Andre Gratian's 8/26/12 Turning Points report

Update Note: Andre Gratian's full Market turning Points report is posted at http://www.safehaven.com/article/26665/market-turning-points, complete with his charts.

Prior post here, follows:
Folks - I'm only able to post the text of Andre Gratian's Market Turning Points newsletter, at this present moment (due to my own technical challenges). I will endeavor to add his graphical charts by or during tomorrow, Monday, August 27. By then, it should also be posted in full at Safehaven.com. In the meantime, I know that my regular readers will find his text extremely informative:
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August 26, 2012Market Turning Points

By Andre Gratian

Precision timing for all time frames through a multi-dimensional approach to technical

analysis: Cycles - Breadth - P&F and Fibonacci price projections

and occasional Elliott Wave analysis

"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

SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.

SPX: Intermediate trend – SPX is in a limited intermediate uptrend which may have ended in August. We need confirmation.

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

My analysis of the SPX had suggested that the intermediate trend which started on June 4th would end sometime in August, if not at 1404, then at 1425. After reaching 1407 on 8/07, the SPX went into a sideways consolidation which lasted several days, and then moved up to 1426 on 8/21. Meeting that second target brought about a 28-point correction -- the largest in three weeks. The DJIA was a little weaker, giving back 300 points before finding its footing – the equivalent of 32 SPX points at today's ratio. QQQ, largely influenced by the sharp rise in Apple, fared the best, only retracing about a point.

Will 1426 remain the high point of the move and initiate a short-term decline which could eventually turn into one of intermediate status? That is a question that will have to wait another week for an answer. The market is waiting to see what transpires at the Jackson Hole symposium which is scheduled for the coming week-end. Bernanke will be speaking on Friday, and ECB president Draghi on Saturday. Either one of these speeches could trigger the next short-term move in the market and determine if 1426 remains the top tick. If traders like what they hear, they could extend the SPX rally to its next potential projection of about 1445. They could also start a decline if they do not get exactly what they had hoped for!

Another trigger of much lesser importance was Friday's jury decision to award Apple $1.05 billion in its patents dispute with Samsung – which will be appealed! Will Apple sell on the news? If so, it could affect QQQ and bring it more in line with the other indices. The health of the SPX will also depend on how the financial sector performs from this point on. Short-term, that sector is relatively stronger than SPX, but intermediate and long-term weaker.

We wait for another week before updating the forecast!

Chart analysis

With the help of (red) trend lines, I have traced out what I believe to be the intermediate channel in which the SPX has been rising since October 2011. It consists of two outside channel lines and an internal line which acts as a median for prices and which has consistently provided resistance for the rally starting at 1267. For the trend to continue upward, prices would have to jump decisively above that median and not fall back. Last week, the index surpassed its early April top by a small margin but could go no further and retraced immediately.

The McClellan oscillator which is posted under the Daily SPX Chart (above) shows that some weakness followed the negative divergence displayed earlier, but not enough to give a decisive sell signal. The momentum indicator at the bottom of the chart tells the same story: deceleration, negative divergence, but no sell yet. To give a sell signal, the indicator would have to fall below the dashed line and penetrate the green uptrend line. That would correspond with the indexbreaking a support level around 1390/95 which you will see better on the hourly chart. Until that happens, we have to consider the possibility that SPX could be consolidatingbefore making a higher high.

On the Hourly Chart, I have chosen to put the spotlight on the wedge formation which makes up the last phase of the rally from 1267. Prices rose to the median of the larger channel and tried to break through, but couldn't and fell back. We know that wedges are patterns which are caused by strong demand at the beginning coming more and more into equilibrium with supply as the sellers begin to match the buyers and finally overwhelm them, causing the lower trend line to be broken and, most likely, starting a decline which often reaches the point from which the pattern started -- in this case, 1329. If the news resulting from this week-end's symposium are disappointing, this is most likely what will happen. But that is only one possible scenario, and it will have to be confirmed by market action, with the SPX closing decisively below the red horizontal line. On the other hand, positive news may send prices higher, at least temporarily.

We wait for another week!

Cycles

These are some of the important cycles which have toppedand could pressure the market in the next few weeks and months: the 4-yr cycle, the 66-wk cycle, and the 29-30-wk cycle whose low is due in mid-October. There is also an 8-9-wk cycle due in early September, plus a minor cycle due next week and one the following week.

The 66-wk cycle could suppress prices until early January, and then generate the final phase of the bull market into early 2013.

Breadth

Let's look at the NYSI (Summation Index, courtesy of StockCharts.com) to see what breadth is doing on an intermediate basis.

The index made an initial peak in mid-July and a second peak last week. The second peak is about at the level of the first one, while SPX exceeded its July peak by almost 50 points. That is not bullish behavior and is most likely an indication that the longer-term cycles mentioned above are beginning to pressure the rally.

In addition, the RSI -- and especially the MACD – were noticeably lower on the second peak. So we have a situation where the NYSI indices showed negative divergence to NYSI, while NYSI was showing significant negative divergence to the SPX. Hmmm! Not bullish at all!

