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
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19
Gold Price Gann Angle Update - 10th July 19
Crude Oil Prices and the 2019 Hurricane Season - 10th July 19
Can Gold Recover from Friday’s Strong Payrolls Hit? - 10th July 19
Netflix’s Worst Nightmare Has Come True - 10th July 19
LIMITLESS - Improving Cognitive Function and Fighting Brain Ageing Right Now! - 10th July 19
US Dollar Strength Will Drive Markets Higher - 10th July 19
Government-Pumped Student Loan Bubble Sets Up Next Financial Crisis - 10th July 19
Stock Market SPX 3000 Dream is Pushed Away: Pullback of 5-10% is Coming - 10th July 19
July 2019 GBPUSD Market Update and Outlook - 10th July 19

Market Oracle FREE Newsletter

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

Stock Market Pause or Short-term Low?

Stock-Markets / Stock Markets 2015 Mar 16, 2015 - 10:38 AM GMT

By: Andre_Gratian

Stock-Markets

Current Position of the Market

SPX: Long-term trend - Bull Market

Intermediate trend - Is the 7-yr cycle sketching an intermediate top?

Analysis of the short-term trend is done on a daily basis with the help of hourly charts. They are important adjuncts to the analysis of daily and weekly charts which ultimately indicate 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.

PAUSE OR SHORT-TERM LOW?

Market Overview

Let's start with a definitive statement: as of Friday's close, there is no sign that we have ended the decline and started a reversal.

Last week, SPX continued to decline, slightly exceeded my second projection of 2046, and found support at (about) the 2040 level which has become the do-or-die decision point for the decline. If the index cannot hold it, lower lows - perhaps much lower lows -- are expected. If it holds, we could start a rally which could take us to a new high.

We can find several reasons for a potential hold. One is that this is the area of a former near-term low made on 2/09. SPX tested that level on a retracement; it held, and the index extended its rally to make a new all-time high. Another is that the index has reached the trend line drawn from 1820 to 1980. And finally, by the time we got there, the bears were spent and needed to catch their breath. It's easy to see why we need at least a pause at that level, just as it is understandable why breaking below it could take the index to much lower prices before it finds better support. This possibility is fully confirmed by the P&F chart count which is saying that it has only reached a phase count and not the full extent of the distribution phase.

It is possible that the market will take a few more days to make a decision...perhaps until the Fed meeting on Wednesday.

Indicators survey

The SPX weekly has experienced its third consecutive weekly decline. Both momentum oscillators have also declined to a new low, both are in a bearish cross, but the MACD is still positive. Until it turns negative, there is no sign that the bull market has made a top. At best, we have started an intermediate decline.

Breadth, as represented by the McClellan oscillator (which is a daily indicator courtesy of StockCharts.com) made a new low on Wednesday and showed some weak positive divergence on Friday. That was enough to suggest that we could have started a consolidation base.

NYSE McClannad oscillator Daily Chart

As was suggested earlier, there is still enough potential count to send us to new lows in the P&F charts.

The longer-term 3X chart may be engaged in making a large rounding top formation. Perhaps this is due to the topping of the 7-year cycle which has not quite started its declining phase, yet.

Chart Analysis

The weekly SPX chart changes slowly and there is no point displaying it every week. You can refer to the "Indicator Survey" above, to visualize what it is doing, which suggests that we are currently in a short-term downtrend. It will be shown again when there is a change of pattern.

On the daily chart (courtesy of QCharts.com, as well as others below), I have drawn three slanted trend lines. The first two provided brief support followed by a new high (of a much different scale) before breaking. After making a new high the price action created a third trend line which is currently being tested. The loss of momentum above the last trend line is very noticeable, but not nearly as noticeable as is the angle of each trend line. Price cannot sustain a loss of momentum forever since it indicates that existing buyers are being met with an increasing number of sellers every time it makes a new high. At some point, a reversal will occur which will start making new lows instead of new highs. The trend lines are exhibiting the "fan principle" but more often than not, the third trend line also marks the end of the fan (the third time is charm!).

If the third trend line is broken, prices could find support in the range where they have found it before, on the (purple) 120-DMA and just above the (red) 200-DMA. This could generate a new rally which may or not make a new high. Or, they could continue lower to re-test the October low of 1820. However, our current focus should be on whether or not the current support level will hold. This includes the trend line and the sizeable congestion area to the left of it which has only begun to be penetrated. So, even if we break the trend line, we could still benefit from that congestion level which is buttressed by two important moving averages at its base.

If we move lower and positive divergence becomes clearly visible in the oscillators, we can expect that those MAs will hold once again. And this is when it should start to get interesting, because if we get a rally which fails to make a new high before the index turns down again, it will be time to batten down the hatches and expect a potentially much more severe decline. I mean, after all, Primary waveIIIs (or Vs) do not grow to the sky! Currently, there is no clearly visible positive divergence in the ocillators, which leads us to conclude that the current decline is probably not over.

We'll use the hourly chart to help us determine what chance we have of holding Wednesday's low.

Until Wednesday, price trends were getting steeper and steeper but by then, making new lows became more and more laborious. This encouraged the bargain hunters to step in on Thursday to create a 25-point bounce. Friday must have disappointed the perma-bulls because the SPX retraced all but 2 points of Thursday's gain. However, it did not make a new low and, after some hesitation, it even rallied a dozen points into the close. That, in itself, would suggest that we have found temporary support for the reasons mentioned above.

Was there a hint that this would take place? The momentum indicators certainly suggested that the test of Wednesday's low was likely to be successful. Look at the positive divergence! On the other hand, the A/D oscillator fully reflected the price weakness and this is the one that really counts! It told us that there was still some heavy selling in that test of the low.

Getting back to the price chart, we can see that a secondary (purple), steeper channel was formed after the decline started. That showed that sellers were piling in. However, on the first rally, prices went outside of that channel, and by Friday's close even more so. We now need to watch the on-going price action to determine whether this is only a pause in the decline or a more important low. The index should not exceed 2080 if it keeps pushing up over the next three days if it is to remain a rally in a downtrend. Beyond that, this becomes questionable. Traders may find something negative in the Fed's report on Wednesday to keep the decline going.

Sentiment Indicator

I have decided to eliminate this indicator from my newsletter. I find it much too vague to be of any use.

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

VIX is only one of several other leading indexes (notably IWM and XBD) which are out of sync with the market decline. In fact, there is so much disparity that it's a wonder that the SPX has been able to decline this far. It is probably because it is influenced by oil stocks that it has fallen so much relative to other indexes which are not affected as by them. Note that the NYA is also showing similar weakness. In any case, I believe that the entire market will have to show more coherent weakness in order to reach substantially lower lows.

XLF (Financial Sector SPDR) - Historically a market leader.

XLF, which is probably one of the very best leading indexes, is also showing some deceleration. In addition, since it failed to make a new high on its last attempt at rallying, it is now showing some short term relative weakness to the SPX. This could be an early warning, but it would have to start an actual declining trend to confirm that market weakness is ahead. We should be aware, however, that in 2007 XLF reached 38, and that its high for this bull cycle has only been 25, so far. If it can't get any higher and it is truly a market leader, what do you suppose this means for the stock market in the weeks and months ahead???

And yes, I mentioned that last week XBD made a bull market high of 189 (which could put it at the end of it run). Consider, however, that in 2007 it reached a high of 268!!!

UUP (dollar ETF)

This 8-year weekly chart of UUP is probably more representative of what the USD is really doing. Bear in mind that the dollar is currently at 100. Unquestionably, it has already had a substantial run but, to put things in perspective, its Point & Figure chart shows that the degree of accumulation that it has built over the past 7 years entitles it to a move to 140. So don't expect its demise to occur anytime soon. Its first significant consolidation could take place when it reaches 110. If it is currently the cause of the market's headache, you might consider that this could turn into a minor migraine before it gets getter.

GLD (Gold trust)

There is no question that gold is also being affected by the dollar's increase in value. So, if GLD is waiting for the dollar to get to 110 before turning up, how much lower could it get by then? The Point & figure chart suggests around 100. I don't know if the dollar will coordinate its reaching of 110 with GLD's 25-wk cycle low which is due around May 1st. You might keep that possibility in mind and its consequences!

You might also ponder what the dollar priced at 140 could do to the price of gold.

USO (US Oil Fund)

And then there is USO, which I suggested a few weeks ago would have a temporary pause at 16 before going to 13 and, eventually 8. So far, so good! Remember that USO's price, besides reflecting the present oil glut in the world, is also affected by the dollar's behavior.

Summary

In this letter, I have endeavored to give my readers a short-term and a longer term perspective about the market, primarily through the analysis of SPX charts. But also by suggesting that if two of the primary leading indexes (XLF and XBD) are exhibiting significant relative weakness to that index, it is not the short term synchronization of the market components that we should worry about; but rather, the long term one.

And if the dollar's Point & Figure chart's suggestion that it is capable of tacking on another 40% gain to its current price turns out to be correct, well ... you can draw your own conclusion about how this would affect the world's economies...especially if WTIC's next target is 26 - and perhaps lower!

FREE TRIAL SUBSCRIPTION

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: info@marketurningpoints.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