Best of the Week
Most Popular
1.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
2.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
3.Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - Nadeem_Walayat
4.Scotland Independence Result NO Win 55% to Yes on 45% - Nadeem_Walayat
5.US Dollar Forecast to Go Much Higher - David_Petch
6.Russian Union Of Engineers Accuses Ukraine Airforce In MH17 Crash - Raul_I_Meijer
7.The Emergence of the US Petro-Dollar - Gary_Dorsch
8.Don't Miss This Gold Buying Opportunity - Brien Lundinr
9.Silver Price: A Collapse and a Rally - DeviantInvesto
10.Silver Buyers Keep Stacking And Demand Higher Despite Falling Prices - 18th Sept 14 - GoldCore
Last 5 days
The Japanese Deflation Myth and the Yen’s Slump - 29th Sept 14
Epic Investor Optimism that Can Be Reversed Only by a Huge Stocks Bear Market - 29th Sept 14
Russia’s Gokhran Buying Gold Bullion In 2014 and Will Buy Palladium In 2015 - 29th Sept 14
The End of Monetary Policy - 29th Sept 14
Here's What Rising Interest Rates Really Do to Your Shares - 29th Sept 14
Is a Credible Stock Market Top Forming? - 29th Sept 14
Silver Price At or Very Close to an Important Low - 29th Sept 14
Gold Price Very Close to an Important Low - 29th Sept 14
Nihilism And The Unknown Future - 29th Sept 14
Stock Market S&P, NAS Change In Trend? None Apparent, But A Caveat - 29th Sept 14
UK Saved From I.S. Threat But Scottish Independence Nightmare is Not Over! - 29th Sept 14
U.S. Aggression - Will Russia and China Hold Their Fire? - 28th Sept 14
Currency Wars and the Death of the Euro - Audio - 28th Sept 14
Obscure Maritime Law Practically “Guarantees” Profits for These Energy Companies - 28th Sept 14
Stock Market Primary IV Underway? - 27th Sept 14
Darwin And The Climate Apocalypse - 27th Sept 14
The Global Middle Class and Copper Consumption, A Stop Spike Event - 27th Sept 14
Can Money Save The Climate? - 27th Sept 14
Gold And Silver - PetroDollar On Its Deathbed? PMs About To Rally? No - 27th Sept 14
Debt and Inflation Consquences of American Fear - 27th Sept 14
U.S. and Global Confidence are in Divergence - So Are Stock Markets - 27th Sept 14
Are U.S. Cars About to Crash? - 27th Sept 14
Why the U.S. Created and Armed ISIS From Libya to Syria - 27th Sept 14
Stock Market vs the Developing Bear Market for Liberal Democracy? - 26th Sept 14
Stock Market Major Selloff Looms - 26th Sept 14
How My Charts Uncovered Two Big Stocks That Are Soaring Like Small Caps - 26th Sept 14
What Cycles Reveal About Stock Market Crash - 26th Sept 14
Gold Not A Safe Haven On Terrorism, Middle East Bombing, Russia ... Yet - 26th Sept 14
Valuing Gold and Turkey Farming - 26th Sept 14
Gold $1200 Underpinned by Physical Demand - 26th Sept 14
Inflate or Die! When Leverage Fails and Market Hope Turns to Fear - 26th Sept 14
Market Forecasts for Stocks, Gold, Silver, Commodities, Financials and Currencies - 26th Sept 14
Gold and Silver Bear Phase III Dead Ahead - 26th Sept 14
The Home Depot Breach Boils Our Blood – and It Should - 26th Sept 14
