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 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

Stock Market Short-term Decline in Progress, Will Gold Follow or Not?

Stock-Markets / Financial Markets 2012 Apr 16, 2012 - 02:58 AM GMT

By: Andre_Gratian

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleCurrent 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, but a short-term top may already have started to take shape.

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's looking more and more as if a correction of the stock market has started. Important trend lines were broken in early April which brought about the greatest amount of weakness since the early December top. The SPX topped out at 1422.38, a few points lower than my 1427 projection and started a 5-day decline which ended at 1357.38. This was followed by a rally which retraced 50% of the pull-back to 1388.13. Last Friday, the index rolled over once again and ended the day with a 17-point loss, essentially retracing all of the previous day's big gain.

There is every indication that the SPX is initially heading for the 1340 level on this pull-back. Logically, that could be the level where the correction ends. There is a Point & Figure count to that level and, from a structural perspective, if 1422 was the top of wave 5 from 1159, normal expectations would be for a retracement to the 4th wave of a lesser degree, which is 1340.03.

While reaching that level could provide a rebound of prices, the amount of distribution which occurred on the P&F chart at the 1410 level calls for a drop to about 1300. Even that may not be the end of the correction. Another count taken at the 1398 level gives us a target of 1245. These P&F projections point to the price levels which could be reached. What about the time factor? The first meaningful cycle bottoms at the end of the month. But it may only usher in a temporary counter-trend move because there is also a cluster of cycles due to make their lows in early June which could bring about even lower prices. Conceivably, this is the time frame in which the correction could end at the 1245 target.

It may be difficult for the investor who has been conditioned to an ever-rising stock market to conceptualize that much weakness over the next couple of months, but the price and time figures which have been obtained by P&F projections and cycle analysis are also supported by Fibonacci time and price measurements, and this gives them added credibility. Does this mean the correction could not end either earlier, or at a higher level? Of course not! But neither should these possibilities be discounted. The stock market will be the final arbiter and all we have to do is to pay attention to what it tells us.

Chart analysis

I will start by showing the Weekly Chart because it presents a simplified, overall view of the market position. There is no question that the SPX has had a reversal in trend. Last Friday, it closed at its lowest price level in 5 weeks. If the price action itself does not convince you, look at the Stochastic RSI. It started to waiver three weeks ago and finally took a plunge last week. The MACD is always slower at getting going and it has not yet confirmed the decline, but the trend in the histogram is clearly down and should soon turn negative. The daily did so a week ago.

The red horizontal line indicates the level of the former short-term bottom, and it is expected to provide some temporary support. However, if it is penetrated, the lower projections become more likely.

The trend line has clearly been broken, with the price closing outside of it as well as below the shorter MA for the first time in 17 weeks

These are good reasons to expect more of a decline before the SPX can make a low. Furthermore, since the market tends to move in 3 or 5 waves, and all we have, so far, is a single wave down, upon its completion we can expect a rebound followed by another down wave. If the latter takes us below the red line, we should next be headed for the 1300 area.

Analyzing the daily chart would be mostly repetitive, so let's jump directly to the Hourly Chart to see if a short-term low is in sight. After an initial drop to 1358 in 5 waves, the SPX had a rally in 3 waves and, on Friday resumed its downtrend, closing below its two moving averages, below the former near-term low, and on its low of the day. This is bearish behavior which suggests that the decline is not over.

The stochastic RSI is still declining and the MACD is about to cross over to the negative side. This action is consistent with pressure being exerted by a minor cycle bottoming on Tuesday or Wednesday, probably at the 1354-1355 level.

Cycles

Cycles can be tricky! Their phases are not always replicated exactly, their effect on prices varies within up and down trends, and some occasionally invert. That being said, they are still one of the most important analytic tools for timing the market..

Two minor cycles are scheduled to make their lows on Tuesday/Wednesday.

A much more influential cycle is due to bottom at the end of the month.

But the biggest draw-down should come into the first or second week of June when three important market cycles make their lows within the space of a week.

Breadth

The NYSE Summation Index (courtesy of StockCharts.com) continues to make new lows, and will continue to do so until the McClellan oscillator can become positive on balance once again. Its RSI looks as if it is beginning to flatten out, a sign of deceleration in the main index.

Below the Summation Index, I have posted a chart of the NYSE McClellan oscillator. Except for one brief peak above the line, the index has been negative for the past 8 weeks. This is why the NYSI continues to decline. When the NYMO becomes positive again, it will be in conjunction with a rally in the market.

Note that the two-day rally we just experienced could not turn the NYMO decisively, and that it has started down again. Since the last low was an oversold new low, the next low should be at a higher level, creating positive divergence and preparing the market for a rally.

