Market Turning Points
for all time frames through a multi-dimensional approach to
using technical analysis: Cycles - Breadth - P&F and Fibonacci price projections
supplemented by Elliott Wave analysis
"By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again -- and not capriciously, but at regular periods, and each thing in its own period, not another's, and each obeying its own law... The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint." ~ Mark Twain
Current Position of the Market
SPX: Long-term trend - Bull Market?
Intermediate trend - SPX is in the midst of an intermediate correction (at least).
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 longer market trends.
APPROACHING THE "EXTREME" PROJECTION
(... This should be enough to generate a period of consolidation, at a minimum.)
After reaching its initial target of 2020/2022, SPX underwent a minor correction down to 1990 where it found good support and began to rally. This suggested that it was going to try for the "extreme" count of 2040. By the end of the week, it had risen to 2033 where it closed, on the high of the day. Since no selling has yet appeared in this latest move, we could assume that it intends to reach its 2040 projection before encountering profit-taking.
Projections always entail a possibility that the price will either fall short of the exact count, or go a little higher. In this case, there is a confirming count which was reestablished at the 1990 level which suggests that it could go just a little higher.
Projections can also be validated by the price and breadth behavior as they are approached. There is already negative divergence showing on a daily and intraday basis. This is a sign that caution should be exercised if you are bullish.
There may be more at stake here than just a short-term top. For one thing, the count from the low will have been exhausted. Next, although the index has penetrated the first tier of resistance from 2020, it has now reached the second which starts at 2040 and extends to 2135. On the P&F chart, it looks formidable!
Another consideration is that many of the best leading indexes are showing relative weakness to the DOW and SPX. Since, until we make a new high, we are still in a downtrend, it would be prudent to watch carefully what happens next at this level of recovery.
Intermediate Indicators Survey
Last week, the weekly MACD recovered another 5 points to -25.07 while remaining very negative.
At 64.03, weekly SRSI has gone positive but is beginning to angle over.
The NYSI (courtesy of Stockharts.com) continues to rally from its severely oversold position. Over the next few weeks, we will be able to compare its action to the October 1911 low (which was also an intermediate low) to see if it is heralding a new high in the SPX. For now, its RSI and MACD are very overbought and need to correct.
"The 3X P&F chart appears to have filled its full count from the base formed above 1872, although one could come up with a possible extreme count to 2040."
Daily SPX chart (courtesy of QCharts.com, as well as others below).
At first glance, the daily chart of the SPX which appears below conveys the impression that, after a 6-yr bull market which has taken it from 666.79 to 2134.7, investors decided that this was enough of a run and started to take profits as early as in January. This process culminated in some serious selling in August which took the index outside of a (blue) channel which goes back to October 2011. Since then, prices found support at the bottom of a larger, almost horizontal channel and rallied.
The first bounce from the lows recovered 50% of the decline from the top. This was followed by a re-test of the low which was successful and produced another bounce to the .618 retracement level, but still below the mid-channel resistance zone. This bounce is slated to be almost over, but still may have enough momentum to carry it to the bottom of a far more important belt of resistance which starts at 2040, and which is roughly the target price for the entire move from 1872.
This brings the index to a very important juncture. Here, it will have to decide if it wants to pursue its advance by tackling the overhead resistance and prove that it has enough bullish backers to push it through what looks like a brick ceiling, or to call it quits with the bounces already, and resume its initial downtrend by breaking below the support which contained the first two downward spikes. There is a third alternative which would prolong the uncertainty: another move down to the support zone followed by another rally.
The decision making process could be quick or take some time. But first, we have to stop going up! Reaching the proximity of the current projection as well as the loss of momentum in price and breadth tells us that this should be imminent. We could even do this by Monday and start pulling back on Tuesday. The first sign that we have started to decline in earnest will be if we break below the previous short term low of 1990. After that, we'll just have to see what the index wants to do: continue to decline, retest the top, create more congestion etc. The market will reveal its future intention when it's ready to do so.
Hourly SPX chart.
Even though the odds that SPX is approaching another short-term top seem to be overwhelming, we will need confirmation. (We always need confirmation!) Let's review in detail all the obstacles to extending this rally beyond another few more points!
Target: The base created at the 1872-1900 level yields a maximum projection to 2040. As noted in last week's letter, this is an "extreme" objective for this formation which has required some market strength to be reached. If you are longer term bearishly inclined, make sure that the bulls have lost control after reaching (about) this price level.
Resistance: I have drawn all the pertinent trend lines that I could think of which coalesce at the target level. I don't have to spell them out. You should be able to observe their validity just by following them on the chart.
Divergence: You saw that it has appeared in the daily A/D oscillator. It has on the hourly as well -- the most flagrantly divergent of all the indicators. Divergence is also very obvious in the MACD, which is just as important. When price and breadth confirm each other, it's time to pay attention.
XBD (American Securities Broker/Dealer) and more
Here is another reason to exercise caution until SPX proves that its bullishness is not going to be ephemeral. Last week I showed how the XBD demonstrated relative weakness with regard to SPX. In this group of charts, I have added two more leading indexes that are also relatively weak.
IWM is giving an important caution signal since it was down on Friday. Along with XBD it also made a slightly lower low before rallying. However, the TRAN may be the one on which to stay mostly focused. It did make a higher low on the re-test of the previous low, but that's because it was the first to show relative weakness at the market top and had dropped much lower than the others -- the only one to exceed the October low. Note that it, too, was down on Friday.
Yet, I would not jump to too drastic a conclusion until I see this pattern continue or intensify. If this persists for the next couple of weeks and these indices are the first to turn down and test their lows, it will constitute an even stronger warning that the correction may not be over.
UUP (dollar ETF)
UUP has continued to correct without showing much weakness. The indicators of various time frames show that they may be ready to support another attempt at re-establishing the intermediate uptrend to fulfill the 29 base projection, with a confirming count now complete at the 25 level.
GLD (Gold trust)
GLD has extended its rally from 104 to 113, but is now running into very strong overhead resistance which it is not likely to pierce through without some additional base building. The indicators could still support a move to 116/117 but I would be surprised if it can extend its bounce beyond that. The long term pattern is showing some deceleration, but continues to make new lows. Until the last low holds upon re-testing and GLD is able to overcome the last short term high, the trend remains bearish.
USO (United States Oil Fund)
USO was repelled at the 16 level for a second time. If it cannot get past it soon, it will confirm that it is getting ready to re-test its low and perhaps even go a little lower.
SPX showed that it had enough remaining strength to shoot for its "extreme" count of 2040. That level is fast approaching and could be reached as early as Monday. What the index does after meeting this target will show its true colors. Is it capable of pushing higher after adequate consolidation, or is this the end of the short-term road and the start of another selling phase. (objectivity required! )
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