. Why? Because after making a shallow downtrend for about three weeks, the SPX suddenly got weaker and dropped to the bottom half of a wider channel where it has been trading ever since. Until it shows that it is ready to get back in the upper portion of its channel, it won’t be ready to resume an uptrend.
There are good reasons for the price to firm up at the present level: the SPX is still trading in the top half of the intermediate channel and has only retraced to the middle of that channel where it could now get some support from the mid-channel line (dashes), and from the light-blue internal trend line parallel to the channel lines, slightly below. That trend line has 3 former points of contact: in August, in September, and in November, and is currently at 1255 – which is in the vicinity of the SPX downward projection of 1250-1253. Last week, the SPX rallied from 1258, just above it. It also enjoys the support from its 200-DMA.
On a scale of 1 to 10, my competency as an Elliott Wave analyst probably ranks a 3 or 4, but it does not stop me from second-guessing the market structure along with the worst of them. Everything considered, I think that we could be making an intermediate-term correction in the form of a triangle before resuming the uptrend. (One of the best, Tony Caldaro, thinks it’s an “irregular” pattern.)
And what do say the indicators? As opposed to the weekly, the daily MACD is showing some deceleration in its histogram. Note, however, that it made a decisive new low vs. the mid-March price. This is negative divergence and does not bode well for the next rally! Hence, we could eventually see the correction developing into a triangle pattern which would require one more down-leg.
The price MSO has gathered a little bit of positive divergence over the last few days. It must now punch through its larger down-channel to signal a reversal. The A/D MSO is the most bullish with pronounced positive divergence taking the form of an uptrend as the SPX was progressively making new lows. This is the shape that reversals take: the A/D is the first to give a signal, the price MSO is next, and the MACD always lags. It is clear that the indicators are warning us that an incipient market bottom is forming.
Larger Image
The Hourly Chart is next. In it, you can see the top of the intermediate channel, the mid-channel dashed line, and the light-blue support line which is just below it. The pink horizontal line is where I thought the SPX could go according to a short-term P&F projection. Close enough, if we rally from here!
The black letters (a-e), categorize the bottoming formation as a reverse triangle (also known as a broadening formation). This is not just an Elliott term, but a fairly common pattern discussed by most analysts, some of which believe that it comes at market reversal points. So, according to this configuration, the pattern is either complete at “e?”, or we are in the process of making the final down-wave.
Note how the #3 gray trend line stopped the rally on Friday! The #1- #3 labeling designates fan lines. When the third fan line is broken, you normally get a trend reversal. The fact that #3 stopped the rally on Friday means that the pattern and the decline may not be complete. That could fit nicely into the current cycle pattern. Note also the letters C,D and E. They point to the levels and trend lines that must be overcome on the upside in order to confirm a reversal. Friday’s action took care of A and B, but until the rest are also mastered, we don’t have one!
Since touching the bottom of its red channel about mid-way through the decline, the MACD has shown some positive divergence at each low, but it has not gone through the top of the channel. Only when it does will it signal a reversal.
The price MSO showed some divergence at the last two price lows, but it, too, could not come out of its down-channel on Friday.
The A/D (always the first to give a signal) did, but could not maintain the momentum and fell back as the day progressed.
Larger Image
All three indicators ended the day in a tepid uptrend which could easily morph into a decline. So, at the end of the week we are left with the same condition of uncertainty in the hourly indicators that has resulted from the analysis done above. Needless to say, next week could be an important week which could point to the near-term market direction!
Cycles
I will re-state what I said a couple of weeks ago: “It looks as if the index is tracking the anticipated cycles, each one of them possibly causing a low point in the market, with the last one -- Martin Armstrong’s 8.6 year cycle – making a final near-term low in the middle of the month. We’ll have to see what kind of effect this would have on the weekly oscillators if it follows this scenario, and if it is enough to reverse them. We also have a 17-wk cycle bottoming about a week later, but its effect may be muted.”
Except that the 8.6-yr cycle was not the last one of the cluster! It is possible that the 20-wk cycle may have made its low on Thursday, although it was ideally due on this coming Wednesday. It’s not unusual for this cycle to diverge from an exact phase by being a week late or early.
Next will be the 17-wk cycle mentioned above, ideally due a week from Monday, but which often comes in a little early. And then, a less important 40-day cycle due to make its low a few days after the 17-wk.
Breadth
We’ll now look at the NYSE Summation Index (courtesy of StockCharts.com). Oops! That took a little bit of a tumble in the past couple of weeks. Not only did it close at its lowest level since the intermediate correction of last year, but it went negative as well. I think that it is trying to re-define this correction as intermediate in nature. But the RSI is the most oversold since last June, and it could be ready to turn up.
I said earlier that the daily chart profile looks like a short-term correction! I may be more correct to say that it is a short-term correction within an intermediate one, perhaps one which is not yet complete.
Sentiment: And here is the white knight coming to the rescue of the bulls! The SentimenTrader (courtesy of same) is unequivocally bullish! It says so, right above the indicator: “Extreme pessimism (market should rally).
Our white knight may have to do battle with the black one, which may prove to be a worthy opponent! Lookee here at the NDX:SPX ratio: Like the NYSI, it gives us some reason to expect a protracted correction before the market can rise to a new high.
Bonds/TLT
This week, we’ll also analyze treasuries in the form of TLT, Barclay’s 20+ year Treasury Bond Fund. Weekly chart on the left, and daily on the right.
The index came down from a high of 123 in December 2008, declining to a low of 88 in April 2010, and again to 89 in February 2011. It appears to be a good inverse indicator to the equity indices. That’s why it’s important to pay attention to what it is telling us today. It may resolve the ambiguity which exists between the various market components.
Larger Image
The P&F chart tells us that the current move could take TLT to 105-108, in the vicinity of its previous top. That confirms what the weekly indicators are saying. The index is in an intermediate uptrend and this does not sound very promising for the equity bulls! However, the P&F chart also tells us that it might pause at 98-98.5. That’s only a point to a point and a half away from where it closed on Friday. That could give the equity indices a respite from their bearish condition and give them an opportunity to rally.
