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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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.

Deciphering where the markets are heading: Andre Gratian's 7/8/12 Turning Points update

Many are uncertain and debating whether the stock market's going higher. Let Andre Gratian guide you 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 8, 2012

Market Turning Points
Week-end Report
By Andre Gratian

SHORT-TERM CORRECTION EXPECTED

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

From the last newsletter: “The base established on the P&F chart gives the initial spike a projection to 1374-1377…”

And from Thursday’s Morning Comment: "Thursday, July 5 -- Morning Comment
The SPX is entering its ideal time-frame for a near-term top and it has already met the lower target of the 1374-1377 price projection band. Futures are down about 5 points in early profit-taking, but the market will probably wait until tomorrow's jobs report to determine if it should start correcting or extend its top-building pattern for another day or two."

The SPX has, once again, obliged by peaking at 1374.81 on Wednesday, re-testing the high on Thursday, and starting a full-fledged decline on Friday. That decline went past an initial projection, stopped at the next, and rallied into the end of the day for its first rally in a short-term downtrend. The overall trend remains: Long-term up, intermediate up, and short-term down! This minor correction is expected to continue into mid-month, and be followed by a resumption of the intermediate uptrend.

There do not seem to be any threatening storm clouds building up over the near-term stock market trend, but this could change by early August. The least that we might expect would be a decline into October which could be fairly severe. If it is not, the next worrisome time-frame for a significant decline, would be the first quarter of next year. Whichever it turns out to be, there are some longer-term warnings already brewing in some important leading indicators that have been lagging for some weeks and continue to do so. But this should have no effect over the next few weeks.

Of secondary interest is whether or not the SPX will make a new high before beginning its slide into October 2014, driven by bottoming long-term cycles. The odds that it does will increase if the “final” top is in 2013.

Let’s look at the charts.

Chart analysis

We’ll start with an uncomplicated analysis of the long-term trend, using the Weekly SPX Chart. It’s undeniable that the index is in a long-term trend. Since its low of 2009, it has been making higher highs and higher lows. A preliminary warning that this trend is coming to an end will occur when the red horizontal line is penetrated to the downside. You can see that the long-term rise in prices is delineated by a broad channel, the (purple) bottom line of which closely matches the long-term (green) trend line that connects the 2009 and the 2011 lows. We can safely assume that until prices come out of the channel, we are still in a long-term uptrend, even though there could be some volatility in the intermediate uptrend, which just became confirmed by the lower indicator making a bullish cross and moving into positive territory.

Our concerns about an intermediate top in early August and a decline into October -- if justified – could very well send prices below the red trend line, but not necessarily below the channel line.

Since breadth matched with prices gives an excellent confirmation of the market trend, let’s now show the NYSI (above) ( a superlative weekly trend indicator (courtesy of MarketCharts.com)] directly below the weekly SPX chart. The horizontal scales do not match exactly, but close enough so that you can compare the two charts without too much difficulty, especially in their recent positions.

Here again, a simple, but effective, analysis shows us that the intermediate uptrend is indeed up with the index solidly positive, and the RSI only slightly above neutral and still rising. No immediate problem on the horizon! But we can point to some potential longer-term negatives: The last correction of the NYSI went down to the level of its 2011 low, while the SPX remained well above its comparative low. Of more immediate concern, the MACD of the RSI is still negative and has not yet made a bullish cross. True, the MACD tends to lag the RSI which has given a confirmed buy signal, but it could spell trouble if it turns before becoming positive.

The Daily Chart shows that there are several trend lines that will have to be broken before we can give up on the long-term trend. If the October low remains above the lower channel line, whether or not the index makes a new high will depend on how much of a retracement it will have before it can start on its final journey into 2013.

The short-term has given a conditional sell signal. The price remains above the MA, and the oscillator has turned down but has not yet broken through the uptrend line and moved into negative territory. Cycles and projection considered, it’s likely that the decline will continue for another week or so.

We can get a better feel for that on the Hourly Chart, where we can see clearly that the short-term uptrend has been broken, with the SPX moving outside of its short-term channel. It is also clear that this does not pose any threat to the intermediate trend at this time. The trend line is still far below, and some good support exists around the 1330-1332 level.

The indicator also gave a clear sell signal after showing some divergence. There was no follow-through selling into the close on Friday, and the pull-back looks as if it has already evolved into a near-term rally in a short-term downtrend.