Why the Pundits are Wrong About Crude Oil Prices - 26th Sept 14
Where’s the Economic Growth? - 26th Sept 14
Stock Market Future Bull - 25th Sept 14
The Specter of Global Debt Default is Once Again Rearing its Head - 25th Sept 14
All Major Market Analysis and Forecasts Investor Open House has Started! - 25th Sept 14
Federal Reserve Policies Cause Booms and Busts - 25th Sept 14
Currency Wars Deepen - Russia, Kazakhstan Buy Very Large 30 Tons Of Gold In August - 25th Sept 14
Strong U.S. Dollar Pressures Gold - 25th Sept 14
10 Things That Affect Your Purchasing Power - 24th Sept 14
US Government - The World’s Largest Subprime Debtor - 24th Sept 14
Venezuela's Gold Appears To Be Still In Venezuela But For How Long? - 24th Sept 14
The Washington-Wall Street "Corruption Corridor" - 24th Sept 14
The Poison Eating at the Heart of Macroeconomics - 24th Sept 14
Gold And Silver Voodoo Analysis Price Forecasts - 24th Sept 14
Stock Market Decline Below Wave (iv) Low - 24th Sept 14
How Falling Oil Prices Could Trigger an "Unpredictable and Dangerous Mess" - 24th Sept 14
The Quick Slide From Hope to Despair As War Returns--If It Ever Went Away - 24th Sept 14
Hedge Funds Surpass 2007 Leverage; New Era of 'Permanent Investigations' Confirms Imminent Reversal - 23rd Sept 14
Home Healthcare Cuts Threaten 500,000 Jobs and Female-Owned Businesses - 23rd Sept 14
Silver, Gold, Debt and Taxes - 23rd Sept 14
A Post-Petrodollar Play for Triple-Digit Gains - 23rd Sept 14
Regime Uncertainty Weighs on U.S. Economic Growth - 23rd Sept 14
Bread, Circuses and Bombs - Decline of The American Empire - 23rd Sept 14
Has The Gold Price Drop Run Its Course? - 23rd Sept 14
Stocks Rally Following Janet Yellen's Conference and Scotland's Historic Referendum Result - 23rd Sept 14
Why Isn’t U.S. Housing Market A Bubble? - 23rd Sept 14
The Macro View and the Stock Market - 23rd Sept 14
Gold, the Fed and the Looming Stock Market Correction Q&A - 23rd Sept 14
Can Gold Act as a Safe Haven Again? - 23rd Sept 14
Tesco Super Market Giant Fast Disappearing Down a Financial Black Hole - 22nd Sept 14
Where China and Japan Are Investing Billions - 22nd Sept 14
Scotland YES 71% - Global Youth Intifada Moves On - 22nd Sept 14
U.S. Dollar: The Last Hurrah? - 22nd Sept 14
China Moves To Dominate Gold Market With Physical Exchange - 22nd Sept 14
One Giant Cluster Ponzi - 22nd Sept 14
The Millenial Cult Of Global Warming - 22nd Sept 14
Dubai Residential is NOT a Property Bubble But the Party’s Over - 22nd Sept 14
Stock Market Topping Process Update - 22nd Sept 14
Indian Stock Market BSE SENSEX The Encore Rally - 21st Sept 14
ISIS Fear-Mongering Ahead of Another US False Flag? - 21st Sept 14
Ecology Politics And Haeckel's Tree Of Meaning - 21st Sept 14
ASX200 Stock Market Index Set For New Highs - 21st Sept 14
Scottish Referendum Not Avoiding The Future - 21st Sept 14
Five Lessons Learned from the Scottish Referendum - 21st Sept 14
The Problem With UKIP And Other I I P's - 21st Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Most Exciting Event in the History of Technical Analysis

