Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17
The Only Article You Need to Read to Understand the Trump Phenomenon - 17th Mar 17
Janet Yellen Just Popped the Stock Market Bubble - 17th Mar 17
Financial Crisis, Steve Eisman: Smart, Lucky, Abrasive & Now One Of Them - 17th Mar 17
Gold Cup – Horse Racing’s Greatest Show, Gambling and ‘Going for Gold’ - 17th Mar 17
Trader Education Week - Free Event to Help You Learn to Spot Trading Opportunities - 17th Mar 17
$1.4 Trillion of SPX Notionals Due to Expire - 17th Mar 17
Preserving Order Amid Change in NAFTA, U.S. Sovereignty v. WTO - 17th Mar 17
3 Maps That Explain Why Syria Raqqa Battle Will Drag On - 17th Mar 17
Crude Oil Price Outlook 2017 - Video - 16th Mar 17
Dutch and French Electons - Winners are Losers and Left is Right - 16th Mar 17
The Straddle Trade Stock Market Brief - 16th Mar 17
Gold Up 1.8%, Silver Up 2.6% After Dovish Fed Signals Slow Interest Rate Rises - 16th Mar 17
Stocks Get Close To Record High Again As Fed Hikes Interest Rates - 16th Mar 17
Scotland Second Independence Referendum War - SNP Determined to Destroy the UK - 16th Mar 17
Here’s How Pharma Is Using AI Deep Learning To Cure Aging - 16th Mar 17
Stock Market Chaos in the Chicken Coop - 15th Mar 17
Gold and Silver Price Manipulation: The Biggest Financial Crime In History - 15th Mar 17
“Ryancare” Dead on Arrival: Can We Please Now Try Single Payer? - 15th Mar 17
Fanaticism, Stock Market Crash 2017 or Continuation of Bull Market - 15th Mar 17
Stock Market Most Overvalued On Record — Worse Than 1929? - 15th Mar 17
Desperate Saudi Arabia Turns to Asia for Investment - 15th Mar 17
Startups Will Define the Future of US Employment - 15th Mar 17
Fed Rate Hikes, Fiscal vs. Monetary Policy and Why Again the Case for Gold? - 15th Mar 17
SNP Declare Scotland to Commit Economic Suicide Early 2019, 2nd Independence Referendum - 14th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

Stock Market A-B-C Correction Unfolding

Stock-Markets / Stock Markets 2016 Feb 01, 2016 - 03:42 AM GMT

By: Andre_Gratian

Stock-Markets

Current Position of the Market

SPX: Long-term trend - Severe correction underway.

SPX: Intermediate trend - counter-trend rally!

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 discuss 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-B-C CORRECTION UNFOLDING

Market Overview

After the first rally from the 1812 low topped, it was unclear if we had completed the "bear market" rally or if more was to come. The congestion level which SPX produced over the next few days was either accumulation or distribution, but the bias was deemed to be on the downside since the resulting count matched precisely the top P&F projection. For it to be confirmed, however, the September low of 1872 would have to be breached. In spite of a strong attempt to do so after the FOMC statement was released, it held; and a continued oversold rally in oil along with the Japanese move to negative rates finally tipped the odds to an extension of the original rally which is now developing as an A-B-C corrective formation.

Counter-trend rallies are usually very fast and very sharp, as was wave A. Wave C is following the same mode, and by Friday's close was quickly approaching its projected top. There are, however, two possibilities: Are we correcting the entire decline from 2116, or only that from 2082? It could make a difference of some 15 points. I am currently opting for the lower target because of the count determined by the minor accumulation pattern of the P&F chart, but the market itself will decide over the next few days.

SPX Chart Analysis

Daily chart (This chart, and others below, are courtesy of QCharts.com.)

It's probably fair to say that whatever the market is doing, it will not be back in an uptrend until prices rise above the top (red) downtrend line. The channel that has been created with that line as the anchor, seems to be pretty well defining the course of the overall downtrend, for now. It may change over time if the decline becomes steeper, or if a secondary channel becomes manifest -- such as the one which delineates the downtrend from the 2116 secondary high.

Back to the red channel! The red dashed lines on the chart are parallels to the top downtrend line. When connected to important short-term tops or bottoms, they appear to accurately define support and resistance levels when price reaches them. For instance, the second highest heavy red parallel from the bottom provided support for the 1812 low. Now, SPX is approaching the heavy dashed parallel which starts at the July 20 high of 2132 (which was the re-test of the 2135 bull market high) and connects several tops and bottoms along its path. It is very likely that it will offer resistance for the current advance, especially since it coincides with my minimum projection for the C wave. Whether this will turn out to be the high of the counter-trend rally, or whether it goes a little higher to back-test the bottom channel line of the long-term trend from 2009, we'll have to see. Either one would be a logical place for the uptrend to reverse.

The indicators are still solidly up with no sign of negative divergence, and they will require a few more days to reach a point where they are ready to reverse. I might note that Monday will be the third day of the C wave rally which could find a top at the dashed parallel. If we look at the weekly chart, we find that the coming week will be the third week of the rally. Something to keep in mind!