Sentiment Indicators

The
XIV (inverted volatility index)

Below, I show XIV vs. SPX on an hourly basis (charts courtesy of Qcharts). These charts really point out the value of the XIV as a leading indicator, when contrasted with the SPX. On 8/13, it made a new high in advance of the SPX, but on 8/21, it merely made a double-top while SPX made a new high. This was a warning that prices were about to decline, and they did, 300 Dow points worth!

Since Friday, the two indices have gotten back in sync on an hour-by-hour basis. The XIV is much closer to its uptrend line than is the SPX. I don't know if that is an indication that a more significant reversal is coming when XIV breaks its uptrend line ahead of SPX, but it could be.

XLF (Financial SPDR)

By contrast to the XIV, XLF is not quite as weak as SPX, as can be seen from the fact that it had a slightly stronger move than the latter at the top and has not retraced as much. Perhaps this will sort

Itself out in the next few sessions. Time segments which lack clarity normally come into focus sooner rather than later, and a little patience is all that is required.

As with SPX, XLF will give its first sign of weakness when it drops below the red horizontal line.

BONDS

After making an all-time high of 125 in Oct. 2011, TLT had a six-month correction, retracing only about .382 of its previous uptrend. It then went on to make another all-time high of 132 in the later part of July. Since that time, it has undergone another correction, finding support just above an intermediate trend line at a level which corresponds to its 200-DMA. In doing so, it also filled a near-term P&F projection to 121-122.

During SPX's retracement from 1426, TLT rallied .382 of its latest decline and appears to want to extend its base before moving higher. It has corrected to an important support area which may keep it from going lower before it resumes its uptrend to an unfilled projection of 137. Since it tends to run contrary to the SPX, it's near-term action will be dictated (to some extent) by whether or not the equity market has made an intermediate-term top.

UUP (Dollar ETF) Daily Chart.

Over the past week, UUP extended its decline to a .618 retracement of its rally from early May, and copuld also have met a near-term P&F projection of 22.30. In spite of the correction it remains in the intermediate uptrend which started in August 2011. While it may have found meaningful support, the fact that its indicator made a new low in conjunction with the price suggests that it may have to do some additional consolidation before getting back in an uptrend.

It is also not invulnerable to going lower. It moves in an opposite direction to the euro, and if the latter responds favorably to news from the ECB, we could see UUP challenge its intermediate trend line.

GLD (ETF for gold)

After a long consolidation above 149, GLD has finally managed to accomplish something positive. It has risen above the 200-DMA which had been an obstacle to further progress for about 10 weeks, and also rose above 159 -- a former short-term peak. That's bullish for the near-term, but the real test will be whether or not the move can be extendedand turn into a resumption of the long-term uptrend.

There are some obstacles lying ahead that may prevent this from being a valid break-out. The most obvious one is that the rise of the last few days has brought the index squarely upagainst its intermediate-term downtrend. That level is also thejunction of a parallel to the lower trend line (the top of a rising channel), and the resistance created by the top of the "e" wave of the mid-course triangle consolidation of its decline from 174.

Another obstacle concerns the longer-term trend of the US dollar. It must be acknowledged that there is an inverse relationship between the move of gold and that of the dollar. I have analyzed the dollar above, and concluded that it is still in an intermediate uptrend, but that it could be vulnerable to challenging the lower trend line of that uptrend if the euro has a sudden spike upward as a result of president Draghi'sspeech on Saturday. Should that be the case, it would benefit gold and GLD would have no problem overcoming the 162 resistance level.

We must now consider the possibility that GLD has made a double-bottom at 149 in early June, and that it has now built what looks like a substantial base. This has created a potential P&F count as high as 190 (emphasis on "potential"). But such a move would pre-suppose a major advance in the euro and a major decline in the dollar – something which doesnot appear to be in the cards at this time.

GLD does have a standing long-term count to about 200, and perhaps even to 233. The more likely scenario is that the index is currently building a base that will eventually support such a move. Even if there is more upside over the short-term – perhaps to 164-166 -- this is not likely to be the "big move" just yet.

OIL (USO)

USO has reached its P&F projection to 36, as well as the overhead resistance discussed earlier, with negative divergence showing in the indicator. It may have started to back off but has not yet given a sell signal.

Let's give it a little time to decide if it wants to honor myprediction.

Summary

SPX has already proven the validity of my 1425 target as a potential top for the move which started at 1267. After reaching it, there was an immediate retracement of 28 points.

It remains to be seen if that level will qualify as an intermediate top. If a higher high has not been made by early next week, the odds are that 1426 will not be exceeded.

Andre

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For a FREE 4-week trial, Send an email to:ajg@cybertrails.com

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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.