Our analysis of TLT tells us the same thing that everything else we have looked at is saying. We should note, however, that the last time TLT went to 109, it only resulted in an intermediate correction for the equity indices. Since the index seems ready to duplicate this performance over the short-term, we could surmise that the market may only have to undergo another intermediate correction -- which is already pretty far along -- and that the bull market could continue on its merry way afterwards.
Summary
Reading the technical tea leaves results in the picture of a market which may soon be ready to have a short-term uptrend, but which will probably have to spend some additional time completing an intermediate correction that may have started with the 1344.07 top in mid-February. This is the thinking of Tony Caldaro, and I believe he is right. That is the date on which the financial index made its recent high. The move to 1370 was premature, and this why the market needed additional corrective action.
There are some cycles bottoming in the Fall which may help the indices to complete their intermediate correction in that time frame, followed by a final bull market top in 2012.
Andre
FREE TRIAL SUBSCRIPTON
If precision in market timing for all time frames is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its worth.
For a FREE 4-week trial, Send an email to: ajg@cybertrails.com
For further subscription options, payment plans, and for important general information, I encourage you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my investment and trading strategies and my unique method of intra-day communication with subscribers. I have also started an archive of former newsletters.
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.
=============
June 19, 2011
Market Turning Points
Week-end Report
By Andre Gratian
Precision timing for all time frames through a 3-dimensional approach to technical analysis:
Cycles - Breadth - P&F and Fibonacci 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 TwainCurrent position of the market
Very Long-term trend – The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive, cyclical bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved into a bull market. Cycles point to a continuation of this trend for several more months.
SPX: Intermediate trend – The SPX has met its 1370 projection and appears to be making a fairly shallow intermediate correction.
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.
Market Overview
Week seven and counting…! After a decline of 112 points, the SPX finally had an up-week – by 52 cents! WOW!
The SPX and the QQQ both essentially met their potential Point & Figure projections for the decline when they dipped to intra-week lows. Now we must wait to see if these will work their magic again and give us a worthwhile reversal.
The VIX finally awoke from its torpor and rallied past the 20 mark to which it had been confined for the entire decline until the past three days when it finally rose to 24.65 last Thursday, and promptly reversed to 21 on Friday, before closing at 21.85. What does this mean? Is it bearish or bullish? It depends on what it does next week. It is now in an uptrend channel and would have to close below 19 on an hourly basis (below 18 would be more convincing) to get out of it.
That’s one! Two, is the QQQ. Last week, it dipped and closed slightly below its March low and slightly violated its 200-DMA, finishing right on it. This is obviously a level which it must hold if it is going to rally right away. Just the fact that it is underperforming the SPX is a negative.
Three, concerns the dollar! Last week, it challenged its weekly downtrend line from the April high, closing right on it. Exactly 7 weeks ago (when the decline in the SPX started) it bounced off a two and a half year channel bottom and, although it has not given a convincing weekly reversal yet, the daily trend will be doing so if it can move outside that trend line. Granted, the dollar and the SPX have not always trended in opposite directions, but they have most of the time. On its daily chart, the UUP (dollar ETF) has met with strong resistance every time it has rallied to its 200-DMA. On Friday, the moving average was at 22.26, and UUP closed at 21.45, so it has some room to move up before hitting it. When it does, it will also meet with other resistance lines, and possibly complete an a-b-c correction in a downtrend. If it breaks above its downtrend line, this could take another week or two to accomplish. Would the SPX be able to rally, or even stand still, during that time?
Four, the XLF (financial sector) which has never convincingly reversed from its long-term downtrend, and which has now been in a decline not seven, but seventeen weeks, has yet to show that it has bottomed. Last week looked more promising; it kept its weekly range slightly above the previous one, and closed a little higher on a weekly basis. Also, the good news is that it, too, seems to have met its downside P&F projection, and on the daily chart, it looks like it has made a double-bottom.
And that’s not all! We are in the middle of a cycle cluster (which will be discussed under “Cycles”).
By contrast to these potential (or real) negatives, the SentimenTrader is showing some very bullish readings which are usually indicative of a low in the market.
Therefore, when we consider the above, we are left with a lack of certainty as to whether the decline is over, if there is more to come, or if the indices need to do some base building. It would appear that the third option may be the most likely one, especially considering the current cycle configuration. We’ll find out next week!
As we do every week, let’s look for clues in the charts.
Chart Analysis
I won’t show the weekly chart of the SPX, but I can assure you that the MSO, being flat on its bottom is not giving us any indication that it’s ready to reverse. Its MACD is still declining with the histogram also in a downtrend-- not exactly a sign of strength! But, at 15.86, the MACD it is still positive! (I would feel much more bearish if it had already gone negative.)
Below is the Daily SPX Chart. There are a lot of technical clues on that chart, and they are not all negative.
Let’s start with the price pattern itself. When you are watching the market all day long, time passes sooo slowly and the down-trend seems interminable, with the hourly chart making lower low after lower low! It’s no wonder that traders have to guard against getting into a bearish funk as the decline progresses! One way to get your perspective back is to look at a daily chart.
At a glance, you can see that the current pull-back has the profile of a short-term correction -- just like the others that you see on the chart -- only a little more extensive. And, although deceleration of the downtrend is obviously occurring, a little more time may be required to turn things around. Why? Because after making a shallow downtrend for about three weeks, the SPX suddenly got weaker and dropped to the bottom half of a wider channel where it has been trading ever since. Until it shows that it is ready to get back in the upper portion of its channel, it won’t be ready to resume an uptrend.
There are good reasons for the price to firm up at the present level: the SPX is still trading in the top half of the intermediate channel and has only retraced to the middle of that channel where it could now get some support from the mid-channel line (dashes), and from the light-blue internal trend line parallel to the channel lines, slightly below. That trend line has 3 former points of contact: in August, in September, and in November, and is currently at 1255 – which is in the vicinity of the SPX downward projection of 1250-1253. Last week, the SPX rallied from 1258, just above it. It also enjoys the support from its 200-DMA.
