Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Is the Stock Market Correction Over?

Stock-Markets / Stock Markets 2012 Apr 30, 2012 - 06:05 AM GMT

By: Andre_Gratian


Best Financial Markets Analysis ArticleSPX: 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

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.


"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.


The NYSE Summation Index and the McClellan oscillator (courtesy of 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.

NYSE Summation Index

NYSE McClellan Oscillator



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 mentione 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.


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, TNT 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.


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.


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.




If precision in market timing for all time framesis something that you find important, you should

Consider taking a trial subscription to my service.  It is free, and you will have four weeks to evaluate its worth.  It embodies many years of research with the eventual goal of understanding as perfectly as possible how the market functions.  I believe that I have achieved this goal. 


For a FREE 4-week trial, Send an email to:


For further subscription options, payment plans, and for important general information, I encourage

you to visit my website at 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.

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 - 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