Market top forming? Andre Gratian's 8/12/12 Turning Points update

Folks, I can't do any better this weekend, than to publish Andre Gratian's excellent Market Turning Points report - he provided a valuable analysis for the stock market and other financial markets (thanks again Andre!). This includes technical and sentiment analysis for the U.S. stock market; as well as the volatility index (VIX or XIV), the XLF (the financials ETF), bonds (TLT), the US dollar and the euro, gold, and crude oil. You can get more info about Andre's work at his 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; refresh occasionally if you don't see it all at first (takes awhile to post)):

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August 12, 2012

Market Turning Points
Week-end Report
By Andre Gratian

MARKET TOP FORMING?

Precision timing for all time frames through a 3-dimensional approach to technical analysis: Cycles - Breadth - P&F and Fibonacci price projections, and occasional Elliott Wave analysis

“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

SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.

SPX: Intermediate trend – SPX is in a limited intermediate uptrend which is estimated to end in the first week of August.

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

Ever since the SPX started its uptrend from 1267, I projected that the rally would end at about 1404. That was a target derived from a Point & Figure count taken across the base and confirmed by a Fibonacci measurement. While this is a preferred count, it is not an absolute, and there is a valid count to 1425 and some even higher. Last Tuesday, the index rose to 1407 before backing off and spending the rest of the week moving sideways in what could turn out to be a pattern of distribution -- which would put an end to the rally, resulting in a subsequent decline, or one of re-accumulation, with an eventual break-out to the upside followed by higher prices.

Next week should determine what path the market wants to follow over the near-term. Taking into consideration the cyclic configuration, the odds favor an end to the rally sometime this month, with a preference for the first part of August. Friday’s price action was caused by a minor cycle bottoming in the first hour which initiated a bounce into the close. Although that looks like the start of a move to higher highs, some important indices did not participate, bringing into question whether this was simply a test of the highs. On the other hand, XIV made a new high while the market did not -- action which is potentially bullish (but not infallible). This is why we need to wait for Monday to clarify the market’s intention.

Whether or not we are ready for an intermediate correction, the odds of this being a major top which would put an end to the bull market are not great. During this uptrend, the weekly indicators of the SPX had a bullish move to the top of their range and are now overbought, a condition from which they normally correct, but not one from which they start a major decline. On the other hand, the NDX weekly indicators are less bullish and are beginning to show negative divergence.

Overall, the near-term picture is a little blurry and we need to wait for some clarification. Let’s look at the charts.

Chart analysis

We’ll start, once again, by analyzing the Daily SPX with the McClellan oscillator placed underneath it. The momentum indicator turned down, showing some negative divergence to its last top while the SPX made a new high. The McClellan oscillator is even worse, showing little inclination to move away from the zero line. With the market going sideways for most of the week, the chart is not very different from that of a week ago, but the slight changes are negative.

That does not mean that we’ll get an immediate sell-off. The only thing that counts, in the long run, is when the price starts to come down, breaking trend lines and support levels. We are not quite at that stage, yet, but it could come quickly if our expectation that important cycles are topping is correct.




The Hourly Chart of the SPX would not have told us much more than the daily chart, so we turn to the Russell 2000 ETF for another perspective. That index peaked in early July as opposed to the SPX which continued to make new highs. If we were to look at a weekly chart, we would see that NDX actually peaked in April 2011, diverging significantly from SPX at the April 2012 high, and diverging even more today. This is regarded as a negative since small cap stocks have historically led the market in both directions. It would also be another indication that longer and shorter-term weakness is settling into the market.



For those who think that Friday’s move represents a resumption of the uptrend, look at the performance of UWM on Friday! Where is the rally? I could show you other indices that performed in the same manner, making Friday’s “strength” questionable.

Let’s see what happens on Monday. For a continuation of the rally we need to see some good buying appear at the opening.

Cycles

With weekly and longer term cycles topping in August, this month was expected to bring about an end to the rally which started at 1267 on 6/04. While the early part of the month was favored, the topping formation could stretch for a little while longer.

Breadth

Below is the NYSI (Summation Index, courtesy of StockCharts.com). The initial downturn in the index has been averted and it is trying to move back in an uptrend. The next time it rolls over should start a decline in the market. All eyes on the A/D over the next few days! It should determine whether the market is ready to sell off, or if more time is required.



The focus should be on the hourly indicator. It has been correcting from an overbought position as the market moved sideways. It ended the week just about neutral, but looking as if it was trying to turn up as a result of Friday’s market action. Monday’s opening should determine whether or not the near-term correction is over.

Sentiment Indicator
The XIV (inverted volatility index)

The SentimenTrader is not saying much, so we’ll turn to the XIV which is more sensitive in predicting market turns. It is here portrayed beneath the SPX (courtesy of Qchats) for an easier comparison.



XIV turned bearish during the month of July, seemingly confirming the anticipated high in August. Until last Tuesday, the action was neutral, but for the rest of the week, it turned bullish. You can see that while SPX was flat, XIV continued its uptrend. This index is not infallible, but it has a good record of providing negative divergence at a top and it is definitely not doing so at this time. That would suggest that SPX is not through going up.