Cycles

The mid-June top was caused by a small cluster of cycles. This action could be repeated in early August when more important cycles could cause a more important top.

In the meantime, the current short-term correction is likely to continue into about 7/17 and a cycle low.

Breadth

The NYMO (courtesy of StockCharts.com) is shown below, and it’s easy to see why the NYSI continues to move up; the NYMO has been positive for a full month and shows no sign of relenting. The fact that it did not create negative divergence to the SPX at this top is a testimonial to the underlying strength of the market, and an indication that this will only be a short and shallow correction. The time to worry about a more important top will be when the McClellan oscillator pattern starts to diverge significantly from the SPX, as it did beginning in February. If something significant is going to happen in early August, a somewhat similar pattern should show up on the NYMO.

Sentiment Indicators

The SentimenTrader gauge (of SentimenTrader.com) is still neutral and not even close to warning about a top, another indication that the intermediate trend is still up and not close to topping.

The VIX (volatility index)

The chart pattern made by the VIX (courtesy of Qcharts) nicely confirms the uptrend of the SPX. The two channels are moving in opposite directions and, as long as they do, we can assume that the intermediate trend is up.

The index did give a slight warning (green asterisk) that we were coming to a top when it failed to equal on the downside, the penetration of the SPX on the upside. This was not strong enough a signal to suggest that this will be anything more than a short-term correction. When the market is ready to make a more important top, it is likely to show a divergence pattern similar to what we saw in April and May.

XLF (Financial SPDR)

The hourly chart of the XLF continues to look pretty much like that of the SPX (see chart above), telling us that the uptrend is probably not yet in trouble. However, the weekly chart does show some disconnect between the two indices which could result in some sort of intermediate top ahead. As soon as we see relative weakness manifesting itself in the daily and hourly charts of the XLF, it will be time to become cautious about the possibility of an important top forming.

BONDS

TLT (20-yr T-Bond Fund) has now traded for one month in a narrow range, between 125 and 127. Previous tops are providing support, and it looks as if the index is making a high level consolidation area which can be interpreted as accumulation on the Point & Figure chart. When the pattern is complete -- perhaps in early August to coincide with the anticipated market high -- it should yield a clear projection for its continued uptrend.

If (when) TLT breaks out on the upside, it will probably be in conjunction with a decline in the SPX, and we should be able to estimate the severity of the decline by the size of the accumulation pattern that was created in TLT,

UUP (Dollar ETF) Daily Chart

UUP may be on its way to fulfilling its next projection of 23.30, but that would depend on continued weakness on the part of the EURO. On its recent thrust, UUP jumped all the way to the previous top and only needs to go fractionally higher to break out and signal a probable move to 23.30. Eventually, the index is expected to rise to 25 as the USD meets its 90+ projection.

GLD (ETF for gold)

The weekly log chart of GLD shows how perfectly the long-term trend line from 2008 supported the rise of prices, until it was broken after GLD reached its 185 projection. It also shows a classic back-test of the broken line and a continuation of the intermediate correction.

The red arrow tips show how regular the phases of the 25-wk cycle have been during that prolonged uptrend. The fact that the last cycle bottom, which occurred two weeks ago, did not break below the former 25-wk low gave rise to some expectation that GLD might be in a position to break out of its intermediate downtrend and challenge the top channel line. So far, at least, it does not seem ready to do this. The P&F chart does give it a potential move to 162, but that would only take it to the top of the declining channel, after which, it could be vulnerable to resuming its downtrend into November to fill its long-standing 141 target.

OIL(USO)

After a prolonged steep decline from its 2008 top, USO (weekly chart) finally made a low in early 2009, but has done little since except to make an extended consolidation pattern which may have come to an end in February. Although the index, after another steep but shorter decline, has found a temporary low slightly below the base of that pattern, its future prospects do not appear very bright. The Point & Figure chart gives it an eventual low of 8, which could very well materialize in 2014 if the stock market experiences the kind of decline which is expected into the 120-yr cycle low.

Summary

The SPX, which established another intermediate low at 1267, has found a short-term top at its 1374 projection and is in the process of correcting. The correction is expected to last for about another week, after which the index should resume its uptrend into early August.

By then, it should become clear if that time frame only brings about another intermediate correction, or if it is the start of something more.

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.

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.