On a scale of 1 to 10, my competency as an Elliott Wave analyst probably ranks a 3 or 4, but it does not stop me from second-guessing the market structure along with the worst of them. Everything considered, I think that we could be making an intermediate-term correction in the form of a triangle before resuming the uptrend. (One of the best, Tony Caldaro, thinks it’s an “irregular” pattern.)
And what do say the indicators? As opposed to the weekly, the daily MACD is showing some deceleration in its histogram. Note, however, that it made a decisive new low vs. the mid-March price. This is negative divergence and does not bode well for the next rally! Hence, we could eventually see the correction developing into a triangle pattern which would require one more down-leg.
The price MSO has gathered a little bit of positive divergence over the last few days. It must now punch through its larger down-channel to signal a reversal. The A/D MSO is the most bullish with pronounced positive divergence taking the form of an uptrend as the SPX was progressively making new lows. This is the shape that reversals take: the A/D is the first to give a signal, the price MSO is next, and the MACD always lags. It is clear that the indicators are warning us that an incipient market bottom is forming.
Larger ImageThe Hourly Chart is next. In it, you can see the top of the intermediate channel, the mid-channel dashed line, and the light-blue support line which is just below it. The pink horizontal line is where I thought the SPX could go according to a short-term P&F projection. Close enough, if we rally from here!
The black letters (a-e), categorize the bottoming formation as a reverse triangle (also known as a broadening formation). This is not just an Elliott term, but a fairly common pattern discussed by most analysts, some of which believe that it comes at market reversal points. So, according to this configuration, the pattern is either complete at “e?”, or we are in the process of making the final down-wave.
Note how the #3 gray trend line stopped the rally on Friday! The #1- #3 labeling designates fan lines. When the third fan line is broken, you normally get a trend reversal. The fact that #3 stopped the rally on Friday means that the pattern and the decline may not be complete. That could fit nicely into the current cycle pattern. Note also the letters C,D and E. They point to the levels and trend lines that must be overcome on the upside in order to confirm a reversal. Friday’s action took care of A and B, but until the rest are also mastered, we don’t have one!
Since touching the bottom of its red channel about mid-way through the decline, the MACD has shown some positive divergence at each low, but it has not gone through the top of the channel. Only when it does will it signal a reversal.
The price MSO showed some divergence at the last two price lows, but it, too, could not come out of its down-channel on Friday.
The A/D (always the first to give a signal) did, but could not maintain the momentum and fell back as the day progressed.
Larger ImageAll three indicators ended the day in a tepid uptrend which could easily morph into a decline. So, at the end of the week we are left with the same condition of uncertainty in the hourly indicators that has resulted from the analysis done above. Needless to say, next week could be an important week which could point to the near-term market direction!
Cycles
I will re-state what I said a couple of weeks ago: “It looks as if the index is tracking the anticipated cycles, each one of them possibly causing a low point in the market, with the last one -- Martin Armstrong’s 8.6 year cycle – making a final near-term low in the middle of the month. We’ll have to see what kind of effect this would have on the weekly oscillators if it follows this scenario, and if it is enough to reverse them. We also have a 17-wk cycle bottoming about a week later, but its effect may be muted.”
Except that the 8.6-yr cycle was not the last one of the cluster! It is possible that the 20-wk cycle may have made its low on Thursday, although it was ideally due on this coming Wednesday. It’s not unusual for this cycle to diverge from an exact phase by being a week late or early.
Next will be the 17-wk cycle mentioned above, ideally due a week from Monday, but which often comes in a little early. And then, a less important 40-day cycle due to make its low a few days after the 17-wk.
Breadth
We’ll now look at the NYSE Summation Index (courtesy of StockCharts.com). Oops! That took a little bit of a tumble in the past couple of weeks. Not only did it close at its lowest level since the intermediate correction of last year, but it went negative as well. I think that it is trying to re-define this correction as intermediate in nature. But the RSI is the most oversold since last June, and it could be ready to turn up.
I said earlier that the daily chart profile looks like a short-term correction! I may be more correct to say that it is a short-term correction within an intermediate one, perhaps one which is not yet complete.
Sentiment: And here is the white knight coming to the rescue of the bulls! The SentimenTrader (courtesy of same) is unequivocally bullish! It says so, right above the indicator: “Extreme pessimism (market should rally).
Our white knight may have to do battle with the black one, which may prove to be a worthy opponent! Lookee here at the NDX:SPX ratio: Like the NYSI, it gives us some reason to expect a protracted correction before the market can rise to a new high.
Bonds/TLT
This week, we’ll also analyze treasuries in the form of TLT, Barclay’s 20+ year Treasury Bond Fund. Weekly chart on the left, and daily on the right.
The index came down from a high of 123 in December 2008, declining to a low of 88 in April 2010, and again to 89 in February 2011. It appears to be a good inverse indicator to the equity indices. That’s why it’s important to pay attention to what it is telling us today. It may resolve the ambiguity which exists between the various market components.
Larger ImageThe P&F chart tells us that the current move could take TLT to 105-108, in the vicinity of its previous top. That confirms what the weekly indicators are saying. The index is in an intermediate uptrend and this does not sound very promising for the equity bulls! However, the P&F chart also tells us that it might pause at 98-98.5. That’s only a point to a point and a half away from where it closed on Friday. That could give the equity indices a respite from their bearish condition and give them an opportunity to rally.
Our analysis of TLT tells us the same thing that everything else we have looked at is saying. We should note, however, that the last time TLT went to 109, it only resulted in an intermediate correction for the equity indices. Since the index seems ready to duplicate this performance over the short-term, we could surmise that the market may only have to undergo another intermediate correction -- which is already pretty far along -- and that the bull market could continue on its merry way afterwards.