NYSE Summation Index

NYMOT

Sentiment

The SentimenTrader (below, courtesy of same) has improved with the market sell-off. The long-term indicator has moved slightly into positive territory. That's not enough to signal a market reversal, but when it gets into its upper range we should expect an end to the correction.

Sentiment

VIX

The VIX broke out of its downtrend after showing some positive divergence to the SPX, breaking its trend line just about the same time as the equity indices broke theirs. Since then, it has back-tested its trend line and appears ready to resume its uptrend as the SPX resumes its downtrend. The lower indicator may be suggesting that additional consolidation is not too far ahead.

On the near-term, the VIX has a P&F count to 21, which could be followed by a move to 25.

XLF (Financial SPDR)

Over the short-term, there is very little difference between the daily chart of the XLF and that of the SPX. Both broke their trend lines at about the same time, and both are at about the same stage of their decline. The value of this index is that it confirms the SPX trend, often providing some lead warning. It is not so easy to see on the chart, but this happened again on the third peak of the topping pattern; the SPX made a slight new high, but the XLF did not. It shows up better in the indicators which turned down earlier than those of the SPX. I don't know if they will give the same advance notice when a rally is about to occurr, but we shoud be on the watch for it.

The P&F chart projects an initial move to 14.50, which would put it on the red trend line corresponding to the SPX 1340.

BONDS

A pretty good case can be made that bonds have topped out, but this will require more confirmation. TLT broke an intermediate uptrend line and went into a short-term decline, finding support at a previous low, and now trying to move out of its downtrend channel. However, during its decline, it broke below a mid-channel support line which is now acting as resistance. The indicators have not yet given a sell signal and, with the market ostensibly ready to make new lows, it may successfully move above the resistance line.

However, considerable resistance also comes from the lower range of its distribution area, and the P&F chart only calls for a move to 117 at this time, which has already been reached. In spite of all that, if the SPX has a protracted decline for the next six weeks, it is not likely that TLT will remain below 18.

Let's see what develops over the near term.

UUP (Dollar ETF) Daily Chart.

UUP broke out of an intermediate downtrend in September of last year and has been rising slowly ever since. In spite of its difficult climb from the bottom, it remains in an uptrend, seemingly establishing another accumulation area at a higher level, well above the bottom trend line.

During the formation of that secondary base, the MACD has remained constructive. If UUP can move above the next trend line drawn from the April 2010 top (upper red line), it should also be able to clear the former short-term tops and make a new high.

The base pattern established between May and August of last year carries a P&F potential to 25 for UUP, which is the equivalent of 90 for the US dollar.

GLD (ETF for gold)

Since reaching its long-term projection of 186 and breaking an important trend line, GLD has been in an intermediate correction which could extend if it breaks an already violated secondary uptrend line. This is a weekly chart, but on the daily chart, the index is also resting on its 200-DMA, and that puts it in a precarious position unless it can quickly start an uptrend. Right now, GLD has been meeting resistance from the declining 21-wk MA. Also, it looks as if the shorter 8-wk MA is about to cross the longer average on the downside (which would occur if there was a close below the recent low).

The indicators are non-committal since they have not yet decisively turned up, and they too would require some upward price movement in order to avoid making new lows, especially the MACD.

GLD appears to be on a fairly regular 25-wk cycle which bottoms again in early June. There is also a 9-wk pattern bottoming at the end of the month. These two cycles are scheduled to make their lows at the same time as those affecting the SPX. If GLD follows the path of the equity indices, this may not be the time to be bullish on gold.

If the index does start down from here, it has a potential move to about 140-145.

OIL (USO)

Since USO has been rising with the stock market from its October low, it is no coincidence that it, too, should have broken an important trend line at the same time that the major indices did. It made its high in early March, about a month earlier than the SPX - which should have been a warning - and started to decline, hardly pausing at the trend line. It would now appear that the decline may accelerate if there is more weakness in the overall market.

The amount of distribution made at the 41 level is calling for a move down to 35 before its correction is over. This would ostensibly correspond with the market low.

Summary

Although it has not yet been 100% confirmed, the SPX and other equity indices appear to have started a correction which has the potential of taking them to substantially lower levels.

The minimum extent of the decline for the SPX would be to 1340, but if that level is broken, there is a potential move down to about 1300, and perhaps even lower to 1242.

The correction could last until early June.

FREE TRIAL SUBSCRIPTON

If precision in market timing for all time frames is something which is important to you, you should consider a trial subscription to my service. It is free, and you will have four weeks to evaluate its worth.

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

For further subscription options, payment plans, and for important general information, I encourage you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my investment and trading strategies and my unique method of intra-day communication with Market Turning Points subscribers.

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