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
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 Approaching An Important High?

Stock-Markets / Stock Markets 2014 Sep 02, 2014 - 08:23 AM GMT

By: Andre_Gratian

Stock-Markets

Current Position of the Market

SPX: Long-term trend - In 1932 and 1974, the 40-yr cycle was responsible for protracted market weakness. The current phase is due this year but where is the weakness? Has man (Federal Reserve) finally achieved dominance over universal rhythms or has it simply delayed the inevitable?

Intermediate trend - The correction is over and what is most likely the final phase of the uptrend (before a more serious correction) is underway.


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.

APPROACHING AN IMPORTANT HIGH?

Market Overview

According to the Trader's Almanac, September is the weakest month of the year. What better time for the stock market to have a long overdue correction of intermediate scope. I indicated under "Long-term trend" above, that the heretofore predictable 40-year cycle rhythm had sorely disappointed the bears, this time. Will the month of September do likewise? Perhaps not! There are some sound reasons why bearish expectations will be at least partially redeemed in the near future. Let's examine some of them:

The weekly MACD approaches the beginning of the month in a state of double negative divergence. This reflects price deceleration on an intermediate scale. Of course, this is not a final verdict! The MACD is still in an uptrend and, if it continues to move up, could nullify the divergence. However, the daily MACD also exhibits negative divergence and, judging by its histogram which has started to decline over the past four days, it may also be losing its upside momentum.

Next, we should look at the all-important breadth indicators. As we will see a little later on, the McClellan Summation index has also developed some serious negative divergence. This indicator gives a good appraisal of the intermediate condition of market breadth. It is still positive and moving up and its RSI has not yet reached the overbought condition which normally defines a top, so we need to wait until next week to see where it stands. The McClellan Oscillator is still consolidating after its recent overbought condition but Friday's market close has also earned it some negative divergence. My own daily A/D oscillator is in the exact same position. Nothing decisive there yet, but we can rate breadth as having a small negative bias at this time.

After evaluating price momentum and breadth, the third important ingredient to examine is structure.

Most serious and competent EW analysts believe that the market has entered the final stages of its uptrend from October 2011. In their views, the final fifth wave of that entire sequence started at the beginning of the month -- from 1905. What remains somewhat murky is whether we are currently in wave 4 of 3, or in wave 4 of 5. If the latter, then we are days away from completing the entire structure and starting the first serious correction since the one which ended in October 2011 -- which fostered a decline of nearly 300 points and took about 5 months to accomplish.

Next are cycles. Is the 40-year cycle going to complete its phase with only a whimper, or will it make up for lost time at the last minute? Or yet, will it make a late showing, delaying its final phase by a few months? That is for the future to tell us. It is not prone to inversions but, nevertheless, in the face of the potential substantial risk which lies directly ahead, it would be best to expect the worst and hope for the best.

The action of IWM is a serious concern. It has remained well below its previous double top (?) while SPX has made a new high. As a leading index, its lagging state should be taken seriously. Note also that the DJIA has only made a fractional new high, while the transports are also lagging, as is the NYA.

And finally, there is this from the SentimenTrader: "VIX option traders appear to be betting on a sharp rise in fear according to several measures". In my assessment of the chart pattern (discussed a little later), I point out that it is currently exhibiting strong positive divergence to S&P. That is a negative for the market.

Chart Analysis

The Daily SPX (chart courtesy of QCharts.com) has run into some resistance from the extension of the line drawn across the two previous tops. Until it breaks through, it will continue to consolidate below that line. Its inability to move higher could be a sign of weakness or that it needs more preparation after its strong advance. I suspect that it is the latter as the index may still be completing a small corrective wave. As long as it remains above 1994, it is in a consolidation stage. Dropping below would be a sign of weakness, and below 1991, most likely a confirmation that a decline has started.

