Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Notches Best Month Since 1979 - 12th Aug 20
Silver Shorts Get Squeezed Hard… What’s Next? - 12th Aug 20
A Tale of Two Precious Metal Bulls - 12th Aug 20
Stock Market Melt-Up Continues While Precious Metals Warn of Risks - 12th Aug 20
How Does the Gold Fit the Corona World? - 12th Aug 20
3 (free) ways to ride next big wave in EURUSD, USDJPY, gold, silver and more - 12th Aug 20
A Simple Way to Preserve Your Wealth Amid Uncertainty - 11th Aug 20
Precious Metals Complex Impulse Move : Where Is next Resistance? - 11th Aug 20
Gold Miners Junior Stcks Buying Spree - 11th Aug 20
Has the Fed Let the Inflation Genie Out of the Bottle? - 10th Aug 20
The Strange Food Trend That’s Making Investors Rich - 10th Aug 20
Supply & Demand For Money – The End of Inflation? - 10th Aug 20
Revisiting Our Silver and Gold Predictions – Get Ready For Higher Prices - 10th Aug 20
Storm Clouds Are Gathering for a Major Stock and Commodity Markets Downturn - 10th Aug 20
A 90-Year-Old Stock Market Investment Insight That's Relevant in 2020 - 10th Aug 20
Debt and Dollar Collapse Leading to Potential Stock Market Melt-Up, - 10th Aug 20
Coronavirus: UK Parents Demand ALL Schools OPEN September, 7 Million Children Abandoned by Teachers - 9th Aug 20
Computer GPU Fans Not Spinning Quick FIX - Sticky Fans Solution - 9th Aug 20
Find the Best Speech Converter for You - 9th Aug 20
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

SPX Stock Market Index Targets 1230 Trend Reversal Level

Stock-Markets / Stock Markets 2010 May 09, 2010 - 04:50 PM GMT

By: Andre_Gratian

Stock-Markets

Best Financial Markets Analysis ArticleCurrent Position of the Market
Very Long-term trend - Down! The very-long-term cycles are down and if they make their lows when expected, the bear market which started in October 2007 should continue until 2014.

SPX: Long-term trend - Up! We are in a medium-term bull market, which is a corrective move within a long term bear market. This bull market should last until 2011


SPX: Intermediate trend - It is more than likely than the index has made a top of intermediate nature. Unless it can hold above the 1044 level, the downtrend will probably continue until the Fall.

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 determines 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 .

Overview:

What happened to the stock market last week was not a glitch. It is representative of the current automated trading environment. Unless some curbs are implemented, more catastrophic corrections of this sort lie ahead.

From its last interim low of 1044.50 the SPX had risen to its projected level, give or take 10 points, and was vulnerable to a correction. A moderate decline started from the 1220 level, and by Tuesday of last week, it had found brief support at the 20-DMA. It broke that support on Wednesday and on Thursday, a massive computer sell program was activated which took the index down 100 points for the day followed by a rebound of 70 points all, literally, in a matter of minutes. At one point, the DJIA was down nearly 1000 points. Some really weird things happened during this drop: a 40-dollar stock went to 1cent, and another apparently rose to $100,000.

Although one could argue that there was justification for a correction of that magnitude based on the technical condition of the market, the speed at which it happened is the issue. If unrestricted computer trading is allowed to continue, the stock market is going to become a gambling casino which, because of the risk involved, will lose its investor base.

What has this lightning correction done to the market trend? Probably, it has started an intermediate decline which was not "supposed" to begin until the end of May, according to some top analysts. And, since most market indicators are short-term oversold, but not in a position to start a rally, there is risk of further decline before a counter-rally develops.

From a pure technical standpoint, an intermediate decline will not be confirmed until the SPX trades below its last interim low of 1044.50. Although sentiment has become extremely bullish for the market after last week, the indicators will have to move back into a buy position before we can rally. This will be accomplished through a series of short advances and declines (at least one each) which create a pattern of deceleration showing that the selling is abating and that buyers are ready to take over. That's the way it normally works, but are we operating in a new norm? More likely, the market's basic structural frame work has not been impaired, and neither have the cycles been affected.