Bond bubble alive & well - what to get ready for in US Treasuries

Got TLT? It's okay if you do because the US Treasury bonds bubble is alive and well! Recently it's launched a run toward new highs, probably squeezing a lot of shorts by now. I don't know if the JP Morgan situation is directly related but maybe indirectly. For a long time now, I've been pointing out that Fibonacci projections based on the monthly chart pattern point to at least $150 in both $USB (long bonds) and $UST (10-year notes). So I've discouraged my readers from shorting them. I'm glad I got it right! Wait until $150 is tagged in either or both $USB and $UST, and after that, make sure you see a discernible reversal pattern to be confident that the trend indeed reverses from bullish to bearish.

My own charts are below, but first look at today's free chart analysis by Tom McClellan, "Is JPM "The Burning LOH"? - Free Weekly Technical Analysis Chart - McClellan Financial" at http://www.mcoscillator.com/learning_center/weekly_chart/is_jpm_the_burning_loh/. Tom McClellan had said a few weeks ago that US bonds would rally again. He was right on that, and now he's suggesting we may be getting near a peak. I don't think he has a specific price target, however. Read his article to understand what he's saying about his chart:

He points out that bonds often peak at crisis times. So it might not be just the Federal Reserve purchases and "Operation Twist". Yet it's interesting that the Fed currently plans to discontinue that level of purchases. Another reason why US bond prices could correct AFTER hitting peak price targets. (So after there's a trend reversal confirmed, KI$$ investors can sell TLT and buy TBT if that looks appropriate for their strategies.)

Can I guarantee the $150 Fibonacci and P&F price target? Of course not a guarantee - but the rally has strength. It's even possible the price may overshoot $150, so that's why investors and traders should look for a reversal pattern in any event.

The Fibonacci projection to $150 is also supported by point & figure projections, and by the indicators which continue to be supportive. As I mentioned, I'm glad to see Tom McClellan addressed this because it dovetails with the bullish projection I've been pointing out for weeks (even months). Here are my basic charts (from Stockcharts.com) for $USB the US long-term bonds. First the daily, then the monthly. Notice there's just a hint of negative divergence that will be important if it persists as $USB pikes new highs. But the monthly StochRSI did a bullish midline retest as price pulled back - that supports the likelihood that the US long-term Treasury bonds should continue to new highs and meet the $150 projection.

And finally here's the default point & figure chart for $USB from Stockcharts.com. Notice that it never did break support and still sports a bullish projection to $150:

Markets tipped hand to correction underway: Andre Gratian's 5/6/12 Turning Points update

Is it a coincidence that stock markets started to falter after rising into a "super-full moon" (coincidence of full moon at perigee won't occur again until 2029)? Let's look at the cold facts with technical analysis from the expert, Andre Gratian in his Turning Points update this weekend (thanks again, Andre!). Here you'll see his charts and analysis covering the S&P 500, volatility index (VIX), the XLF (the financials ETF), bonds (TLT), the US dollar, gold and 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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May 6, 2012

Market Turning Points
Week-end Report
By Andre Gratian

THE CORRECTION IS NOT OVER

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 – The intermediate uptrend is still intact and so is the extended short-term 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

It looks like the traders and investors took the “sell in May” mantra seriously this week. (John Murphy)

In last week’s newsletter, when many EW analysts were heralding the coming of wave 5, some – including yours truly – expressed skepticism that this was the case. There were just too many technical factors that did not support it. What happened this week, on Friday in particular, should convince even the most entrenched bulls that the correction which started at 1422 in the SPX is not over. Next week should leave no more doubt that what could be an important decline has started.

I mentioned that two events could have a significant effect on the market: the first was the jobs report which came on Friday morning and triggered the biggest decline of recent weeks, and the other, the French election (and perhaps even more important, Greece’s) will take place tomorrow. Should there be a radical change to the political status quo of either or both countries, we could have a repeat of Friday’s scenario.

To me, the SPX activity during the last three weeks in March looked very much like distribution. The fact that the index did not collapse immediately created some uncertainty which caused the bulls to regain their conviction that new highs were imminent. After Friday, it appears that a second phase of distribution was created over the past month. On the Point & Figure chart, the two combined make an impressive top with potential projections which, if realized, could bring about a loss of at least one hundred more points before the SPX can regain its footing.