Summary
Reading the technical tea leaves results in the picture of a market which may soon be ready to have a short-term uptrend, but which will probably have to spend some additional time completing an intermediate correction that may have started with the 1344.07 top in mid-February. This is the thinking of Tony Caldaro, and I believe he is right. That is the date on which the financial index made its recent high. The move to 1370 was premature, and this why the market needed additional corrective action.
There are some cycles bottoming in the Fall which may help the indices to complete their intermediate correction in that time frame, followed by a final bull market top in 2012.
Andre
FREE TRIAL SUBSCRIPTON
If precision in market timing for all time frames is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its worth.
For a FREE 4-week trial, Send an email to: ajg@cybertrails.com
For further subscription options, payment plans, and for important general information, I encourage you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my investment and trading strategies and my unique method of intra-day communication with subscribers. I have also started an archive of former newsletters.
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.
Sunday, June 12, 2011
Will Armstrong 8.6-year cycle provide market buying opportunity? Andre Gratian's Turning Points update 6/12/11
Could a significant low for buyers come from an obscure market model soon? Accompanied by copper-price signals with other indicia of economic activity? Martin Armstrong's Economic Confidence Model may point to economic and therefore market turns. And copper prices may clue us about the strength of economic activity too. To assess all that - and review breadth and other technical indicators, cycles, Fibonacci and point-and-figure projections, wave counts, sentiment and more, Andre Gratian's Market Turning Points weekend report (thanks again, Andre!) combines numerous technical analysis methods, plus 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; if you don't see all the charts immediately, then click periodically to refresh):
Current position of the market
Very Long-term trend – The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved in a bull market. Cycles point to a continuation of this trend for several more months.
SPX: Intermediate trend – The intermediate trend is still intact. After the 1370 projection was reached, the SPX started a normal consolidation pattern which is ongoing, but nearly complete. The intermediate uptrend is expected to resume afterwards. (no change this week)
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.
Market Overview
Last week, the SPX shed another 29 points. This brings the index to a total decline of about 100 points in the space of six week. Is it done yet? Before we get into that, let’s ask an expert what kind of a decline this is. At the 1370 top, the VIX was at about 14. In the course of the downtrend, it reached a high of about 20. And last Friday, it closed just below 19.
Clearly, Mr. VIX is not too worried about the extent of this correction. During last year’s intermediate correction, the VIX went from about 15 to a high of about 48. If this is how the VIX behaves in an intermediate correction, we have to deduce that we are not in one, but only in an extended short-term correction period, and that the intermediate trend is most likely still up! Of course, the VIX could still wake up and forecast much more decline ahead but, until it does, we have accept what it is telling us and not dwell on what it is not.
Now, is it done yet? We can ask another expert: The SentimenTrader what it thinks, and its answer is: “I can’t tell you that exactly because I am not a timing indicator, but I feel that we are pretty darn close!” (We’ll see a picture of the “SentimenTrader” a little later on.)
That’s too vague! Perhaps we can get more specific answers, from our charts.
Chart Analysis
When analyzing the market, it’s always best to start with the long term and move to shorter time frames. Therefore, we’ll first look at the Weekly SPX Chart.
At first glance, it looks as if the bull market is merely changing its degree of ascent from a very steep trend to a more moderate one. I have drawn the new channel and its median, and this is where the SPX came to rest on Friday. For a number of reasons that we’ll go into later, it could find good support there. The MSO is oversold and the daily and hourly indicators seem to be probing for a low. That does not mean that we’ll get back into an uptrend right away. As supply and demand forces come into equilibrium, we could have a lateral move which builds a base, and when demand begins to overcome supply, we could continue the uptrend.
In addition to potential support from the median, we are coming into the low of the Armstrong 8.6-yr cycle. Although this is a business cycle and not a stock cycle, it has coincided with reversals of some indices in the past. As an example, the XLF made the first of its double-top on the February 2007 PI cycle date. As we’ll see as we progress through our analysis, evidence supporting a near-term reversal is beginning to pile up.
Even though the VIX is not predicting a decline of intermediate nature, one could argue that, in fact, we have cleanly broken out of the intermediate channel in which stocks were rising precisely at the same angle as the first intermediate up-leg from the March low. What we call this correction does not matter as much as finding out when it will come to an end.
We’ll continue our detective work with the Daily Chart.
The median is also shown on this chart at exactly the half-way point of the channel. By re-adjusting the channel lines, we now have an index which is still trading in the top part of the new channel and, until it moves into the lower half, it is not showing any long-term weakness.
The short-term red down-channel from the top is drawn by connecting the first three lows of the decline, and then drawing a parallel at the 1370 high. I believe that this was the original channel of the downtrend, and when the index failed to move out of it on 5/31, enough selling developed to send prices through the bottom line. So far, the original channel has expanded by 1.68 or the width of the original and, on Friday, the SPX closed on the new lower channel line where it intersects with the median of the larger channel.
Will it hold there? We’ll find out next week! The Armstrong cycle low is scheduled for Monday or Tuesday but it could have bottomed on Friday for a number of reasons which we will discuss as we continue our analysis. But let’s now look at the daily indicators.
The top one (the MACD) is in a downtrend, with only the barest signs of deceleration over the last two days of trading in its histogram. For sure, that’s not the indicator that will be the first to signal a reversal of the trend. The next one (the MSO) is in slightly better shape. It has made a double-bottom and, on Friday, it refused to go to the low of its range once again, while the market had an 18-point down day. I know! That’s pretty slim pickings in terms of positive divergence, but this shows up much more clearly and forcefully in the hourly indicator. Finally, the A/D oscillator is also showing some minor divergence. Incidentally, look how the three bottoms of that oscillator -- which represent the three lows of the decline where I chose to draw my first channel line -- also line up, exactly.
We conclude that the faintest signs of bottoming action may be appearing in the daily indicators, and also note that the index is only 20 points above its 200-DMA where it should find good support if it keeps on declining.
Let’s push forward with our investigation by looking at the Hourly Chart.