Stock Market Looks Like Forming a Double Top

Stock-Markets / Stock Markets 2013 Feb 19, 2013 - 12:13 PM GMT

By: Andre_Gratian

Stock-Markets

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 severe correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.

 

Intermediate trend –  It is probable that  the intermediate correction ended at 1398 and that a new uptrend is in progress which could carry a little further after a 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

 

Cycles:  Cycle analysis is a helpful component of market forecasting, but cycles are fickle and can be understated, overstated, early, late, or they can invert.  For this reason, cycle analysis should be supplemented with other technical tools. 

 

Recently, some cycles have shown a propensity for inverting and even the best have found it difficult to make the right call.  This is a condition which occurs from time to time in the stock market;  an aberration which will eventually revert to the norm.  

 

Currently, cycle analysis projects the rally to be peaking and ready to reverse at any time.  The 7-wk cycle is due to make its low on about 2/22.  Will it bring a long overdue correction, or also invert?

 

Projections:  After some additional consolidation, the SPX looks as if it means to reach 1522 after all before correcting.”  Last week, SPX reached 1524, sold off to the nearest support level, and re-tested the 1524 level before pulling back again.  In a strong market, overshooting the projection by a couple of points is normal, but if SPX clears that level with strong support from the A/Ds, It will have the potential or reaching 1532-1535, and perhaps 10 points higher before correcting.  Breaking below 1414 with appropriate weakness in the A/Ds would negate that potential and would probably result in the successful challenge of the 1495 support level.

 

Structure:  “The short-term structure supports a high in the vicinity of 1522.  This will be confirmed when a reversal takes place from that level.”  We are still waiting for confirmation.

 

Sentiment:   VIX made a fractional new low this past week.  While it broke its former low by only .05, this nullified the positive divergence which had been building up and could suggest that it has more work to do before a significant reversal takes place.  Reversals in the SPX without even the most minute show of positive divergence in the VIX is extremely rare.  Perhaps this will be one of those exceptions. 

 

Indicators:  As of Friday’s close, hourly momentum indicators had not given a sell signal and the SRSI was oversold, which could be a condition for a higher high to come.  Some positive divergence in the A/D also suggests the same thing.  However, considering that Friday was a combination of options expiration with a three-day holiday ahead, short-term statistics could have been distorted and require substantiation from Tuesday’s market action.

 

As of Friday, the daily indicators continue to show negative divergence but have yet to give a sell signal. 

 

Chart Analysis 

 

I am, once again, comparing the action of the SPX to that of the Russell 2000 (charts courtesy of

Q charts).  Looking at the price action, SPX made a new high last Wednesday and was unable to go beyond over the next two days.  By contrast, Russell 2000 surpassed its Wednesday high on Thursday and made another new high on Friday.  Since Russell tends to lead SPX, this relative strength in the former may be a warning that the latter could still rise to new highs next week.  On the other hand, options expiration may be responsible for this action which, in that case, would render it meaningless.

 

There is also the fact that IWM had a P&F phase count to 92 which was finally filled on Friday toward the end of the day, followed by an immediate pull-back.  True, the pull-back quickly found support, resulting in insignificant weakness but, again, expiring options could have been a factor. 

 

Certainly, the wide-spread divergence existing in all the indicators of both indices is suggesting that a market correction is overdue and could come at any time.  This is especially apparent in the breadth indicators which are ready to give a sell signal at an instant’s notice. 

 

The next set of charts gives us an interesting perspective of the relationship between several indices, indicators, and breadth (these also courtesy of Q charts).  At the top:  hourly charts of XIV, SPX and Russell.  At the bottom:  VIX, NYSE A/D, and VXN.

 

Since the bullish divergence took place on Friday, it is possible that this was only an aberration caused by options expiration, and it will be up to Tuesday’s market action to provide clarification.

 

What we have in the top charts is the SPX being depicted as weaker than XIV and Russell 2000 over the near-term.  Normally, at a top one would expect the very opposite. 

 

 

At the bottom, VIX and VXN both made new lows last week, whereby at a market top, one would expect them to show positive divergence.  Note that the relative weakness of the SPX shows up best in the MACD, although none of the three have turned negative, yet.  Also, of the three, the SPX SRSI is the most oversold and the most ready to reverse.  We’ll find out next week if all this means anything, but the whole idea of analysis is to look for warning signs and these may signal that we are not quite through!

Cycles

 

Inverting cycles -- the most important of which is the 36-wk cycle due to make a top in this time frame --  should produce a top, and if the 7-wk cycle makes a low, we should have a decline into the end of next week. 

 

Breadth

 

The McClellan Oscillator and Summation Index (courtesy of StockCharts.com) are posted below.