P&F counts are not always realized fully, so we’ll let the market tell us how far down it wants to go but, judging by the fact that the weekly chart indicators just gave a sell signal this past week, it could take a while before they get back in a buy position. In order to confirm that a serious decline has started, the SPX has to break its 1357 support. Since it closed at 1369 on Friday, this could be achieved in the first hour of trading on Monday if the Eurozone election results spook the market and, if that happens, the first target will be 1342, the level of the last wave 4 of lesser degree. Beyond that, there are good P&F counts – supported by Fibonacci – down to 1245.

The near-term cyclical configuration fully support the probability of extending the correction. This will be discussed more fully under “Cycles”, but for now, be aware that 5/20 and mid-June are important cyclical time frames.

With this glimpse of what could transpire over the next few weeks, let’s go to the charts.

Chart analysis

On the Daily Chart, it looks as if SPX is about to trade a narrow (gray) channel which has contained it for the past five months, for a wider (blue) channel which has its point of origin in early October. There is nothing unusual about that. The first uptrend of a bullish pattern is always very steep and, as it matures, the trend settles into one which rises at a lesser angle within a wider channel.

The fact that the index is moving into a new channel does not mean that it will necessarily retrace all the way down to the lower channel line, but it could. You will note that it currently runs just a little under 1240 and earlier, we discussed a potential count to 1245… coincidence?
Both indicators have just given a sell signal and, with last week’s performance, it is very possible that the decline is closer to its beginning than to its end. Since a projection to 1245 is already established in the top distribution phase, an intial move to 1342 could be only the first wave down. Coincidentally, a decline to 1245 would constitute a 50% retracement of the entire rally from the October low of 1075.

Last week, I showed an Hourly Chart of the SPX noting that after spending most of its time in the upper half of the (gray) channel, the index had started to trade in the lower half. I also stated that if its correction were over, it would climb back into the upper half of the channel.

That is not what happened. The attempt at resuming an uptrend ended with a 55-point rally which was almost entirely retraced in three days on high volume, with a Friday close near the low of the day outside of its channel. The QQQ fared even worse, dropping 2.5% on Friday on huge volume. The behavior of both indices is a big negative confirming that what we see on this chart are two large distribution patterns portending a longer and deeper correction.

Although very oversold, the SRSI is creeping along the bottom with no sign of an imminent lift. The MACD is already trading below its former low and is still in a downtrend with its two lines not ready to cross. It looks as if the index is beginning a “C” wave down from 1415.

Cycles

We last discussed the 29/30-wk cycle which, we assumed, made its low a week early on 5/23, igniting the rally from that level. What if it is still in the process of bottoming and is the cause of all this weakness? This would result in a more normal phase rather than having concluded it at the previous low. It’s a possibility and, if so, we should get a decent rebound after we reverse.

The next cycle is actually the half-span of a long-term cycle which sometimes turns out to be a high, and sometimes a low. In this case, it looks like a low which is due on 5/20.

Next are several cycles which are nesting in the first half of June. This, too, could turn out to be either a high or low point although, if 5/20 is a low, it stands to reason that we should also expect a high in that time frame. But we won’t entertain solid expectations until we see what the market shows us.

Breadth

The NYSE McClellan Oscillator and the NYSE Summation Index (courtesy of StockCharts.com) are shown below.

After spending about two and a half months below the zero line, it looked as if the NYMO was finally coming out of the negative zone. Late April saw a nice surge, but it had no staying power and Friday, it fell right back into it. If our market expectations are correct, it is likely that it will be spending more time in there, on balance.

The renewed weakness in the NYMO has already turned the NYSI back down, just as it was trying to reverse after a long decline. The RSI has also started to turn down.

When the NYSI reverses and makes a higher low while the SPX makes a lower low, it will be a signal that the SPX is ending its correction. I don’t expect it to be anytime soon.

Sentiment
VIX

The following chart is a classic! The index had an initial break out of its long-term downtrend, pulled back and, with a second surge is now ready to move into an established uptrend. True to form, on the pull-back, it moved into a position of positive divergence as the SPX made its recovery high, also refusing to confirm the break out by the Dow to a new high.

However, VIX is currently lagging the SPX on this break-out, and this is something that we must watch closely over the next few days because, if it does not close the gap quickly by making a new high as the SPX makes a new low, it will give a warning that a reversal might be coming sooner than we thought.