The SPX ended the week at the bottom of its correction channel. During the week, it attempted two rallies. Both were defeated by the resistance that it met at the bottom line of the original channel. It’s obvious that, for a bona fide reversal, it will have to trade not only above that line, but above the last two near-term highs which happen to be at about the .382 retracement level of the decline from 1345. If we were to open up on Monday morning and extend the bounce from Friday’s low of 1268, we might not be able to clear those highs right away because not enough of a count has been established in the small P&F base which was built by Friday’s action.
Based on that consideration, and on the fact that the A/D closed very weak on Friday and shows no positive divergence in its oscillator (bottom), we might need to do a little more base-building before being able to reverse.
Also, the Armstrong cycle low is expected to be either Monday or Tuesday, and this could mean a new low before we can turn up. It’s easier to fine-tune the market in real time when it is trading and we can analyze the price action, than trying to guess what it’s going to do the following day. So we’d better wait until Monday to see what it does.
Even though the decline has been unrelenting, there are some definite signs of deceleration which tell us that selling is somewhat drying up. The small red channel at the bottom of the chart is at a more gentle angle than the black channel from 1345. This is also reflected in the momentum indicators which are showing some positive divergence. The last two bounces represent attempts at reversing. The last one gave up after touching the downtrend line. The next one may be more successful and be able to get out of the small channel entirely. While this can happen at any time, it may be a while longer before we can get through the top of the short-term channel and trade above 1345 in order to reverse the short-term downtrend.
Cycles
The 14-15-week top-to-top cycle which was ideally due on 6/6 came in a few days early and is probably (in part) responsible for the decline from 1345.
The other component fostering the decline is most likely Martin Armstrong’s 8.6-yr economic cycle which is due on 6/13-14. The market action seems to suggest that it could bring about a reversal, and thus end the correction.
The 17-wk cycle appears to have lost some of the dominance that it enjoyed in 2009-2010, but can still have an effect on the market. It is due around 6/20.
Breadth
The NYSE Summation Index (courtesy of StockCharts.com) pattern has pretty much followed that of the price. Another indication that the correction is close to being over is that the RSI is now oversold. Once it has reached that level, its past history shows that a reversal in the trend of the NYSI is near.
Sentiment
“The long-term SentimenTrader (courtesy of same) has grown more bullish with every market pull-back. This is a pattern which will inevitably result in a resumption of the intermediate-term uptrend for the SPX.” This is what I wrote two weeks ago. You can readily see the bullish change that has taken place in the SentimenTrader since then.
I already mentioned the VIX at the beginning. It’s complacency tells us that this is not a very important decline.
The QQQ normally leads the SPX. At best, its current relative strength to the SPX is neutral -- another sign that a smidge more time may be required before we end the correction.
Copper
There is a lot of concern about the health of the economy, so we decided to consult one more expert in that field: Dr. Copper! Let’s see what he says!
Because copper prices are closely tied to the industrial cycle, many analysts consider copper to be a leading economic indicator. Here are the weekly and daily charts of the copper ETF, side by side.
Initially, they look very similar to the charts of the SPX, but with a significant difference: the bull market for the SPX started on March 6, 2009 and copper started its bull run in late December ‘08, a little over 2 months earlier. What about the current correction? The SPX topped in early May, and copper? In mid-February! The consistency of Dr. Copper’s prescience is impressive! But here comes the best part for the bulls: copper appears to have made a low on 5/11 by holding at its 200-DMA. However, it has not yet given a confirmed reversal signal. Therefore, we have two considerations:
1) Has it really bottomed? And 2) even if it has, that’s only a month ago. If the normal time-span between the two indices is about 2 months, does that mean that the SPX won’t make its final low for another few weeks? I back-tested the relationship of the two indices to see if what we’ve seen in the past two+ years holds up historically and, alas, it does not!
Because the copper ETF has a short history, I used FCX to compare its action vs. the SPX. In 2007, the SPX topped about 6 months before FCX. In 2000, FCX did top about 3 months before SPX, but in 2002, FCX bottomed two years before the market.
Conclusion? Most of the time, copper has served as a good stock market leader, but the span of time which separates the reversal of the two indices is inconsistent which behooves us to rely on more appropriate indicators for market timing.
Summary
It seems pretty clear – and logical -- that the time for a reversal is drawing closer, and it is conceivable that a low may have been made on Friday.
The Armstrong 8.6-yr cycle low is due Monday or Tuesday and it may have something to say about the timing of the reversal.
After we do reverse, we will have to decide if this is a rally in a downtrend, or the beginning of a move to a new high. If copper begins a new uptrend, it should give us some confidence that we have only experienced a “bump in the road to economic recovery” .
Andre
FREE TRIAL SUBSCRIPTON
If precision in market timing for all time frames is something which is important to you, you should
consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its
worth.
For a FREE 4-week trial, Send an email to: ajg@cybertrails.com
For further subscription options, payment plans, and for important general information, I encourage
you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my
investment and trading strategies and my unique method of intra-day communication with
subscribers. I have also started an archive of former newsletters.
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.
=============
June 12, 2011
Market Turning Points
Week-end Report
By Andre Gratian
Precision timing for all time frames through a 3-dimensional approach to technical analysis:
Cycles - Breadth - P&F and Fibonacci 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
Current position of the market
Very Long-term trend – The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved in a bull market. Cycles point to a continuation of this trend for several more months.
SPX: Intermediate trend – The intermediate trend is still intact. After the 1370 projection was reached, the SPX started a normal consolidation pattern which is ongoing, but nearly complete. The intermediate uptrend is expected to resume afterwards. (no change this week)
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.
Market Overview
Last week, the SPX shed another 29 points. This brings the index to a total decline of about 100 points in the space of six week. Is it done yet? Before we get into that, let’s ask an expert what kind of a decline this is. At the 1370 top, the VIX was at about 14. In the course of the downtrend, it reached a high of about 20. And last Friday, it closed just below 19.
Clearly, Mr. VIX is not too worried about the extent of this correction. During last year’s intermediate correction, the VIX went from about 15 to a high of about 48. If this is how the VIX behaves in an intermediate correction, we have to deduce that we are not in one, but only in an extended short-term correction period, and that the intermediate trend is most likely still up! Of course, the VIX could still wake up and forecast much more decline ahead but, until it does, we have accept what it is telling us and not dwell on what it is not.