The NYMO is clearly tired and wants to correct.  It is sitting out the rest of the climb and telling the market:  “You go ahead!  I’ll wait here until you’re ready to come back down”.  The same sideways action is taking place in the NYSI.  Up from here does not seem to be a viable option.  Down is a much better one.

 

The SentimenTrader (courtesy of same) shows no change from last week.  No new clues!  We’ll pass.

 

VIX

 

On Friday, VIX made a fractional new low while SPX did not make a new high.  If I were to interpret this literally, I would have to say that this suggests that SPX still has a little higher to go.  As I mentioned earlier, it is extremely rare for SPX to end an uptrend while VIX is dropping to a new low. 

Granted, the new low was only by five cents and it did reverse immediately.  Friday was options expiration day which could have caused abnormal behavior, but since similar warnings were given by XIV, Russell 2000 and XBD, along with positive divergence in the raw hourly A/Ds, why don’t we wait and see what next week brings before declaring that SPX’s return to 1524 for the second time was a successful test of the high.

 

 

XLF (Financial SPDR)

 

XLF continues to trade in sync with SPX.  It will have to show some relative weakness in order to forecast a reversal.

 

BONDS

 

TLT is the inverse image of SPX and appears to be forming a base while SPX looks as if it is forming a top.  Until it breaks above the red downtrend line and overcomes 117.60, TLT cannot declare a reversal.  When it does, it is probable that SPX will be doing the same thing in reverse.

 

 

 

GLD has dropped past the suggested 157 phase projection and may be finding support at 155, but it  is possible that it will reach about 151 before completing its near-term decline.  That would put it very close to the last two intermediate lows around 149 and begin to suggest that the long-term structure is evolving into a large rectangle, as I had suggested it might some time ago.  Since this could either be wave “d” or “e” of this potential triangle, we’ll need to wait and see which way the confirming trend breaks.  If it’s up, there is a possibility that GLD would be on its way to a new high.  Down would suggest that the long-term consolidation is not complete and that the index could drop another 22 points below 149 (the width of the triangle). 

 

This is only early speculation about what GLD may be doing.  It will require confirmation, and this will require time. 

 

UUP (dollar ETF)

 

UUP has found support at about 21.60 four times now.  Yet, it cannot be said decisively whether it is resuming its uptrend, or if it will need to retest the support level. If it is to resume its uptrend, it will have to overcome the former high of 22.05 (it reached 22.00 on Friday) which is also the current level of its 200-DMA.  After a near-term rally from 21.53, it may be too much to ask for it to accomplish this without first consolidating.  Another minor pull-back would complete a favorable bottoming pattern.

 

Ultimately, UUP is still dependent on the euro and will need its cooperation if it is to resume its uptrend.

 

 

 

USO (United States Oil Fund)

 

“Mostly, USO appears to be moving in tandem with the stock market and should correct when SPX starts to correct.”  Indeed, USO has made the same double-top pattern that has been created by SPX, except that it did not bounce at the end of the day.  Since the immediate future of SPX is opaque, we will also have to wait and see if USO is ready to reverse decisively from this level or if more work at the top needs to be done.

 

 

Summary

 

SPX has validated its projection to about 1522.  It has now formed what looks like a double-top which, according to the P&F chart, gives it the potential to decline to about 1475 – if it is ready to reverse and does not make a new high first.

 

Some (minor) near-term positive divergences occurred in a number of leading and confirming indicators on Friday (which may have been the result of options expiration prior to a 3-day weekend) creating some doubt about an immediate reversal.  Clarification of the index’s intention should take place on Tuesday. 

 

Andre

 

FREE TRIAL SUBSCRIPTON

 

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: ajg@cybertrails.com

 

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

you to visit my website at www.marketurningpoints.com. It contains summaries of my background, my

investment and trading strategies, and my unique method of intra-day communication with

subscribers. I have also started an archive of former newsletters so that you can not only evaluate past performance, but also be aware of the increasing accuracy of forecasts.

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

© 2005-2014 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

Free Report - Financial Markets 2014