The SRSI, which always moves first, has made a strong showing over the last three days and is exhibiting the type of momentum which takes place at the beginning of a new trend. The MACD which is normally a little slower, started to make a bullish cross on Friday.

XLF (Financial SPDR)

The XLF is making the same pattern as the SPX, moving out of a narrow up-channel into a wider one. It is also confirming the emerging weakness in the SPX by being the first of the two to completely come out of its gray channel. Its SRSI has given a strong sell signal, and the MACD has already turned down after remaining flat while the SPX was re-testing its high. Of course, both indices will have to drop below their former near-term lows in order to confirm that a downtrend has started.

By breaking below the red horiontal line, XLF will have an objective of about 13.50 on its P&F chart. That would also put it at the bottom of the larger channel.

BONDS

TLT has held up well since it made its low at 111, getting back in an uptrend and crawling along the lower portion of the broken green trend line. While it has been pushed back each time that it tried to move above the resistance line, the retracements have been shallow. It is likely that, with the help of a declining equities market, it will be able to overcome the trend line and rise above it.

If this happens, it may be able to extend its rally to the general area of the previous top although in order to do so, it will have to overcome another downtrend line connecting the two previous tops.

UUP (Dollar ETF) Daily Chart.

UUP is entering its fifth month of consolidation, unable to start an uptrend, and unwilling to be sold off.

With the action of the past three days, it looks like this is the time for another attempt at breaking out of its consolidation pattern. The indicators have turned up with plenty of momentum in the SRSI and with the lines of the MACD beginning a bullish cross.

It would be normal for UUP to rise as the market falls, and there could be enough chaos produced by the Eurozone election results to weaken the Euro which, as you can see on the chart below, is making a descending triangle pattern. The lows are in perfect alignment and breaking them would result in a short-term sell signal.

GLD (ETF for gold)

GLD has been hanging on a violated trend line for about a month. If the euro drops and the dollar rises, it may be the catalyst needed that will finally cause GLD to fall off its perch. Note the similarity of patterns with that of the euro chart above.

If it does, there is a potential decline of fifteen to eighteen points ahead.

OIL (USO)

The crude oil ETF, USO is not waiting for the market to show it the way. It was ahead of the market when it predicted the SPX would make a top at 1422, and it is now first at breaking its lows of 4/10. This raises the odds that SPX will soon trade below 1357.

The P&F chart of USO gives it a potential near-term target of at least 35.

Summary

Last week, I expressed skepticism about the SPX’s chances of having ended its correction. The market action of the last three days demonstrates that this skepticism was justified.

If we drop below 1257, it is likely that we will continue to correct until 5/20 and that we could retrace as much as 50% of the rally from 1075, although perhaps not in this short time period.

Andre

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Technical analysis of financial markets' crossroads; Andre Gratian's 4/29/13 Turning Points update

With the various markets testing juncture levels (and testing traders!), it sure helps to get Andre Gratian's insights using his technical analysis in this weekend Turning Points update, covering the S&P 500, volatility index (VIX), the XLF (the financials ETF), bonds (TLT), the US dollar, gold and oil (thanks again, Andre!). 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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April 29, 2012

Market Turning Points
Week-end Report
By Andre Gratian

IS THE CORRECTION OVER ?

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 – The intermediate uptrend is still intact and the short-term correction could be over.

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

After last week’s SPX performance it’s possible that the market correction is over. The cycle low which was ideally due for next week may have come in about a week early, and could have been responsible for the spike down to 1359 and the subsequent rally. This would mean that the 1357 low of 4/10 has held and that the SPX could see higher prices before it is challenged again.

With this market action, my former scenario may have to be modified. The rally which started at 1359 last Monday met its initial Point & Figure projection of 1405 on Friday. It’s a good bet that we could get a correction now that this target has been reached. The type of correction will decide whether the cycle has truly bottomed early, or if it is still ahead of us. The reason why this is not certain is because there are other current cyclical factors which could explain the market’s behavior.

EW analysts are divided on the current structure. The view that 1359 was the end of wave 4 and that wave 5 is now underway is meeting with skepticism by those who believe that the corrective action which started at 1422 is not over. How the SPX corrects from 1405 should go a long way toward clarifying the structure.

Should this be the beginning of wave 5 from 1359, we should have just completed wave 1 of 5 at 1405 on Friday. After a corrective wave 2, the next wave should take us to about 1424/1427, and there is the potential for an ultimate move to about 1450. A P&F projection to that level is confirmed by several Fibonacci calculations -- providing the SPX can rise above 1422. If the SPX cannot get above that level, it would force us to consider that we may only be dealing with an extension of the correction.