Now, is it done yet? We can ask another expert: The SentimenTrader what it thinks, and its answer is: “I can’t tell you that exactly because I am not a timing indicator, but I feel that we are pretty darn close!” (We’ll see a picture of the “SentimenTrader” a little later on.)
That’s too vague! Perhaps we can get more specific answers, from our charts.
Chart Analysis
When analyzing the market, it’s always best to start with the long term and move to shorter time frames. Therefore, we’ll first look at the Weekly SPX Chart.
At first glance, it looks as if the bull market is merely changing its degree of ascent from a very steep trend to a more moderate one. I have drawn the new channel and its median, and this is where the SPX came to rest on Friday. For a number of reasons that we’ll go into later, it could find good support there. The MSO is oversold and the daily and hourly indicators seem to be probing for a low. That does not mean that we’ll get back into an uptrend right away. As supply and demand forces come into equilibrium, we could have a lateral move which builds a base, and when demand begins to overcome supply, we could continue the uptrend.
In addition to potential support from the median, we are coming into the low of the Armstrong 8.6-yr cycle. Although this is a business cycle and not a stock cycle, it has coincided with reversals of some indices in the past. As an example, the XLF made the first of its double-top on the February 2007 PI cycle date. As we’ll see as we progress through our analysis, evidence supporting a near-term reversal is beginning to pile up.
Even though the VIX is not predicting a decline of intermediate nature, one could argue that, in fact, we have cleanly broken out of the intermediate channel in which stocks were rising precisely at the same angle as the first intermediate up-leg from the March low. What we call this correction does not matter as much as finding out when it will come to an end.
We’ll continue our detective work with the Daily Chart.
The median is also shown on this chart at exactly the half-way point of the channel. By re-adjusting the channel lines, we now have an index which is still trading in the top part of the new channel and, until it moves into the lower half, it is not showing any long-term weakness.
The short-term red down-channel from the top is drawn by connecting the first three lows of the decline, and then drawing a parallel at the 1370 high. I believe that this was the original channel of the downtrend, and when the index failed to move out of it on 5/31, enough selling developed to send prices through the bottom line. So far, the original channel has expanded by 1.68 or the width of the original and, on Friday, the SPX closed on the new lower channel line where it intersects with the median of the larger channel.
Will it hold there? We’ll find out next week! The Armstrong cycle low is scheduled for Monday or Tuesday but it could have bottomed on Friday for a number of reasons which we will discuss as we continue our analysis. But let’s now look at the daily indicators.
The top one (the MACD) is in a downtrend, with only the barest signs of deceleration over the last two days of trading in its histogram. For sure, that’s not the indicator that will be the first to signal a reversal of the trend. The next one (the MSO) is in slightly better shape. It has made a double-bottom and, on Friday, it refused to go to the low of its range once again, while the market had an 18-point down day. I know! That’s pretty slim pickings in terms of positive divergence, but this shows up much more clearly and forcefully in the hourly indicator. Finally, the A/D oscillator is also showing some minor divergence. Incidentally, look how the three bottoms of that oscillator -- which represent the three lows of the decline where I chose to draw my first channel line -- also line up, exactly.
We conclude that the faintest signs of bottoming action may be appearing in the daily indicators, and also note that the index is only 20 points above its 200-DMA where it should find good support if it keeps on declining.
Let’s push forward with our investigation by looking at the Hourly Chart.
The SPX ended the week at the bottom of its correction channel. During the week, it attempted two rallies. Both were defeated by the resistance that it met at the bottom line of the original channel. It’s obvious that, for a bona fide reversal, it will have to trade not only above that line, but above the last two near-term highs which happen to be at about the .382 retracement level of the decline from 1345. If we were to open up on Monday morning and extend the bounce from Friday’s low of 1268, we might not be able to clear those highs right away because not enough of a count has been established in the small P&F base which was built by Friday’s action.
Based on that consideration, and on the fact that the A/D closed very weak on Friday and shows no positive divergence in its oscillator (bottom), we might need to do a little more base-building before being able to reverse.
Also, the Armstrong cycle low is expected to be either Monday or Tuesday, and this could mean a new low before we can turn up. It’s easier to fine-tune the market in real time when it is trading and we can analyze the price action, than trying to guess what it’s going to do the following day. So we’d better wait until Monday to see what it does.
Even though the decline has been unrelenting, there are some definite signs of deceleration which tell us that selling is somewhat drying up. The small red channel at the bottom of the chart is at a more gentle angle than the black channel from 1345. This is also reflected in the momentum indicators which are showing some positive divergence. The last two bounces represent attempts at reversing. The last one gave up after touching the downtrend line. The next one may be more successful and be able to get out of the small channel entirely. While this can happen at any time, it may be a while longer before we can get through the top of the short-term channel and trade above 1345 in order to reverse the short-term downtrend.
Cycles
The 14-15-week top-to-top cycle which was ideally due on 6/6 came in a few days early and is probably (in part) responsible for the decline from 1345.
The other component fostering the decline is most likely Martin Armstrong’s 8.6-yr economic cycle which is due on 6/13-14. The market action seems to suggest that it could bring about a reversal, and thus end the correction.
The 17-wk cycle appears to have lost some of the dominance that it enjoyed in 2009-2010, but can still have an effect on the market. It is due around 6/20.
Breadth
The NYSE Summation Index (courtesy of StockCharts.com) pattern has pretty much followed that of the price. Another indication that the correction is close to being over is that the RSI is now oversold. Once it has reached that level, its past history shows that a reversal in the trend of the NYSI is near.
Sentiment
“The long-term SentimenTrader (courtesy of same) has grown more bullish with every market pull-back. This is a pattern which will inevitably result in a resumption of the intermediate-term uptrend for the SPX.” This is what I wrote two weeks ago. You can readily see the bullish change that has taken place in the SentimenTrader since then.