The rapid drop in prices may have vindicated the Elliot Wave Theory which was predicting such a decline -- although the anticipated timing left something to be desired. If this is a "wave 3 of primary nature", we should see a wave 4 rally followed by a wave 5 to new lows. There is an alternate count which would make this a "B" wave.

Analysis

Chart Pattern and Momentum

Let's see what damage was done to the long-term charts. On the Monthly Chart (left), the index stopped rising where expected (at the dotted line), and is beginning to follow the anticipated future pattern based on cycles. There is still nothing to suggest that we have a long-term reversal. In question is whether or not the reversal of the 4-year cycle in the Fall can propel the market to new highs before the final precipitous drop into 2014.

The Weekly Chart (right) has given a sell signal which, based on the cycles which lie ahead, is probably of intermediate nature. The 3 indicators gave a sell signal along with the price index. Technically, however, until the last low of 1044.50 has been penetrated to the downside, the SPX remains in an intermediate uptrend.

The bottom indicator clearly shows the weakness of the third and last leg. The decline was not a matter of if, but when and how. Both turned out to be a bit of a surprise, especially the "how".

We'll now take a look at the Daily Chart. The short-term up-channel from early February was represented by the brown channel. The steep decline came right after prices moved out of it. In the process, they also broke through the blue channel which encompasses the price parameter from the March 2009 low. The index is now resting on the 200-DMA. In order to confirm the downtrend as intermediate, all they have to do is break below it, and subsequently penetrate the former low at 1044. That may not happen right away because the index is very oversold and should experience a rally before moving lower.

The indicators are at the lows of their range, but still not in a position to start a meaningful rally. There is neither deceleration nor divergence showing. A rally followed by another decline is needed to improve their profile.

One, and perhaps two cycles bottomed on Thursday and Friday. It's possible that the 20-wk cycle was partly responsible for last week's decline. It's not unusual for this cycle to be one or two weeks off its regular phase. If it has bottomed, it will be instrumental in causing a rally.

The Hourly Chart clearly shows that the index has not yet recovered from its weakness. There are still a greater number of sellers than buyers. A lot of trading has taken place at this level since last Thursday's decline. This shows up best on a one-point reversal P&F chart which, as of Friday, already measured 111 points across. Everything considered, it looks more like a large base is being formed, but it could also be distribution to be followed by another down move. We should know which it is by next week.

The trend has steepened dramatically since the sell-off. In order to rally, the index will have to break through its down trend line. The indicators, which are already in an uptrend favor such a rally; but it will find resistance at the former rally top (red line) and, if it moves higher, at the bottom of its former channel (heavy brown lines). If such a rally develops, it could be considered normal back-testing of the former blue channel.

It is very likely that this overhead resistance will set it back, but if the pull-back is not too severe, and it resumes its uptrend and manages to get back inside its former channels (blue and brown) it would be a sign of strength. If the index has formed a base, there is enough count in the Point and Figure chart to do just that, and even more.

Cycles

If the 20-wk cycle did make its low on Thursday and the 26-day cycle bottomed on Friday, considering the deeply oversold market state and very favorable sentiment, the two combined should produce a decent rally. This would fulfill our previous expectation that 5/20 would either produce new high, or a re-test of the high.

The market will have a limited time window during which to rally, as dominant cycles -- the 17-wk and the 2-yr cycles are not very far ahead. And then, of course, they will be followed by the 4-year and 9-month cycles bottoming in the Fall.

Projections:

As mentioned earlier, The Point & Figure chart has already built what appears to be a substantial base which is divided into distinct phases. If that base is complete and we start to rally on Monday, these are the projections derived from each phase:

1st phase: absolute minimum, 1143. Moderate count, 1149. Maximum, 1152. 2nd phase: minimum, 1167. Maximum, 1175. 3rd phase: minimum, 1195. Total base count: 1217

Each one of these targets is capable of bringing about a reversal which could be either interim or final. The technical background at the time the projection is reached will determine which it is.