XLF (Financial SPDR)

While XIV is giving us a bullish near-term picture, XLF could be said to be doing the opposite, similar to the Russell 2000 -- although it is not quite as bearish over the short-term. For sure, like the other indices, it is only suggesting that a top may be forming at this time, and it will take more time to determine if this is the case. The trend line which has to be broken in order to begin a significant decline is still far below and more topping action would probably be required before this takes place.



BONDS

After contradicting the uptrend in equity markets for several weeks, TLT finally relented and started to correct after making a new high. It has now retraced to the level where it found good support earlier -- around 125. We’ll see if it can maintain that level or needs to continue its correction.

The long-term trend is not jeopardized at this time, but if it breaks this level, it could continue to correct back to an intermediate trend line around 120, which is also the current level of its 200-DMA and should provide good support. Although it has re-bounded from 124 back to 126, it will have to prove that it can hold this level before it can resume its uptrend.



UUP (Dollar ETF) Daily Chart

Like TLT, UUP is also in a long-term uptrend, and like TLT also in a short-term consolidation. It is not as dynamic an uptrend as that of TLT, but it does have a fairly clear-cut projection of 25, toward which it seems to be moving steadily. That would correspond to about 90 on the USD.



UUP is much more susceptible to the vagaries of the Euro than TLT, and the Euro’s future is still full of uncertainties. Short-term, the possibility of some action being taken by the ECB in September could have some positive effect on the Euro, if it materializes. That would be a short-term negative for the dollar.

GLD (ETF for gold)

Gold has been in an intermediate-term correction which, after almost a year, is threatening to become a long-term decline. It is not a particularly aggressive downtrend since it has now held the 149 level since last December. But it has been stuck in a 10-point range – primarily limited on the upside by its 200-DMA -- for about three months and can’t seem to get out of it. Even if it managed to break out on the upside, it would still have to overcome its long-term downtrend line which is about 5 points higher from where it is currently trading.

Since the 25-wk cycle is in its early phase, it has a chance of moving higher if it can overcome the 200-DMA. But something will have to trigger that move, and if the dollar continues to rally, it will not help matters. Nothing much will happen until GLD either moves



FXE (Euro Trust ETF)

We know that the moves in the Euro have an effect on the market. As of now, the euro is in a long-term downtrend and trading approximately in the middle of its downtrend channel. It found support on an inside parallel line and has been in a weak uptrend since. Meeting resistance from a previous low, it backed off right away but remains in an uptrend.

It is unlikely that FXE will have a significant up-move in the near future, but it could have a quick upside response to the ECB if something positive comes out of its September meeting. Should this happen, the P&F chart suggests that it could quickly move up to about 124.50. The near-term is bullish since it has broken out of a short-term downtrend line and is currently back- testing it. The daily momentum oscillator is bullish and the hourly oversold, a positive technical condition.



OIL (USO)

We have not looked at oil for a couple of weeks, so let’s see what it’s doing. Below is a daily chart of the index which shows that it is in a short-term uptrend since finding support at 29 -- the level of a previous low in October of last year. This put an end to a steep 13 point decline and represents a recovery from this severe sell-off.

While one might be tempted to see this as a double-bottom from which USO could start another uptrend, that thinking would be premature. The index would have to do a lot more work and show some real strength before confirming a double-bottom. The current rally consists of a non-impulsive 5-wave pattern which has almost retraced 50% of its last decline. That could mean that this rally is nearly over.

Consider also these other factors: 1) 36 is the projection which is given to this move by the P&F chart. 2) at 36, it runs into resistance which goes back to February 2011. 3) 36 is also the current level of the 200-DMA, and 4) If, by some miracle, it were able to get above 36, it would immediately run into the long-term downtrend line from its 2008 top. No, I don’t think that this index has much of an upside potential, while the downside is still considerable if it breaks below 29.



Summary

The SPX may be starting to create a distribution pattern which, when complete, would turn out to be at least a short-term top, and perhaps an intermediate one as well.

Intermediate-term cycles appear to be topping in this area, with early August being the favorite time frame for a reversal, but with the third week in August also being a candidate.

The daily chart indicators are beginning to show deceleration and divergence, but prices are still not in immediate danger of breaking trend lines. We’ll need to see some substantial weakness in the A/D before prices can be pulled down into a significant decline.

Andre

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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 so that you can not only evaluate past performance, but also be aware of the increasing accuracy of forecasts.

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.

Intermediate target in sight: Andre Gratian's 7/29/2012

Andre Gratian has developed another great set of analyses on the stock market and related matters such as the VIX, gold, US dollar and the euro, crude oil, and the financial sector. Since it's posted at Safe Haven, I won't take the time to reproduce it here - please see it at http://www.safehaven.com/article/26361/market-turning-points. Subscribers receive this via email each Sunday afternoon, plus his several intraday updates. If you would like to sign up for a FREE 4-week trial period of daily comments, please let Andre know at ajg@cybertrails.com.

I highly recommend reading Andre's work closely because he makes great calls on the markets, both in terms of time as well as price. Those interested in his work can also learn more at his website, Market Turning Points.

Since the markets are at a point which may surprise many in terms of where it goes from here, be sure to go visit the Safe Haven link and learn what Andre is saying!

Short vs. Long ... Term: Andre Gratian's 7/22/12 Turning Points update

Andre Gratian gives a great overview of the bull vs. bear perspective on the stock market in his Market Turning Points update report (thanks again Andre!). This includes technical and sentiment analysis for the U.S. stock market; as well as the volatility index (VIX), the XLF (the financials ETF), bonds (TLT), the US dollar and the euro, gold, and crude oil. You can get more info about Andre's work at his website (including his intraday update subscriber series), at http://www.marketurningpoints.com/. And now, Andre's update (click any of his charts to see it as a larger image):

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July 22, 2012

Market Turning Points
Week-end Report
By Andre Gratian

SHORT-TERM VS. LONG-TERM

Precision timing for all time frames through a 3-dimensional approach to technical analysis: Cycles - Breadth - P&F and Fibonacci price projections, and occasional Elliott Wave analysis

“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

SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.

SPX: Intermediate trend – SPX is in a limited intermediate uptrend which is estimated to end in the first week of August.

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

From last week: “Should conditions remain as they are during this rally phase, the SPX would be expected to reach about 1380, and could even stretch to the low 1400s. Being able to overcome resistance around 1362 will determine whether or not these projections can be reached.”

Once again, the SPX obliged with the forecast of a week ago. When this prediction was made, the SPX stood at 1357.70 after a strong rally on Friday 7/13. This was seen as the resumption of an intermediate uptrend which had started from 1267 on 6/04, and was expected to reach 1380, at a minimum. In fact, last Thursday the SPX rose to 1380.39 before it started to retrace. By Friday, it became obvious that, after meeting its lower target dead on, the short-term trend had been interrupted and a correction had started.

This correction is not expected to be long-lasting and could end as early as 7/25, around 1345 max.
After that, an extension of the intermediate uptrend could take place, driving prices into the low 1400s
before ending sometime in early August.

That’s the forecast for the short-term. What about the long term? I have said all along that there will be a long-term correction (bear market) into the Kress 120-year cycle low which ideally bottoms in October 2014. While SPX, DJIA and NDX are attempting to keep alive their bull market trend from 2009, long-term deceleration is taking place in other indices and raising a red flag. This is evident in the broader NYSE index when compared to the SPX in the following charts (courtesy of Qcharts).

Chart analysis

There is no question that the broader index is relatively weaker than the SPX. Both indices made similar recovery highs from their March 2009 lows, and comparable weakness took place in both during the subsequent correction which ended in October 2011. It is in the price action during the next rallies into March 2012 that we start seeing long-term deceleration asserting itself in the NYSE. While SPX went on to surpass its May 2011 peak, the NYSE fell far short of it before starting to decline again. The same thing happened on a smaller scale last week. SPX made a marginal new high, but NYSE did not.

In order to make this long-term divergence more graphic, I have drawn trend lines across the May 2011 and March 2012 peaks of both indices. This shows that the SPX, having made a higher high, is still in an uptrend, while the NYSE which made a lower high, is already in a potential long-term downtrend. The relative weakness of the NYSE suggests that fewer stocks are participating in the bull market. These stocks are the small caps and this relative performance is best expressed in the following chart of the Russell 2000 (small caps) vs. Russell 1000 (large caps) -- courtesy of StockCharts.com-- which gives you essentially the same picture as the one above, but is more explicit in that it shows the small caps underperforming the large caps. Historically, this has been a negative for the market, foreshadowing the advent of a bear market if it persists.

Is it time to panic and sell everything you own? Not necessarily, and this is probably the mistake that the permabears are making in thinking it is. Some Elliott Wave analysts fall in that category. They believe that we have already started a bear market and that there is a devastating wave 3 just ahead. They are probably right, but their timing could be off.

Based on cycles, there are two time frames in which the market could start a vicious decline. One is relatively nearby, as close as mid-August. If this time frame fails to trigger something substantial, then the day of reckoning will probably be put off until the first quarter of 2013. Why don’t we wait and see which one the market chooses?

For analysis of the short term, we’ll turn to the Hourly Chart of the SPX. The blue trend line represents the “long” intermediate trend from October 2011. The green trend line connects lows from 1267 and denotes the “short” intermediate trend. For now, both trends are still rising, but after 5 waves from the low, the SPX appears to have given a short-term sell signal. This is reflected in the price action, and is even more apparent in the indicator which showed some divergence at the top prior to breaking its trend line.

So far, the index has retraced to a very strong support level around 1360, and it may have a bounce before going lower. The chart shows that prices held above support for four hours without penetrating it and it would not be surprising to see an attempt at resuming the uptrend on Monday morning. However, short-term cycles due to make their lows around 7/25 should pull the index down below the support line, perhaps as far as 1346, which is a reasonable projection according to the P&F chart. Whether or not these cycles will be strong enough to propel the SPX back in an uptrend remains to be seen, but since the next top is expected around early August, it’s possible.

