Best of the Week
Most Popular
1. Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - Nadeem_Walayat
2.Gold Price Focusing on May Cycle Bottom - Jim_Curry
3.Silver, silver, and silver! There’s More Than Silver, People! - P_Radomski_CFA
4.Is the Malaysian Economy a Potemkin Village - Sam_Chee_Kong
5.Stock Market Study Shows Why You Shouldn’t “Sell in May and Go Away” - Troy_Bombardia
6.A Big Stock Market Shock is About to Start - Martin C
7.A Long Term Gold Very Unpopular View - Rambus_Chartology
8.Stock Market “Sell in May and go away” Study When Stocks Are Down YTD - Troy_Bombardia
9.Global Currency RESET Challenge: Ultimate Twist - Jim_Willie_CB
10.The Coming Silver Supply Crunch Is Worse Than You Know - Jeff Clark
Last 7 days
Gold, US Stocks and Bonds - 26th MAY 18
Climate Change Canaries and Our Changing Climate - 26th MAY 18
Gold Junior Stocks GDXJ ETF Fundamentals - 26th MAY 18
What to Expect at a Critical Stock Market Point: End of a Wave 2 Rally - 25th May 18
Merlin Passes Top Tips for Buying and Using Premium vs Standard, Theme Parks UK - 25th May 18
Trump “Victories” on Trade are Anything But - 25th May 18
Crude Oil: It’s Here! - 25th May 18
Stock Market Distribution Pattern Revealed - 25th May 18
Stock Market Topping - Everything Looks Rosy at the End of a Trend! - 25th May 18
Trump Puts North Korea Nuclear WAR Back on Track as Plans for Nobel Peace Prize Evaporate - 25th May 18
Insane EU GDPR SCAM Triggers Mass Email Spam Attacks! - 24th May 18
Stock Market Higher Again, but Still No Breakout - 24th May 18
Study: Slowing Global Economic Growth IS NOT Bearish for U.S. Stocks - 24th May 18
What if This Week’s Rally in Gold is Already Over? - 24th May 18
EUR/USD – Reward for Bears - 24th May 18
5 Terrible Trading Mistakes That Rookie Investors Keep Making - 24th May 18
More Clarity for the Short Term for Bitcoin Price - 22nd May 18
Study: A Rising and Strong U.S. Dollar Isn’t Consistently Bearish for the Stock Market - 22nd May 18
Gold, Silver & US Dollar Updates with Review of Latest COTS - 22nd May 18
Upside DOW Stock Market Breakout May Be Just the Beginning - 22nd May 18
5 Reasons Why Forex Trading Is Becoming Such A Big Deal In SA - 22nd May 18
Fibonacci And Elliot Wave Predict Stock Market Breakout Highs - 21st May 18
Stock Market Ideal Cycle Low Near - 21st May 18
5 Effects Of Currency Fluctuations On The Economy - 21st May 18
Financial Conditions are Still too Easy for the Stocks Bull Market to End - 21st May 18
US Stock Market Elliott Wave Predictions for 2018 and Beyond - 20th May 18
Are You Still Fearful of Cryptos? - 20th May 18
US Stocks - Why I am Short-term Bearish, Medium-term Bullish - 20th May 18
Looking for a Turn in Gold Price - 20th May 18
GDX Gold Mining Stock Fundamentals 2018 - 19th May 18
Semiconductor Stock Market Canaries: Chirp, Warble… Soon a Croak and Silence? - 19th May 18
Three Drivers of Gold Price - 18th May 18
Gold Market in First Tertile of 2018 - 18th May 18

Market Oracle FREE Newsletter

Trading Lessons

Stock Market Correction Turns Consolidation

Stock-Markets / Stock Markets 2018 Apr 23, 2018 - 09:37 AM GMT

By: Andre_Gratian

Stock-Markets

Current Position of the Market

SPX: Long-term trend – The bull market is continuing with a top expected in the low 3000s.
 
Intermediate trend – The intermediate correction from 2873 should now continue until May.

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

Correction Turns Consolidation

Market Overview   

Last week, I outlined what could be a bearish end to the correction based on cyclical pressure and congestion at the 2760 level, but cautioned that it would have to be confirmed by the market action over the next few trading days.  It did not take long for SPX to strike down that possible scenario as prices immediately rose above the 2670 resistance level and moved up to 2717 before reversing.  It appears that I gave the 40-wk cycle bottoming in the next few weeks too much credit for the amount of downside pressure it had in store. 

Conversely, it may not permit the index to exceed last week’s high before there is a retest of the recent lows.  It has been suggested that SPX is morphing into a triangle formation which would be the launching platform for the final bull market high in the Fall, most likely in the low 3000s.  This is what the 1810 congestive formation had suggested all along.  This would also satisfy the larger structure with a wave 4 triangle before wave a 5 into the bull market top.

