Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Why Most Investors LOST Money by Investing in ARK FUNDS - 27th Jan 22
The “play-to-earn” trend taking the crypto world by storm - 27th Jan 22
Quantum AI Stocks Investing Priority - 26th Jan 22
Is Everyone Going To Be Right About This Stocks Bear Market?- 26th Jan 22
Stock Market Glass Half Empty or Half Full? - 26th Jan 22
Stock Market Quoted As Saying 'The Reports Of My Demise Are Greatly Exaggerated' - 26th Jan 22
The Synthetic Dividend Option To Generate Profits - 26th Jan 22
The Beginner's Guide to Credit Repair - 26th Jan 22
AI Tech Stocks State Going into the CRASH and Capitalising on the Metaverse - 25th Jan 22
Stock Market Relief Rally, Maybe? - 25th Jan 22
Why Gold’s Latest Rally Is Nothing to Get Excited About - 25th Jan 22
Gold Slides and Rebounds in 2022 - 25th Jan 22
Gold; a stellar picture - 25th Jan 22
CATHY WOOD ARK GARBAGE ARK Funds Heading for 90% STOCK CRASH! - 22nd Jan 22
Gold Is the Belle of the Ball. Will Its Dance Turn Bearish? - 22nd Jan 22
Best Neighborhoods to Buy Real Estate in San Diego - 22nd Jan 22
Stock Market January PANIC AI Tech Stocks Buying Opp - Trend Forecast 2022 - 21st Jan 21
How to Get Rich in the MetaVerse - 20th Jan 21
Should you Buy Payment Disruptor Stocks in 2022? - 20th Jan 21
2022 the Year of Smart devices, Electric Vehicles, and AI Startups - 20th Jan 21
Oil Markets More Animated by Geopolitics, Supply, and Demand - 20th Jan 21
WARNING - AI STOCK MARKET CRASH / BEAR SWITCH TRIGGERED! - 19th Jan 22
Fake It Till You Make It: Will Silver’s Motto Work on Gold? - 19th Jan 22
Crude Oil Smashing Stocks - 19th Jan 22
US Stagflation: The Global Risk of 2022 - 19th Jan 22
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Time for Caution, Stock Market Intermediate Top Within Days

Stock-Markets / Stock Markets 2013 Aug 05, 2013 - 04:52 AM GMT

By: Andre_Gratian

Stock-Markets

Current Position of the Market

SPX: Very Long-term trend - The very-long-term cycles are in their down phases, and if they make their lows when expected (after this bull market is over), there will be another steep decline into late 2014. However, the severe correction of 2007-2009 may have curtailed the full downward pressure potential of the 40-yr and 120-yr cycles.

Intermediate trend - SPX continues to progress according to its structure. After a brief consolidation, the bull market has resumed its uptrend and has already created new highs in the leading indices.


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

A TIME FOR CAUTION

Market Overview

After a period of indecision characterized by daily volatility, SPX finally broke above its former high, rising to 1709 on Friday. The DOW, Russell 2000 and NASDAQ 100 all followed suit, making new bull market highs. All this bullishness suggests a continuation of the long-term uptrend, but storm clouds are beginning to gather, especially in the breadth indicators. In the SPX, for instance, last week's new high was not confirmed by the daily A/D indicator. Also, price momentum is beginning to wane. The MACD is showing double negative divergence both in the daily and hourly charts, and even the weekly chart is showing negative divergence for the first time since the rally from 1343 started.

This does not necessarily mean that we are ready for an immediate reversal, although, for the SPX, 1709 was a phase projection which was met with an overbought SRSI, double negative divergence in the hourly MACD and strong negative divergence in the A/D oscillator. That would suggest that we are due for some consolidation, at least.

Structure: After an unorthodox minute wave I, wave ii consisted of a brief pull-back, and wave iii engineered the break-out to new highs. That's what it looks like until proven otherwise. But let's not forget that we are in minor wave 5 and intermediate wave V. For this reason, we may see an irregular pattern developing from this point on which could come to an end at any time.

Breadth: Like my own breadth indicators, the McClellan Oscillator has pulled back to neutral and is staying there while the market is making new highs. This is typical behavior for the present market condition: an indication that we are very close to a top!

P&F and Fibonacci projections: The base pattern created around 1580, the re-accumulation pattern which formed around 1610, and the recent consolidation around 1685 all carry potential higher price projections. That does not guarantee that they will be reached. Each of the potential higher phase targets could turn out to be the one from which we start an intermediate decline. When a confirmed sell signal is given, it will be advisable to heed it since we could see the deepest market correction since last October.

Support/resistance zones: The first support is at 1700 and the next at 1694. Resistance levels are determined by the various P&F phase targets.

Sentiment: There is no change in the SentimenTrader long term indicator's reading of 60. VIX made a new low last week, and XIV a new high. Since we still don't see divergence developing with price, we can "assume" that the rally high has not yet been reached.

Chart Analysis

The following is a daily chart of the SPX (courtesy of QChart). It shows the uptrend which started at 1343 and its various phases, primarily determined by the 7-wk cycle. That uptrend moved in a well-defined channel until it came to an end at 1687, the completion of intermediate III. Intermediate IV brought about a correction which took the index out of its channel, and reversing it at 1560. The index has been moving higher in intermediate wave V ever since.

Wave 5 has subdivided into minor waves 1-2-3-4 and is currently in minor wave 5 which brought about an all-time high to the index on Friday, but could end at any time. If you want to know why, let's look at the indicators.