Cycles

From last week -- and still pertinent -- is this quote: “A minor cycle is due Tuesday, and another one around the 20th. Over the short term, the most important cycles will form a cluster in the second week of August. At this time, they are expected to bring about a high, but should they bring a low instead, it would make a big difference in the trend pattern.”

A short-term reversal occurred on Friday 20th, so the market obliged in time as well as in price.

The only thing to add for the short-term is that, as mentioned above, minor cycle lows are expected around the 25th.

Breadth

Below is the NYMO (McClellan Oscillator) superimposed on the NYSI (McClellan Summation Index; both courtesy of StockCharts.com).

If there was anything that was forecasting a near-term reversal, it was breadth. Look at the action of the NYMO last week while the market was making new intermediate highs. It’s difficult to find more striking negative divergence. But that has not been followed by a great deal of weakness – at least not yet! The index has only returned to neutral and we’ll have to see what the next few days bring.

It’s obviously not a time to get too bullish. Take a look at the NYSI. Not only is it beginning to flatten out, an indication that the intermediate trend may be about to reverse, but look at the RSI, which is just about as overbought as it gets. A cautionary stance is appropriate.

Sentiment Indicators

While some indicators are exerting caution, when we look at the SentimenTrader (courtesy of same) it’s very difficult to get overly bearish about the stock market. This index has an excellent record of predicting important highs and lows and – unless it is totally blowing it, this time – it only shows that sentiment is neutral, contradicting those that are predicting gloom and doom.

The VIX (volatility index)

Below, we compare the SPX to the VIX (charts courtesy of Qcharts) with the help of weekly charts. Since the beginning of the bull market of March 2009, the up-phases in the SPX have been matched by down-phases in the VIX. I have drawn channel lines around both to make this more obvious. What is currently shown is that the SPX’s uptrend is matched by a downtrend in the VIX, with the latter making a new low and dropping below 16 on Thursday. Before we can call for a major top in the market -- which, granted, may already have taken place at 1422 – we would first need to see both indices get outside of their intermediate channels, and then break their long-term trend lines. Even then we still would not have a confirmed long-term downtrend. Both would have to overcome their respective former intermediate low and high. Only then could we say for sure that we have started a bear market.

Of course, I am not advocating that you wait for such a confirmation to take precautionary measures, but let’s at least see if there are other warning signs ahead of us beyond some trend deceleration!

XLF (Financial SPDR)

I have mentioned a number of times that XLF is usually a good leading indicator. It certainly proved my point this time. The index stalled before making a new high while the SPX was overcoming its previous peak. This was a case of clear negative divergence in the XLF, although it was a little confusing because this is one time when the VIX actually misled us at the top of a short-term trend. Not visible on the weekly chart (above) but on Thursday, the VIX closed on its low of the day, suggesting that the SPX would try to go higher on Friday. There was no such ambiguity in the XLF. It clearly warned of a reversal.

The XLF also gave a warning on an intermediate basis when it refused to make a higher high on 4/01, while the SPX did. Now we have divergence on a shorter time frame as well. These are not bullish signs.

BONDS

TLT continues to defy gravity, seemingly ignoring what the SPX is doing. A week ago, it made -

a new fractional high before pulling back a couple of points, but it was right back at its high as soon as the market started to correct.

Last week, I mentioned that if TLT was able to get past 130 decisively, it should be able to get up to 136-137 according to its P&F chart. This is still a valid projection.

UUP (Dollar ETF) Daily Chart

The relationship between leading/confirming indicators and the SPX is not always clear and uniform. We are going through such a period, right now. That the SPX has started a correction is clear enough, and UUP is one of the indices that confirms it. I have expected UUP to next make a move to about 23.30, and it may now have the opportunity to do so. It would not take much for it to advance to a slightly new high, but for that, it would probably need the Euro to continue its downtrend, and the Euro may not want to do that! Although it made a slightly new low on Friday, the Euro appears to have essentially met its intermediate projection and is likely to resist further selling.

On Friday, UUP came within 8 cents of its former high. Let’s see if the Euro gives it the latitude it needs to keep going.

GLD (ETF for gold)

GLD continues to trade sideways, attempting several times to break above a declining secondary trend line, but failing to do so. However, the longer it resists getting severely pushed back by that trend line, the more likely it is to go through it at some point.

The 25-wk cycle which bottomed 4 weeks ago has provided support above a former low, but has not been able to force prices through the secondary trend line. This may change over the next two or three weeks if the market has a final rally into early August. If GLD can overcome its trend line, it can move at least to 159/160 during this time period. That would fall short of challenging the main downtrend line and could be all the upside we get before the intermediate correction resumes its downward course.

USO (United States Oil Fund)

After a protracted decline which created an extremely oversold condition, USO is rallying after meeting an interim phase objective. The index could pause here, but has the potential of moving up -

to about 36 before running into overhead resistance. It has already rallied 50% of its last phase decline and, at 36, would make it a .618 retracement. This is also where it would run into its 200-DMA. New lows are likely to follow this rally as USO appears to have resumed its long-term downtrend from its high of 119.17 on 7/06/08.