Supporting the bullish case is the fact that the NYSI has turned up, which means that the McClellan oscillator is again positive, and VIX appears to have broken down after a failed attempt at resuming its uptrend. Also bullish is the fact that the NDX made an island reversal after making its low.

The bears point to the light volume behind the rally, and the decreasing breadth momentum over the last two days. They also see the VIX in a consolidation pattern, ready to resume its uptrend at any time.

This difference of opinion will hopefully be resolved over the next week. The second round of the French election on May 6 could cause a wait-and-see attitude on the part of traders. Hollande’s showing in the first round on April 21 caused a serious sell-off in the markets the following Monday. Should Hollande be the winner, will the market sell off again, or has this already been discounted?

Chart analysis

The two most notable features of this Daily Chart of the SPX are that the uptrend remains contained within a channel and that, according to the indicators, a buy signal was given three days ago.

After the sell signal which occurred on 4/4, the index quickly found a low at 1357 and subsequently moved in a sideways trading pattern. Last Monday, the previous low was tested, but found support on the bottom channel line and began a reversal which managed to break above the former high of the corrective pattern. That puts the SPX back in a near-term uptrend which is currently supported by the various MAs and oscillators. Not shown on this chart – but we’ll analyze it later – the McClellan oscillator also initiated a near-term buy signal. That makes it unanimous for the near-term.

So far, so good for the bulls. However, although the rally managed to overcome the 1393 resistance level at Friday’s closing price of 1403, it still remains nineteen points below the late March high of 1422. If this is a bona fide resumption of the intermediate trend, the SPX will have no problem rising beyond 1422, thereby opening the way for an extension of the move to about 1450. Since the index has achieved its initial price projection to 1405, we will have to see if that’s all the bulls can muster, in which case, it will remain in a corrective phase.

Before we get carried away with last week’s apparent bullishness, let’s look at the Hourly Chart.
Here, the main uptrend channel is roughly divided in quartiles. Before the correction started, the SPX was trading in the upper quartile. When it broke, it plunged into the bottom of the second quartile, where it consolidated for a while, before briefly dipping into the bottom of the first quartile in which it spent only a couple of days before moving back to the top of the second quartile.

With the MACD histogram retracing almost to zero, and the SRSI giving a sell signal by the close on Friday, it looks as if this is all we get on the upside for now. Also, the P&F projection for the accumulation which occurred in the first quartile – well-defined by vertical poles on each side – gave a target of 1405. On Friday, the SPX touched 1406 but could go no further and started to back off. There was enough loss of momentum for the lower oscillator to give a sell signal.

If the SPX is truly finished with its correction and ready to continue its intermediate uptrend, this chart should give us the clue. What it must do is hold in the second quartile and move past its mid-channel line with rising volume and improved A/D statistics. Only then will we be able to ascertain that it is engaged in a genuine attempt at re-establishing its intermediate uptrend. How the index corrects from here will clarify the market’s intention.

Cycles

“The only cycle that really counts at this time is a 29-30-wk cycle which has produced regular phases for the past three years.” This is what I wrote a week ago.

The market action suggests that this cycle made its low about a week ahead of time… and then, perhaps not! There are two smaller cycles which are active in this time frame: one which may have made its low on 4/23, and the other which made a high on 4/27. If that’s the case – and if the low of the larger cycle is still ahead of us, we should see a sharp decline over the next few days. If this does not occur and there is only a mild correction from 1405, it will be a confirmation that the bigger cycle has already bottomed.

There could be an important cycle (top?) on 5/20 and a (hi/lo?) on 6/15. The market action should tell us which to expect.

Breadth

The NYSE Summation Index and the McClellan oscillator (courtesy of StockCharts.com) are shown below. After a long stint in the negative, the McClellan oscillator has turned positive, and this has reversed the trend of the NYSI. Its RSI has started to come up but is still negative. If the RSI reverses before it gets to 70, it will be a sign of market weakness.

Sentiment
VIX

The VIX broke out of its long-term down-trend line – after showing some positive divergence – at the same time that the SPX started to reverse after reaching 1422. During the market consolidation, the VIX countered with one of its own, but when it broke its short-term uptrend line, it was a sign that the correction of the equities could be over.