The middle-one (SRSI) is still strong, but overbought and should correct shortly. The other momentum indicator is the MACD (top). It is still strongly positive, but showing double negative divergence: the first with its 5/22 top, and the next with the recent top of 7/23. This puts it in a vulnerable position and it could turn down as early as Monday because of reasons that will be given when we look at the hourly chart.

But the weakest of all three indicators is definitely the A/D oscillator which is so weak that it has not even confirmed the move to a new high by the SPX. Unless we see a strong improvement in this indicator and in the MACD - something which is not likely - the top of intermediate wave V should come soon, perhaps in a matter of days.

The Hourly chart (also courtesy Q-Chart) of SPX is where deceleration in the uptrend really becomes obvious. Look at the move since minor wave 4 made its low (ostensibly minutes i-ii-iii...). It can't even reach the mid-point of its channel but, instead, is hugging the lower channel line. That is hardly a sign of strength but, instead, that of a rally which is hanging on for dear life. There is a good possibility that the lower channel line will be broken and that trading will continue outside of it for a day or two. When the index breaks below the green trend line, it will most likely keep on going.

The indicators show essentially the same patterns as those of the daily chart. The middle one (SRSI) has crawled up to an overbought condition and can go no higher. Breaking its trend line will most likely correspond to a retracement in price.

The MACD, although not showing it as clearly, is also exhibiting double negative divergence. It, too, is still positive, but in this time frame, it would not take much weakness to put it into negative territory. As for the A/D oscillator at the bottom, it is already in a downtrend, ready to take the price with it as soon as it becomes negative.

I should also mention that although it, too made a new high, the Russell 2000 is becoming the weakest of the major indices. I normally leads the other indices.

Cycles

The 7/8-wk cycle has averaged between 33-36 trading days and has been responsible for determining the short-term corrections in the uptrend from 1433. This is a perfect example to illustrate the close correlation between cycles and EWT waves. Its low of a week ago defined minor wave 4. Considering the technical market condition it's very likely that by the time it makes its next low (in mid-September) it will help pin-point some corrective phase of the intermediate decline which will already be on its way.

In the meantime, an 11-wk cycle which could also correspond to the 33-wk cycle (the halfway point of the 66-wk cycle) is due a little past mid-august. It could turn out to be the high of the rally. Or, if a low, will cause the market to top a few days earlier. Should the latter turn out to be the case, the end of the rally will come even more quickly.

Breadth

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

I mentioned in the Market Overview that the McClellan oscillator has retraced from overbought to neutral, and is just sitting in place while the market makes new highs. This is a case of extreme negative divergence which does not bode well for a sustained rally. That is one of the reasons this article is entitled "A TIME FOR CAUTION".

NYSE McClellan Oscillator Chart

NYSE Summation Index Chart

Negative divergence has been transmitted to the Summation index and all the indicators of both charts. That's as bad as it gets and it's time to stop thinking bullish - for a while!

Sentiment Indicators

The SentimenTrader (courtesy of same) now shows both indicators with a reading of 60. That could be a ray of hope that the market is still going higher. I expect that the long-term index will hit at least 70 before we have a top. Of course, that's not a sure thing and there are more sensitive indicators that will define the high. Those are the ones we should follow for guidance.

VIX

The VIX made a new short-term low last week. It retains positive divergence with the long-term low of March, but what we want to see to indicate an imminent market top is short-term divergence. At least, this has been the tendency in the past.

XLF (Financial SPDR)

Since the beginning of the rally, XLF has diverged briefly from SPX, only to catch up later and eliminate the divergence. This time could be different. The index has been lagging the SPX and has refrained from making a new high. The premise is that the financial index will lag the SPX at important tops. If this continues over the next few days, it will join the chorus of other yellow and red flags that are appearing in various indicators.

BONDS

TLT made another new low last week, but it rallied the next day to remain inside the lower channel line. There is some deceleration taking place in the rate of decline which may be a preview of a holding pattern followed by an attempt at a rally in a downtrend.

GLD (ETF for gold)

GLD has found resistance just below an important congestion level which happens to coincide with the top of its current declining channel. Will it be enough to turn prices down and into a continuation of the long-term downtrend? We'll see! What we know is that by dropping to the bottom of the long-term channel, the index has shown no tendency to decelerate its declining momentum. Normally, signs that the selling is abating are provided by the final low of a declining phase remaining above the bottom channel line. We should also remember that there is a good projection to 110 which may yet be filled. Finally, the rally could be construed as a wave 4 from the 1141 level. This is enough evidence that the long-term decline is still in effect, and to caution against expecting the resumption of a significant uptrend.

UUP (dollar ETF)

Over the short-term, UUP is not arousing interest in investors. It is "stuck" in a long-term accumulation base which should eventually develop into an important upside trend, but for now, except for a few short-term gyrations, the index remains contained in a trading range.

USO (United States Oil Fund)

By contrast to the former (UUP), USO has broken out of its consolidation base and into an uptrend which apparently has more to go if we are to believe the higher P&F projection. However, since there are signs that the market is just about ready to put in place an intermediate top, and since USO has a tendency to trade with the market, the near-term appreciation may be limited.

Summary

SPX is within days of finding an intermediate top. All indicators at the hourly, daily and weekly time frame are beginning to wave yellow and red flags. However, strong rallies do not die easily and, since there are several more potential price objectives which remain unfilled, it is possible that at least some of them will be attained before we begin a significant decline - deeper than any that have been seen in several months, but probably not the beginning of another bear market. It's a little too soon for that!

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

© 2005-2019 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