FXE (Euro Trust ETF)

As a consequence of severe political and economic difficulties experienced by the Eurozone, the Euro has been in a severe decline since its high of May 2011. However, there are important signals suggesting that this decline may be coming to an end -- at least temporarily. Positive divergence is showing in the weekly, daily, and hourly indicators, and FXE has met an intermediate projection, which suggests that it is more likely to find support in this area than to continue declining.

This fits in with the market position which calls for a rally extension into the first week in August before the intermediate top is achieved. There is a strong correlation between strength in the Euro and strength in the stock market.

Summary

The SPX has started to correct after making a minimal higher high in the rally which started at 1267 on 6/04. After a minor correction, it is expected to move higher over the next three weeks, perhaps reaching the low 1400s.

A survey of various market components reveals a less than bullish picture. Storm clouds are gathering which call for caution after this rally is over. The question is whether the atmospheric disturbance due at that time will only be a tropical depression or a full-blown, type 5 hurricane. In either case, precautionary measures should be taken until the strength of the disturbance can be assessed.

Andre

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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.

Stock market staying in the game: Andre Gratian's 7/15/12 Turning Points report

Could the stock market have enough strength to go higher? Let Andre Gratian guide you on that and other financial assets and markets, with his expert blend of technical analysis, cycles interpretation and inter-market comparisons (thanks again Andre!). Below is his Market Turning Points update report for the U.S. stock market; as well as the volatility index (VIX), the XLF (the financials ETF), bonds (TLT), the US dollar, gold, and crude oil. You can get more info about Andre's work at his website (including his intraday update subscriber series), at http://www.marketurningpoints.com/. And now, Andre's update (click any of his charts to see it as a larger image):

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July 15, 2012

Market Turning Points
Week-end Report
By Andre Gratian

RESUMPTION OF UPTREND UNDERWAY

Precision timing for all time frames through a 3-dimensional approach to technical analysis: Cycles - Breadth - P&F and Fibonacci price projections, and occasional Elliott Wave analysis

“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

SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.

SPX: Intermediate trend – SPX is back in an intermediate uptrend.

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

The short-term correction of the SPX that had been underway since 7/03 came to an end on Thursday, at 1325.41, a few points lower than anticipated (1330-32), and a couple of days earlier (7/17), but still well within the price and time parameters that had been forecasted. The resumption of the uptrend was punctuated by a strong rally which has already exceeded thirty points, with enough initial momentum to suggest that higher prices are more than likely, but probably not without a near-term correction that would neutralize the short-term overbought condition.

The odds that this rally will take prices to a new intermediate high (from 1267) will increase if the index can rise above the 1362 resistance, ideally this coming week. If it does, the rally should continue into the first week in August, after which we should be prepared for a potentially important period of weakness which could last into October.

The above is an outline of the scenario that I am proposing for the next few weeks. Of course, it will be adjusted as we move along to reflect a possible change in trend. In non-EW lingo, from the 1267 June low, the market is embarking on a 5th uptrend phase. Normally, the completion of a fifth phase is followed by a correction. We should be able to estimate the depth of the correction by the amount of distribution that occurs at the top of the move.

If we have the tools to discern the changes in supply/demand, and whether the battle ground where buyers and sellers fight for supremacy are areas of accumulation or distribution, we should not be surprised by the direction of the trend. Only events that are totally unexpected -- such as the assassination of president Kennedy in 1962 -- can produce an unforeseen change in trend, and then, only temporarily.

Should conditions remain as they are during this rally phase, the SPX would be expected to reach about 1380, and could even stretch to the low 1400s. Being able to overcome resistance around 1362 will determine whether or not these projections can be reached.

Let’s look at some charts.

Chart analysis

This is a Daily Chart of the SPX under which I have placed a comparable chart of the NYMO. This gives us an excellent appraisal of the current trend.

There is nothing on this chart that already suggests that the index cannot meet the price projections given above. The last short-term high was achieved with negative divergence developing only in the MACD histogram. That was an indication that a short-term correction was imminent, but it did not reflect on the longer-term trend from 1267. So far, breadth support has been more than adequate. At the last near-term top, the NYMO went to its most overbought level in three years and needed to correct. When it did, it barely went negative before turning up once again on Friday.

During the current rally, we would expect to see divergence appear in both the MACD and the NYMO, and the only condition that has been set for the SPX, is that it must trade decisively above 1362. If it fails to do so, it would be a warning that the above scenario has to be altered.

The Hourly Chart demonstrates the strong momentum displayed by the initial break-out of the downtrend. How we progress from here will tell us if this is just a blip of short-covering, or something more lasting. As long as we do not lose too much of that early momentum in the next near-term correction, we’ll be OK. The main obstacle to fulfilling the scenario depicted above is the red line drawn at the 1362 level. It is the level that stopped the first phase from 1267. Clearly, we need to get past it – preferably by the end of the week -- in order to meet our deadline of early August for an intermediate top.