There are several potential projection levels. The first one, 2005, has already been reached. 2014 and 2034 are also candidates. From there, a small pull-back took place followed by a return near the target level which could be a test of the high. If this results only in further consolidation, the index should break through and try for the next projection. Divergence has already developed in some of the oscillators and the SRSI is overbought. None of this is terminal yet, but if the oscillators turn down and the MACD manages to develop a bearish cross, things will start to look more serious for the bulls.

The hourly chart (also courtesy of QuoteCharts.com) is next.

From 1905, SPX moved directly to a new high, found some resistance at 2005 (which was a potential target), pulled back for a couple of days, found support on its rising channel line, and is now re-testing its high.

The index may be in the process of creating a wave 4 from its low before completing wave 5 and starting a larger correction. Potentially, it is now finishing the "b" wave of 4 before starting on "c". If that's the case, it would have to come out of its channel and conceivably create a larger one. The alternative is that wave 4 is already complete and wave 5 under way.

The oscillators are mixed with the MACD showing the most weakness, but perhaps in the process of turning up. Their current state could support an extension of the move before starting to correct.

Cycles

The 40-year cycle whose low is (was) ideally due around October should have made its presence felt long ago and has little time left to avoid being a total failure! But it would not be alone. A long string of correlated cycles were also due to bottom at this time. What happened? The most likely explanation is that the bottoming process may have been delayed (to 2016?) by the Fed intervention.

Breadth

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

The McClellan Oscillator has held up well after its rise to overbought status. This has helped the Summation Index to make a good recovery after dropping to the zero line. A downturn from this level would risk having the NYSI go negative after some strong divergence, but this would only happen if the NYMO turns negative again and remains in that position for a length of time.

NYSE McClellan Oscillator Daily Chart

NYSE Summation Index Daily Chart

Sentiment Indicators

The SentimenTrader (courtesy of same) long term indicator remains at 60. It may have to reach 70 once again before we get to the top of the move.

Sentiment Weekly Readings

VIX (NYSE Volatility Index) - Leads and confirms market reversals.

VIX has refused to participate in the new high of the SPX by making a new low, thereby creating some positive divergence. In fact, it could even be said to be exhibiting double divergence. This is not supportive of a continued uptrend in the market, and concurs with the SentimenTrader observation (above).

IWM (iShares Russell 2000) - Historically a market leader.

It is evident that IWM has been losing upside momentum. This has created an increasing gap of relative weakness with the SPX which has continued to make new highs. Unless this index can find some renewed strength, the next time it turns down could correspond to the beginning of a serious decline in the overall market.

TLT (20+yr Treasury Bond Fund) - Normally runs contrary to the equities market.

If TLT is a contrary indicator, why has the market not started to go in the opposite direction? Or is it just a matter of time before it does? The index continues to move in an uptrend but is closing in on the top of its bullish channel. This should cause a pause in the advance.

GLD (ETF for gold) - runs contrary to the dollar index

In spite of the continued strength in the dollar, GLD has managed to hold above its lower trend line. Any consolidation in the dollar should help it regain its short-term upside momentum, but the 25-wk cycle low is past its peak and will increasingly pressure gold prices. Any attempt at breaking out will have to come quickly to be successful. In truth, this is beginning to look more and more like a consolidation pattern in a downtrend which could see the index drop down to about 105 over the short-term trend.

UUP (dollar ETF)

UUP continues to act well, only making a minor consolidation in its uptrend. It may not find many sellers until it gets to about 22.50 which is not only the top of its basing channel, but also the near-term P&F projection for the first phase of its advance.

USO (US Oil Fund)

After its recent decline, USO is entitled to an oversold bounce. If it is duplicating the pattern which it made starting September 2013, it will keep going until it reaches its long-term trend line where it should find enough support for another rally attempt.

Summary

Evidence is mounting that SPX is coming to another inflection point. The warning signs are detailed in the Market Overview section (above). These, and the fact that September is notorious for being the weakest month of the year, combine to issue the reddest flag yet: that an important top may be approaching.

I should objectively point out that neither XBD nor XLF (also reputed market leaders) has any disagreement with SPX at this time.

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