Just before the SPX started to reach its 1405 projection on Friday, the VIX started to show some minor positive divergence. This should be a sign that the SPX will pause at this level and have a correction. The nature of this correction and the corresponding behavior of the VIX during that time should give us some clues as to whether we have started to resume the uptrend in earnest or if we are in the process of extending the correction.

XLF (Financial SPDR)

I mentioned before that the XLF can serve the same purpose as the VIX by alerting us of a potential reversal in the SPX, but the warnings are far more subtle. For instance, the SPX made a higher high on its third top when it reached 1422, but the XLF did not. Soon after, a reversal took place.

Last week, the XLF gave a short-term buy signal along with the SPX, but let’s look at what else it is saying! When the SPX re-tested its 1357 low, so did the XLF, but in doing this, it moved substantially outside of its uptrend channel. During the bounce which followed, it has barely moved back above its lower channel line, while the SPX is still trading inside it. Also, the XLF barely nudged above its overhead resistance, but the SPX closed well above it. This is negative divergence which suggests caution to the bulls.

Even more so than the VIX, the XLF is not confirming the strength in the SPX. Nor, for that matter, is the QQQ which remains relatively weaker than its counterpart. I don’t know if this means that the SPX needs more consolidation (or correction) before re-establishing its uptrend, but the analysts that are saying “show me!” have good reasons to be skeptical.

BONDS

This is another index which seems to be doubting the rally in equities. If it were genuine, you would think that TLT would be selling off, but it is not. Instead, it seems to be waiting for the SPX to show more weakness so that it can attempt to rally above its former support line (turned resistance) once again.

After meeting its long-term projection at 124, TLT underwent what looks like a substantial distribution phase, and when it broke below its long-term uptrend mid-channel line, it looked as if it was all over and a substantial decline had started. This would have implied that stocks would be moving higher. Instead, TLT is not so sure that equities are about to move back up right away, and it seems to be waiting for another opportunity to re-gain its position in the upper half of its long-term channel.

UUP (Dollar ETF) Daily Chart.

The cycle which normally causes a short-term high or low in this index must have been overridden by a larger one because it had been very regular for quite some time and, this time, UUP extended its low at least five days beyond its normal phase. However, the MACD is showing some minor divergence and the SRSI has turned up. This could mean that the UUP is about to rally, in conjunction with a market retracement.

For a truly meaningful reversal, UUP would have to overcome its former near-term high and rise decisively above the parallel to its longer-term upper channel line which was broken in December of last year. For now, it seems content to use it as support and bounce off it whenever it is reached -- something which it appears ready to repeat.

GLD (ETF for gold)

Since meeting its long-term target of 185, GLD has been in an intermediate consolidation pattern which does not appear to be complete. After breaking its long-term trend line, it found support at a former low and mounted a strong rally which ended as a back-test of the broken trend line.

Since then, GLD has been in a lazy downtrend which has found support on a second trend line drawn across its second retracement low. It cannot stay there forever and must either get back in an uptrend, or break through the trend line. Since it is trading below its (front-weighed) 200-MA (red line)
It may not have the strength to move back above it until it has declined further into the low of its 25-wk cycle which has a good history of causing declines as it bottoms, followed by a significant short-term rally.

Should GLD break down before moving higher, it has a good chance of trading down to about 141 by the time the cycle makes it low.

OIL (USO)

The chart of USO is also casting doubts of the ability of the SPX to have a serious up-move right now.

From the October low, USO engaged in a strong uptrend – along with all equity indices – until it met with severe resistance when it reached the underneath portion of a broken long-term trend line, along with a resistance band caused by former tops. This initiated a decline almost a full month before the SPX reached its high of 1422.

As of Friday, USO did not show any inclination to join the SPX in an attempt to resume its uptrend. It may simply be a late-comer and eventually join the crowd if the market as a whole follows through on its initial bounce, but for the time being it seems content to be part of the “show me!” crowd.

Summary

Last week, after a sharp decline which fell just short of is previous short-term low of 1357, the SPX bounced back with a sharp rally of 47 points, which many believe to be the start of another bullish phase destined to make a new high.

This is possible but, as I pointed out above, there appears to be enough skepticism coming from various areas that adopting a wait-and-see attitude is warranted. The issue probably rests on whether or not an important cycle has already made its low.

Andre