I already mentioned the VIX at the beginning. It’s complacency tells us that this is not a very important decline.
The QQQ normally leads the SPX. At best, its current relative strength to the SPX is neutral -- another sign that a smidge more time may be required before we end the correction.
Copper
There is a lot of concern about the health of the economy, so we decided to consult one more expert in that field: Dr. Copper! Let’s see what he says!
Because copper prices are closely tied to the industrial cycle, many analysts consider copper to be a leading economic indicator. Here are the weekly and daily charts of the copper ETF, side by side.
Initially, they look very similar to the charts of the SPX, but with a significant difference: the bull market for the SPX started on March 6, 2009 and copper started its bull run in late December ‘08, a little over 2 months earlier. What about the current correction? The SPX topped in early May, and copper? In mid-February! The consistency of Dr. Copper’s prescience is impressive! But here comes the best part for the bulls: copper appears to have made a low on 5/11 by holding at its 200-DMA. However, it has not yet given a confirmed reversal signal. Therefore, we have two considerations:
1) Has it really bottomed? And 2) even if it has, that’s only a month ago. If the normal time-span between the two indices is about 2 months, does that mean that the SPX won’t make its final low for another few weeks? I back-tested the relationship of the two indices to see if what we’ve seen in the past two+ years holds up historically and, alas, it does not!
Because the copper ETF has a short history, I used FCX to compare its action vs. the SPX. In 2007, the SPX topped about 6 months before FCX. In 2000, FCX did top about 3 months before SPX, but in 2002, FCX bottomed two years before the market.
Conclusion? Most of the time, copper has served as a good stock market leader, but the span of time which separates the reversal of the two indices is inconsistent which behooves us to rely on more appropriate indicators for market timing.
Summary
It seems pretty clear – and logical -- that the time for a reversal is drawing closer, and it is conceivable that a low may have been made on Friday.
The Armstrong 8.6-yr cycle low is due Monday or Tuesday and it may have something to say about the timing of the reversal.
After we do reverse, we will have to decide if this is a rally in a downtrend, or the beginning of a move to a new high. If copper begins a new uptrend, it should give us some confidence that we have only experienced a “bump in the road to economic recovery” .
Andre
FREE TRIAL SUBSCRIPTON
If precision in market timing for all time frames is something which is important to you, you should
consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its
worth.
For a FREE 4-week trial, Send an email to: ajg@cybertrails.com
For further subscription options, payment plans, and for important general information, I encourage
you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my
investment and trading strategies and my unique method of intra-day communication with
subscribers. I have also started an archive of former newsletters.
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.
Sunday, June 5, 2011
Gauging the markets' strength with an eye on timing and levels: Turning Points update by Andre Gratian
Can the markets settle for testing in the 1280's or better 1290's $SPX, or will we see 1249 retested before any hope of serious rallying? To answer that (and also review the dollar, oil and gold) in terms of market internals strength, breadth and other technical analysis, cycles, Fibonacci and point-and-figure projections, wave counts, sentiment and more, Andre Gratian's Market Turning Points weekend report (thanks again, Andre!) combines numerous technical analysis methods, plus 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) (PS, this is substantially as published today also at http://www.safehaven.com/article/21222/market-turning-points
:
=============
June 5, 2011
Market Turning Points
Week-end Report
By Andre Gratian
Precision timing for all time frames through a 3-dimensional approach to technical
analysis: Cycles - Breadth - P&F and Fibonacci 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
Current Position of the Market
Very Long-term trend - The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive, cyclical bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved into a bull market. Cycles point to a continuation of this trend for several more months.
SPX: Intermediate trend - The SPX has met its 1370 projection and is consolidating. The odds still favor a rise to the next logical target of the low 1400s before the beginning of an intermediate correction. (There is no change from last week's analysis)
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 atajg@cybertrails.com.
Market Overview
Every time there is a correction in the stock market after it has had a good run, there is a lot of speculation that it might be the beginning of an important decline. This is the case again today, especially when there are signs that the economy is slowing down. Last Friday, the unemployment rate ticked up to 9.1%, and the number or jobs created fell to 54K, far below the previous month's report of 232K, and far worse than what had been anticipated, and this was only one of several negative economic reports.
Since the SPX filled its phase count of 1370 five weeks ago, the indices have been correcting. But there is no technical evidence that the equity indices are at the end of the bull market which started March 2009, or even that it has started an intermediate correction (yet), for that matter! This is what I intend to demonstrate in this newsletter. We'll look at the weekly, daily and hourly charts of the SPX, as well as sentiment.
Chart Analysis
We'll start with the Weekly Chart of the SPX.
Our first observation is that the SPX is not only trading within its long-term channel, but it remains in the upper half of that channel. After two years of rising prices, there is some evidence of deceleration in the trend because the index has failed to make it all the way to the top of the channel before starting to correct. But what kind of correction is it making?
Since the March 2009 low, there has only been one correction of intermediate nature, and that was during April, May and June 2010. In the first five weeks of that correction, SPX gave up 176 points, or declined at the rate of 35 points per week. During the five weeks of the current correction, the index has only dropped 72 points, declining at the rate of a little over 14 points per week. Clearly, so far, we are only in a short-term correction.
Now, let's look at the indicators. When the index rose to a new high, the MACD did also without any sign of negative divergence. By contrast, when the index reached its top price in April, there was negative divergence in the MACD, suggesting that a significant high was being made. There is no such suggestion today! I believe that this will happen only after the index makes a new high and reaches its final intermediate target. The fact that the MACD is still well above the zero line is also a sign that the uptrend is not in any real trouble.
The other indicator (MSO) called the top when strong negative divergence was shown. It has, since then, fallen to the low of its range, but is still declining, and this could mean that the correction has longer to go.
The Daily Chart also shows that the intermediate trend is weakening. The correction has taken it out of its blue channel but, because it has not yet declined below its former short-term low, the index is still in a pattern of rising lows. In fact, it would have to drop below the March low of 1249 to confirm an intermediate correction, and this could happen before we make a new high, but the indicators suggest that we are getting close to a low.