If there is a re-test of the lows before we start up, it will invalidate the given counts as the base will be expanded.

If the "accumulation" turns out to be distribution instead, that phase is not yet complete and we have to wait for a rally to complete it. If this happens to be the case, we will re-visit the projections in the future.

I mentioned in the last newsletter that the QQQQ had a potential projection to 51.50. It appears that it satisfied itself with a move to 50.65 before giving up. Just a little shy of the potential target.

Breadth

The creation of an intermediate A/D indicator for the weekly chart showed the vulnerability of the third leg of the rally from March 2009.

The NYSE Summation index displayed below (courtesy of StockCharts.com) did not as clearly display the vulnerability of the market. At the top, it was overbought and although it displayed long-term divergence with its September 2009 peak, it did not show any near-term negative divergence with the shorter-term peak of January 2010. Normally, it requires a move below zero before confirming that the uptrend is over.

In fact, just as the SPX has to break below 1044 to confirm an intermediate downtrend, this indicator will have to go lower than its February low to suggest that such a downtrend has started.

Just like our daily indicators, the RSI has become oversold, but probably needs a little more work before starting to rise again.

Market Leaders and Sentiment

The graph of the NDX/SPX relative strength (provided courtesy of StockCharts.com) shows a mild divergence, but nothing serious. The chart shows only a short-term corrective downtrend, but the MACD suggest that it is not yet ready to turn. At this stage, it does not seem to be a significant threat to the SPX's intermediate trend.

The Sentiment Reader (courtesy of same) is even more glaring in its suggestion that we could be near an important low. But we should keep in mind that this is not a specific timing indicator.

The VIX chart (below) agrees with the NDX/SPX graph, in that it shows no immediate sign of topping.

The dollar index is still an important gauge of market direction as it continues to move in a distinctly opposite direction to the equity market.

The above chart of its ETF (UUP) shows that it is breaking out of a major downtrend with the indicators confirming this as a valid break-out. The dollar P&F chart -- presently at 85 -- tells us that it could reach 92. However, the indicators are overbought and could soon develop negative divergence and cause a pull-back from a slightly higher level. Break-outs have a tendency to back-test the trend lines which they have just broken.

Summary

The weight of evidence suggests that the SPX made an important top at 1220 and that it is probably not yet ready to reverse its short-term downtrend until more work has been done to put the daily indicators in a better position. This could come in the form of a sideways move or a re-testing of the lows, and not necessary in a new low for the index.

What is less clear, is whether or not this will develop into an intermediate top. The index would have to drop more than 70 points to confirm that it has and it may not be ready to do that before a substantial rally to retest the high takes place. If this is the case, the time window for such a rally is very limited, as dominant bottoming cycles should soon exert downward pressure on prices which may keep the SPX in a downtrend until the Fall.

If precision in market timing is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate the claims made by the following subscribers:

If precision in market timing is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate the claims made by the following subscribers:

Awesome calls on the market lately. Thank you. D M

Your daily updates have taken my trading to the next level. D

… your service has been invaluable! It's like having a good technical analyst helping me in my trading. SH

I appreciate your spot on work more than you know! M

But don't take their word for it! Find out for yourself with a FREE 4-week trial. Send an email to ajg@cybertrails.com .

By Andre Gratian
MarketTurningPoints.com

A market advisory service should be evaluated on the basis of its forecasting accuracy and cost. At $25.00 per month, this service is probably the best all-around value. Two areas of analysis that are unmatched anywhere else -- cycles (from 2.5-wk to 18-years and longer) and accurate, coordinated Point & Figure and Fibonacci projections -- are combined with other methodologies to bring you weekly reports and frequent daily updates.

“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

You may also want to visit the Market Turning Points website to familiarize yourself with my philosophy and strategy.www.marketurningpoints.com

Disclaimer - The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles uncompromised by fundamental considerations. 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.

Andre Gratian Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules