Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
A Lesson About Gold – How Bullish Can It Be? - 24th Jan 20
Stock Market January 2018 Repeats in 2020 – Yikes! - 24th Jan 20
Gold Report from the Two Besieged Cities - 24th Jan 20
Stock Market Elliott Waves Trend Forecast 2020 - Video - 24th Jan 20
AMD Multi-cores vs INTEL Turbo Cores - Best Gaming CPUs 2020 - 3900x, 3950x, 9900K, or 9900KS - 24th Jan 20
Choosing the Best Garage Floor Containment Mats - 23rd Jan 20
Understanding the Benefits of Cannabis Tea - 23rd Jan 20
The Next Catalyst for Gold - 23rd Jan 20
5 Cyber-security considerations for 2020 - 23rd Jan 20
Car insurance: what the latest modifications could mean for your premiums - 23rd Jan 20
Junior Gold Mining Stocks Setting Up For Another Rally - 22nd Jan 20
Debt the Only 'Bubble' That Counts, Buy Gold and Silver! - 22nd Jan 20
AMAZON (AMZN) - Primary AI Tech Stock Investing 2020 and Beyond - Video - 21st Jan 20
What Do Fresh U.S. Economic Reports Imply for Gold? - 21st Jan 20
Corporate Earnings Setup Rally To Stock Market Peak - 21st Jan 20
Gold Price Trend Forecast 2020 - Part1 - 21st Jan 20
How to Write a Good Finance College Essay  - 21st Jan 20
Risks to Global Economy is Balanced: Stock Market upside limited short term - 20th Jan 20
How Digital Technology is Changing the Sports Betting Industry - 20th Jan 20
Is CEOs Reputation Management Essential? All You Must Know - 20th Jan 20
APPLE (AAPL) AI Tech Stocks Investing 2020 - 20th Jan 20
FOMO or FOPA or Au? - 20th Jan 20
Stock Market SP500 Kitchin Cycle Review - 20th Jan 20
Why Intel i7-4790k Devils Canyon CPU is STILL GOOD in 2020! - 20th Jan 20
Stock Market Final Thrust Review - 19th Jan 20
Gold Trade Usage & Price Effect - 19th Jan 20
Stock Market Trend Forecast 2020 - Trend Analysis - Video - 19th Jan 20
Stock Trade-of-the-Week: Dorchester Minerals (DMLP) - 19th Jan 20
INTEL (INTC) Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 18th Jan 20
Gold Stocks Wavering - 18th Jan 20
Best Amazon iPhone Case Fits 6s, 7, 8 by Toovren Review - 18th Jan 20
1. GOOGLE (Alphabet) - Primary AI Tech Stock For Investing 2020 - 17th Jan 20
ERY Energy Bear Continues Basing Setup – Breakout Expected Near January 24th - 17th Jan 20
What Expiring Stock and Commodity Market Bubbles Look Like - 17th Jan 20
Platinum Breaks $1000 On Big Rally - What's Next Forecast - 17th Jan 20
Precious Metals Set to Keep Powering Ahead - 17th Jan 20
Stock Market and the US Presidential Election Cycle  - 16th Jan 20
Shifting Undercurrents In The US Stock Market - 16th Jan 20
America 2020 – YEAR OF LIVING DANGEROUSLY (PART TWO) - 16th Jan 20
Yes, China Is a Currency Manipulator – And the U.S. Banking System Is a Metals Manipulator - 16th Jan 20
MICROSOFT Stock Investing in AI Machine Intelligence Mega-trend 2020 and Beyond - 15th Jan 20
Silver Traders Big Trend Analysis – Part II - 15th Jan 20
Silver Short-Term Pullback Before Acceleration Higher - 15th Jan 20
Gold Overall Outlook Is 'Strongly Bullish' - 15th Jan 20
AMD is Killing Intel - Best CPU's For 2020! Ryzen 3900x, 3950x, 3960x Budget, to High End Systems - 15th Jan 20
The Importance Of Keeping Invoices Up To Date - 15th Jan 20
Stock Market Elliott Wave Analysis 2020 - 14th Jan 20
Walmart Has Made a Genius Move to Beat Amazon - 14th Jan 20
Deep State 2020 – A Year Of Living Dangerously! - 14th Jan 20
The End of College Is Near - 14th Jan 20
AI Stocks Investing 2020 to Profit from the Machine Intelligence Mega-trend - Video - 14th Jan 20
Stock Market Final Thrust - 14th Jan 20
British Pound GBP Trend Forecast Review - 13th Jan 20
Trumpism Stock Market and the crisis in American social equality - 13th Jan 20
Silver Investors Big Trend Analysis for – Part I - 13th Jan 20
Craig Hemke Gold & Silver 2020 Prediction, Slams Biased Gold Naysayers - 13th Jan 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Resistance & Cycles Asserting Themselves

Stock-Markets / Stock Markets 2014 Jan 06, 2014 - 03:25 PM 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 - An important top formation is in the making.


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.

RESISTANCE & CYCLES ASSERTING THEMSELVES

Market Overview

By declining on the first trading day of the New Year, the market may be giving us a preview of what lies ahead for the rest of the year. Had it not been for the Fed's intent of keeping interest rates artificially low, I am certain that the influence of the major cycles due at the end of 2014 would have been felt much sooner. But they cannot be denied forever and this is the year when they should assert themselves. There is little doubt in my mind that this year will be markedly different than last.

The market has been resisting even the short-term cyclic influence which calls for a low in February but, finally, the overbought condition, the overhead resistance, the near-term cyclical configuration, and the completion of important price projections will all conspire to bring about the first correction of the year. The 21-point decline in the SPX is most likely only a prelude to a deeper correction that will take place over the next few weeks. And, there are still higher projections into the 1850-1860 range which could play out before we start down in earnest. Most tops form as a result of a distribution period during which sellers overcome the last bulls. This has begun, and could continue for a few more days before our first short-term downtrend. We'll wait and see how much damage it does to the bull market, and if we can expect still higher prices afterward or the beginning of a downward trend which could continue throughout most of the year!

Of all the red flags being raised, sentiment is probably raising the reddest one. Bullishness is at an almost unprecedented level and there is a strong feeling that the market can keep on going up for the foreseeable future without a major interruption. History teaches us otherwise and we would be well- served to heed its lesson.

Chart Analysis

In the last letter, I showed the various channels drawn according to intra-day prices. This placed prices well above the bull market channel and touched the long-term channel top. While arbitrary, I believe that using the daily closes instead provides much more accurate channel lines. In the following chart of the daily SPX (courtesy of QCharts) the index stopped its upward progress very near the top of its bullish channel, and the convergence of the various channel lines of different time frames better defines the area where the index should find resistance (and apparently has).

Thursday's decline has turned both momentum oscillators down. This had been preceded by the lower (A/D) oscillator which is always the first to produce a warning. However, all three still remain positive and the MACD has not yet made a bearish cross, so the odds of starting a significant decline from here are not all that good. It is possible, however, that the near-term downtrend has a little more to go which could send all three oscillators into the red zone. Any last up-thrust to the higher projection target would undoubtedly cause them to create some negative divergence and put the final touch on the anticipated short-term top.

Confirmation that a downtrend has started will come when the SPX breaks out of its short-term channel and, when it does, it should find support in the vicinity of the lower intermediate channel line.

The identification of the various channels are not only useful for pointing out resistance and support levels, but they will also serve as a downward path for the expected major decline which should proceed in a stair-step fashion, finding support on, and then breaking below, each successive channel line, and eventually ending outside of the bull market channel entirely.

The hourly chart, which comes next, tells us that the decline which started on Thursday may have ended at the 1828 level, but if it has not, the next support level is in the area of the (red) 200-hr MA. It would also give us a perfect 50% retracement of the uptrend which started at 1778.

Monday will give us an early warning of whether the downtrend continues, or if the final leg of the uptrend resumes from 1828. The oscillators have already started to stabilize but as long as they do not give a decisive buy signal, the downtrend is at risk of still being in progress.

Structurally, there are several possibilities which all require additional data to reveal the correct pattern that price is making.

Cycles

The next important cycle to affect the market is a short-term dominant cycle should be topping over the next few days and is scheduled to bottom in mid-to-late February. But this should only be a mild decline compared to what we can expect in the second half of the year when the major cycles make their lows.

Breadth

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

Similarly to my own A/D oscillator, the McClellan oscillator has turned down but is still positive, which only indicates mild weakness and, until it worsens substantially, probably keeps the odds in favor of another attempt at making a new high before a genuine short-term correction starts.

The same probability is signaled by the NYSI which is still rising, along with its RSI which normally moves a little higher and shows an overbought condition before signaling a short-term market top. Note, however, that the Summation index is making a lower high, not only with respect to its high mark in May, but also relative to its November peak. This is double negative divergence on an intermediate time frame which should serve as a warning of the approach of an important market top.

NYSE McClellan Oscillator Daily Chart

NYSE Summation Index Daily Chart

Sentiment Indicators

Readings from the SentimenTrader (courtesy of same) are now showing two consecutive weeks of 70, the highest level reached by this index in the past two years.

Sentiment Weekly Chart

These are recent statistics quoted by the SentimenTrader. They speak for themselves about the current market condition!

Jan 2, 2014: "Traders that are the most consistently useful as contrary indicators have pushed their optimism to an extreme rarely seen in 27 years."

Dec. 30, 2013: "Mutual fund traders in the Rydex family of funds have gone parabolic in their expectations of continually rising index prices."

VIX

VIX quickly rebounded from its recent low of 11.69, reaching 14.59 in just three days. If the market continues to correct, it should next overcome its short-term downtrend line, and the decline into February should take it beyond its former recent high. It is important to note that VIX has now formed a P&F base (probably still not complete) which indicates a possible surge into the 30s on its next move. The ellipse marks the low point that was made in March 2013.

IWM (ETF for Russell 2000)

IWM is making a long wedge pattern which reflects gradual deceleration but does not contrast greatly with SPX over the short-term. This could be another indication that we are not yet at a major top. If history repeats itself, before we get to a serious high, IWM should start diverging more noticeably from SPX.

BONDS

Can't really tell if TLT wants to go lower or hold the current level. Although it has broken slightly below, it has not accelerated to the downside. It needs to be given a little more time to define its intentions.

GLD (ETF for gold)

GLD is beginning to show the effect that the now rising 25/26-wk cycle is having on its price. It has already gained nearly 5 points -- enough to have broken above a short-term trend line. If the cycle has as much of an effect on its price as the last time, it is good for several more points on the upside. The P&F base is not well defined, but a 10% move off the low is a good possibility.

UUP (dollar ETF)

UUP is showing some signs of renewed strength and may be attempting to move out of the lower portion of its red channel. The pull-back has stayed well away from the bottom trend line, and the result has been a higher low. Both indicators seem poised for higher prices. The P&F base has enough of a count to take it well out of its intermediate (red) channel -- a move which seems to be at odds with a rise in the price of gold.

USO (United States Oil Fund)

Following the lead from crude, USO has lost almost all of its gain of the past two weeks. If WTIC (94.25) breaks below its former low of 92, USO could easily come down to about the 28 level.

Summary

SPX appears to be in the process of creating a top in preparation for a decline into the February cycle lows. A move beyond the current 1849 high is still possible before this occurs.

The long term cycles which are bottoming toward the end of this year are a threat to the bull market which, under the increasing pressure they bring to bear, is at risk of ending sooner rather than later.

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

6 Critical Money Making Rules