Near-term, the minor low of 2661 which was made on Friday could bring a brief rebound next week, but with the larger cycle bottom now in sight, we should not expect too much of an uptrend before the decline resumes.. 

 Chart Analysis  (These charts and subsequent ones courtesy of QCharts)

SPX daily chart

The 200 DMA and the intermediate trend line no longer coincide because I have readjusted the latter to the second low.  For now, the structure remains A-B-C until we see how the rest of the correction proceeds.  However, with large price swings subsiding, the rest of the correction should become a consolidation confined to the already established parameters.  This would most likely convert the final structure into a triangle formation; but since other possibilities still exist, let’s wait until the correction has ended. 

The rally from 2554 remained sluggish until it reached the 2670 resistance level, then picked up momentum as it broke through and quickly reached the declining 55-DMA which, although it was slightly surpassed, brought an end to the move.  In the last three days, the index lost nearly 60 points, so there is still plenty of volatility remaining in the market.  The decline has brought prices back to the break-out point, as well as the trend line, drawn from the 2553 low.  This should provide some temporary support, but any rebound from here should be limited by the 40-wk cycle low which is rapidly approaching.  The rally from 2554 failed to make it all the way to the primary downtrend line, and this is a sign that the bears are still in control, but only up to a point.  They control the highs, but the bulls control the lows and that gap is narrowing.  It is the reason why the correction is likely to end as a triangle formation, which is often the shape taken by a wave 4.  

SPX hourly chart

After reaching overhead resistance at 2717, SPX could go no higher and reversed even though it had a potential count to 2720.  That, and its failure to make it all the way up to the principal red downtrend line, can be construed as a sign of weakness.  Also, in the ensuing decline, a minor cycle due on Thursday might already have failed since after three hours of consolidation, the decline continued down to the trend line from 2554 which was breached but held, producing a small rally in Friday’s last hour of trading. 

The weakness after the reversal from 2717 can be seen in the top oscillator which dipped lower than at any time since the beginning of April; but by Friday’s close, some minor positive divergence did develop in the indicator, suggesting that the index could hold for a little while above its support level (the top portion of which has already been penetrated).  SPX would now have to rally nearly sixty points just to challenge the 2717 level.  I am not sure there is that much bullish strength left since we are so close to the cycle low.  A continuation of the decline could find at least temporary support on one of the red lines below.

Beginning to form a base for more than a few days after we enter the month of May could be indicative that we are preparing to reverse and start on our final leg of the bull market. 

 

TRAN, SPX, IWM (daily charts)

Last week, TRAN was the weakest of the three above.  This week, it has rallied to the top of its corrective formation and if all three make a triangular pattern as they complete their correction, TRAN may end up with an ascending triangle formation and be the first to move higher.  Since both TRAN and IWM are holding better than SPX, we can probably assume that the correction is nearly over; but it is likely that all three indexes need one more – and final – retracement before starting their next bullish trend.

 

UUP (dollar ETF)

UUP has broken above its downtrend line, but I doubt if it is the beginning of a new uptrend.  Instead, it may be ending wave 4 of the correction from the 24.75 top before starting 5 of 5 of the correction which started at 26.83.  Very often, wave 4 trades outside of the trend line connecting the high and the top of wave 2 before starting on wave 5.  This could be what UUP is experiencing.

GDX (Gold miners ETF)

As long as strength remains in the dollar, it is unlikely that GDX will be able to achieve a real break-out.   It has been stopped in its attempt to move to the 25-25.50 projection level by resistance encountered at a former short-term high, and it may have to wait until UUP starts on its final down phase before it can get the all clear signal.

 

USO (United States Oil Fund)

You could not ask for a more perfect structural pattern than the one formed by USO’s uptrend from its major low, especially since, by printing 14.00, it has now reached the minimum target zone for this move.  Another half-point or so is possible before ending the entire uptrend from 8.65.

Summary  

SPX is nearing the time frame when the 40-wk cycle is scheduled to make its low.  Prices are being squeezed more and more into a narrow range as sellers and buyers continue to define the limits of the remaining trading zone.  This could result in the correction ending after having formed a large triangle which is often what structure dictates for a wave 4 pattern. 

Andre

For a FREE 4-week trial, send an email to anvi1962@cableone.net, or go to www.marketurningpoints.com and click on "subscribe". There, you will also find subscription options, payment plans, weekly newsletters, and general information. By clicking on "Free Newsletter" you can get a preview of the latest newsletter which is normally posted on Sunday afternoon (unless it happens to be a 3-day weekend, in which case it could be posted on Monday).

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

© 2005-2018 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