Hourly chart

The downtrend from 2082 remained in a narrow (light green) channel until the very bottom, and then exited it as wave A indicated that a corrective move was starting. It was expected to rally to the .382 retracement of the decline, and did so on the 27th, then turned sharply down in what appeared to be a resumption of the downtrend. But it could not get past 1872 which was tested twice and held both times. Then came a short period of congestion which appeared to be preparation for another thrust down but instead, on Friday morning, prices surged at the opening on news that Japan had gone to negative interest rates, and after a brief halt at the former top, the index continued to rally for the rest of the day.

The purple channel is similar to the one shown on the daily chart. Prices are not expected to move out of it on this attempt, but will at some point. This would be typical of a major trend modifying its angle of descent as the decline progresses. Also, when the next down-phase takes place, it's unlikely that they will reach the bottom line of the red channel before reversing. This is already pre-determined by the count for the next intermediate low.

So where does the rally stop? The 50% retracement level which is just a few points higher is a good target for an initial reversal point and, if more is required, the (red) 200-hr MA which is currently at 1962 would be another. Both levels coincide with a conservative and liberal count taken on the 3X P&F chart formation.

The bottom (A/D) indicator is showing negative divergence and is ready to turn down. The SRSI is overbought and could also start to retrace, but the MACD is still strong and may require an initial top and a subsequent high creating divergence before it gives a sell signal. Looking at the price action from the low, it is clearly corrective and not impulsive, and we could end up with a C wave which approximates the A wave in length. That would place its high just about where the 200-hr MA is currently trading.

XBD (American Securities Broker/Dealer)

We'll continue to look at XBD to see there is any strength showing which could indicate that the market is ready to do something more than merely stage a "bear market" rally. No such sign is evident! On the contrary, XBD must rank as one of the weakest indexes on the board. Not only did it fall much farther than SPX below its August low, reaching the bottom of its primary channel, but look at the pitiful bounce which it has only been able to produce in the past couple of weeks.

I had mentioned some time ago that XBD and XLF (both considered market leaders by some analysts) had made their all-time highs in 2007 and had remained substantially under that high during this bull market. In the case of XBD, its high in June 2007 was 268. Its high point for the current bull market was on July 20 of last year and only registered 203. Surely the long-term relative weakness of these two important indexes were telling us something about what lay ahead. Was it simply a technical warning? Or, something about the state of the economy? I'll let others answer that question. Our concern is the current relative weakness of the index and what it means for the market condition going forward.

UUP (dollar ETF)

The dollar got a boost from the move by the Bank of Japan which caused the Japanese yen to depreciate appreciably in value. But will it be enough to kick-start it into a long overdue resumption of its uptrend? To show that this is a sincere attempt at challenging its previous high, it will have to show more upside momentum than a single day's rally. Since the index has a higher P&F projection, it's probably only a matter of time before it does resume its uptrend in order to reach it.

GLD (Gold trust)

GLD's long term decline shows that it is slowly coming out of its major corrective channel, but all its attempts at re-establishing an uptrend have been feeble and it continues to make lower highs and lower lows. Whether the current effort will succeed or not depends on its ability to extend its current move. Cycles are favorable and it has built enough of a base to take it to about 111, at best! So the answer is probably 'not this time', even if it does achieve its full short-term potential. The gold bugs will have to endure more patience before something worthwhile develops. Maybe on the next attempt!

USO (United States Oil Fund)

Because the price action in oil is currently having such an influence on the market, I have posted a daily and hourly chart of USO below so that we can see if it, too, like GLD, is making a sincere effort to resume an uptrend after reaching my long-term projection of 8. However, after such a severe and protracted downtrend, we should not expect anything significant to happen anytime soon. In the past two weeks, USO has bounced up to its intermediate trend line which it is attempting to overcome. Even if it does, it will quickly face another resistance point created by its 200-hr MA which was probably already responsible for stopping the advance twice, and creating a double top. Finding a top at this level should help SPX to find one as well.

The hourly indicators also show that its upside momentum is waning and that negative divergence has appeared in the MACD. That could mean that a reversal is not too far away. The daily SRSI is still showing strength and, along with the MACD, is still in a bullish cross position. However, the MACD remains well below the zero line and this is a sign that USO is probably a long way from showing lasting strength. At best, even if its low has been reached, we should expect it to spend time forming a base which, when complete, will give us an idea of how much of its 111-point decline from the 2008 top it will be able to retrace.


Summary

It is now evident that SPX has altered its correction to an A-B-C pattern with the C wave currently in progress.

Expectations are that the index should complete its upward correction over the next few days -- probably next week.

A reversal may or may not result in an immediate resumption of the long-term downtrend. Strong support at the 1872 level may require a certain amount of distribution to form above it before it can decline further.

Andre

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

© 2005-2016 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

Catching a Falling Financial Knife