On May 25, the index made a new correction low and the MSO became oversold which, among other things, triggered a rally. However, the rally came without any positive divergence showing in the three indicators. Perhaps for this reason (among others) the rally failed just short of overcoming its former short-term high, and the index promptly made a new low. However, this new price low is now accompanied by some good positive divergence in the A/D indicator, and a slight dose of the same in the MSO. This condition offers the index a much better chance of signaling a near-term reversal, especially since, on Friday, the SPX hit a good P&F downside projection.
The 13-wk cycle ostensibly made its low on 5/25, and the 14-15-wk cycle -- which normally has a 72- trading day phase -- may have completed an inversion on Friday. The rally spurred by the 13-wk cycle failed because it met with resistance when the SPX back-tested its broken trend line, and because the 72-day cycle appears to have inverted, this time.
Friday was exactly 72 trading days from the last asterisk of 2/18, and it coincides with the SPX meeting a P&F downside projection. Putting all that together, there is a pretty good chance that Friday was the low of the near-term decline, and perhaps of the entire correction as well.
Even if this is so, the Armstrong 8.6-yr PI cycle date is still a week away and, since it is supposed to be a low, it could hold the SPX back from making a new high for a little longer.
The Hourly Chart clearly shows how close the SPX is to a near-term reversal. The index met a downside P&F projection early in the day on Friday, and is at the bottom of its correction channel. It has bounced, and has come back down to test its low toward the close. The momentum indicators are crawling along the bottom, and the A/D has refused to go lower for the past two trading days and is showing substantial positive divergence.
The SPX has gone through the bottom of the correction channel by about the same amount as it did through the top. This action can signal the low of the move. Also, as I mentioned earlier, Friday was the 72nd day of the 72-TD cycle which may have inverted. With so many positive technical factors, it would not be surprising to see the market open "up" on Monday, and signal a near-term reversal.
Cycles
It looks as if the index is tracking the anticipated cycles, each one of them possibly causing a low point in the market, with the last one -- Martin Armstrong's 8.6 year cycle - making a final near-term low in the middle of the month. We'll have to see what kind of effect this would have on the weekly oscillators if it follows this scenario, and if it is enough to reverse them.
We also have a 17-wk cycle bottoming about a week later, but its effect may be muted.
Breadth
I am only showing the past six months of the NYSE Summation Index (courtesy of StockCharts.com) so that we can see more clearly the pattern that was made by the action of the past few days.
Both the NYSE Summation index and its RSI are showing positive divergence to the SPX price pattern at Friday's low. This positive action by the weekly A/D strongly supports the one that we discussed in the hourly and daily charts. Such bullish coordination in multiple time frames is a strong argument for a reversal to take place imminently.
Sentiment
As you might expect, the SentimenTrader (courtesy of same) is also showing a bullish picture, not only in the Long-term, but in the short-term as well.
As long as we are looking at potentially bullish scenarios, let's take a look at the VIX in relationship to the SPX. As we know, both move in almost exact, reverse trends; "almost" is good, because it permits us to notice the divergences which precede the reversals, before they occur.
The charts show the weekly closes of the two indices going back three months before the March 2009 low. They give us the opportunity to see how they behave with respect to each other through various market phases, and to see if, based on these relationships, we can draw some firm conclusions about the current market position.
The rise of the VIX is proportional to the degree to which the market declines, achieving much greater heights in a bear market than in an intermediate correction, or a short-term reversal. What is interesting -- and very useful in predicting market lows -- is that the VIX consistently gives us ample advance warning by making a much lower secondary high while the index makes its final low. I have drawn vertical green lines to show this very obvious divergence which precedes a market reversal.
So, based on these observations, can we get a hint of what to expect of the market over the near-term? You bet! First, when the SPX started to correct by rising only to 24.34 before retracing sharply, the VIX appeared to warn us that this would not be a big deal correction. If it had been anticipating an intermediate decline, it would probably have risen closer to the level that it reached in May. And on Friday, as the SPX made a 5-wk low, look at what the VIX did: nothing! It closed the week at 17.95, staying well below its former high.
The VIX is another indicator which is telling us that we should be on our guard for an imminent end to the correction.
THE DOW JONES COMPLEX
We have not looked at the Dow for a long time. Let's look at its four components. Above, are the industrial and the transportation indices, and below, the composite and financial indexes. All are Weekly Charts.
The first thing which is apparent is that all the indices are still in a long-term uptrend. The next is that the transportation index is the strongest, already having surpassed (briefly) its 2007 high, and the weakest, by far, is the financial index. Unless the latter starts to catch up, the uptrend may run into trouble. Conventional market wisdom has it that the financial sector leads.
Another observation is that, according to the Dow Theory, the bull market is intact.
Finally, all the MACDs are still positive, and the MSOs are oversold, but may require some time to turn around.
All in all, except for the flagrant disparity between the financial index and the others, the intermediate and long term picture is very much the same as that provided by the SPX.
Summary
There is some disconnect between the condition of the hourly chart indicators which seem more than ready to reverse the near-term trend as early as Monday, and the weekly chart which appears to need more time before getting its indicators into a reversal position.
There is also the matter of the Martin Armstrong 8.6-yr cycle which is purported to bottom around the middle of the month and could cause either a new low or, more likely, a pull-back in the near-term uptrend.
This suggests that if we do start a near-term uptrend over the next couple of days - provided that the hourly bullish scenario is not negated by a very weak opening Monday morning - the indices will be subjected to a final pull-back into 6/13-18. If we get this kind of action in the market, it may be enough to bring the weekly indicators into a reversal-ready position.
FREE TRIAL SUBSCRIPTON
If precision in market timing for all time frames is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its worth.
For a FREE 4-week trial. Send an email to:ajg@cybertrails.com
For further subscription options, payment plans, and for important general information, I encourage you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my investment and trading strategies and my unique method of intra-day communication with subscribers. I have also started an archive of former newsletters.
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