Should we break the uptrend line (from 1267) before the end of the month, we would be making a significant alteration in the trend pattern of the SPX. Cycles due around August 6 are expected to bring about a top. If they bring a low instead, we would have to change our expectations for what lies ahead.

Cycles

The cycle which was due on 7/13-7/17 chose to make its low one day early, on the 12th. It caused a short-term climax in the market early in the day, but most of the losses were recouped by the close.

A minor cycle is due Tuesday, and another one around the 20th. Over the short term, the most important cycles will form a cluster in the second week of August. At this time, they are expected to bring about a high, but should they bring a low instead, it would make a big difference in the trend pattern.

Breadth

I have already shown the NYMO (courtesy of StockCharts.com) above. Here is the NYSI (the Summation index). It represents the intermediate trend of the A/D. As you can see, it is not as bullish as the NYMO. It is beginning to curl over, and its RSI and MACD are both overbought. But, since it is made up of the daily readings of the McClellan oscillator, we will focus our attention on the latter and give this index a little bit of slack. We’ll review it again next week.

Sentiment Indicators

Since we are approaching a time of uncertainty for what lies ahead in the market, this week we’ll look at the SentimenTrader (courtesy of same) to see what it’s telling us.

Actually, not much! It is slightly negative for the market in the near term, which matches our expectations for the next couple of days, but the long-term signal is just a little bit on the positive side of neutral. According to this indicator, it does not look as if anything of importance is going to happen over the foreseeable future.

The VIX (volatility index)

The chart pattern made by the VIX (courtesy of Qcharts) continues to be bullish with no expectation of market negativity at this time. This supports the scenario which was traced out in the opening remarks. No storm clouds ahead!

XLF (Financial SPDR)

The third index that I use as a leading indicator gives us the same picture. It is more bullish than the SPX over the near-term and has already overcome the comparable 1362 level but, since it showed some negative divergence to the SPX at its last two intermediate tops (April 2012 and May 2011), we’ll need to keep a close watch on this index in early August. If negative divergence appears once again, it could be an indication that another intermediate decline lies ahead.

BONDS

The SPX has been in a weak uptrend since early June, but in an uptrend nevertheless. And so has TLT, after briefly consolidating. Actually, TLT started its uptrend in March, which was normal enough -

since this is when the SPX started its correction into the June low. But instead of retracing when the SPX reversed at 1267, it only went sideways for a little while, started to move up again and is now challenging its former high.

If it should make a new high, it could continue rising to 137. However, if the SPX extends its uptrend into the first week in August, it is more than likely that TLT will stop where it is and continue its consolidation before moving higher.

UUP (Dollar ETF) Daily Chart

UUP has been in a shallow intermediate uptrend ever since it found support at the bottom of a long-term downtrend channel that goes back to late 2009. In spite of this steady move upward, it is still confined to that channel and would have to get past 26, at a minimum, to break out of it. That does not seem likely in the near future. The current uptrend is clearly corrective and will most likely be followed by another intermediate downtrend after it has reached its 25+ projection. The base which was built between September and November 2011 is not extensive enough to move it out of its long-term down channel at this time.

Over the near-term, UUP made a new high, but only by a fraction. That may be all it is capable of for now. The Euro Trust (FXE), may be in the process of reversing its intermediate downtrend. By trading at 121.07 on Thursday, it has met an important projection that could end its decline from May 2011. 121.07 was re-tested later that day, and again on Friday. A process of accumulation with limited price appreciation could now take place. Should that happen, it is unlikely that the SPX will experience much weakness in the near future – which is what some of the above indicators are also saying.

GLD (ETF for gold)

GLD continues its intermediate correction and does not seem very anxious to end it. The 25-wk cycle recently made its low but it has not brought anything resembling the reactions to the previous lows.

There is a possibility that it could move up to 162 before continuing its correction but its time span to do this is limited to the next 2 or 3 weeks. If it has not done it by then, a new low is almost assured -- especially if the SPX starts a correction that extends into October.

OIL(USO)

The oil complex is of little interest at this time. Long-term weakness has set in. USO had a sustained decline to the level of a former low where it found temporary support and has started a holding pattern from which it could move a little higher, but the upside potential is limited while the downside risk is consequential.

Summary

The SPX appears to be in a corrective uptrend which is slated to end by the first week in August, or possibly earlier. That is leading some EW theorists to forecast that a major decline will follow.

Perhaps, but I cannot find any market sign that would justify such expectations. One example is the neutrality exhibited by the SentimenTrader. At the beginning of important downtrends, it is positioned deeply in the red zone.

Even more significant, the Euro Trust (chart below) appears to have completed the decline which it started in May 2011. An important projection has been filled at the same time that positive divergence is appearing in the weekly indicators. This is also the completion of a 5-wave pattern. Granted, it may not be ready to soar upward, but nor does it look capable of declining to much lower lows right away.

Andre

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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 so that you can not only evaluate past performance, but also be aware of the increasing accuracy of forecasts.

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.