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Market Turning Points

Precision timing for all time frames through a multi-dimensional approach to technical
analysis: Cycles - Breadth - P&F and Fibonacci price projections
and occasional 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: Very Long-term trend - The very-long-term cycles are in their down phases, and if they make their lows when expected (after this bull market is over), there will be another steep decline into late 2014. However, the severe correction of 2007-2009 may have curtailed the full downward pressure potential of the 40-yr and 120-yr cycles.

Intermediate trend - SPX continues to progress according to its structure. After reaching 1687,an intermediate reversal took it down to the 1560 level, from which it rebounded strongly. That rebound appears to be evolving into the beginning of a new uptrend.

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.


Market Overview

In last week's letter, I was looking for SPX to consolidate after reaching a good support level. However, the consolidation was brief and the decline continued to 1560, retracing nearly .382 of the uptrend which started at 1343. A pull-back closer to the 1536 (wave 4) low, would have been a normal retracement for this type of correction, but the "bounce" off 1560 turned into a 60-point rally, almost straight up! The A/Ds were spectacular for 3 days, perhaps not quite enough to qualify as a breadth thrust, but strong enough to turn the McClellan oscillator from deeply oversold to decisively positive.

Considering the market action, there is a strong possibility that we have seen the low of the correction and that we are engaged in the first wave of a new uptrend. The next couple of weeks may cast some doubt on this potential scenario, and SPX will be given a chance to prove to us that the correction has ended.

Structure: The SPX appears to have completed an A-B-C correction which was intermediate wave IV and to have started on wave V. The rally from the low consists of 3 waves with the 4th currently in progress. One more wave up (wave 5) is needed to turn the rally into the impulse wave needed to complete minor wave 1.

Cycles: Based on last week's market action, it looks as if the one-year cycle has completed its down-phase and turned up.

P&F- Fibonacci projection: The correction appears to have made its low after retracing .382 of its uptrend from 1343. The current rally retraced a little over .618 from the top of the second decline (1654) before starting a short-term consolidation. When over it should make a new high for the trend that started at 1560. Specific projections for the rally which is underway will be passed on to subscribers.

Support/resistance zones: The 1576 former top was slightly penetrated but offered good support along with more recent congestion patterns which formed in March and April. When it resumes its short-term uptrend, SPX should meet with resistance near the underside of its broken trend line from 1343.

Sentiment: The correction has dropped the sentiment readings from slightly elevated to perfectly neutral.

Chart Analysis

The following chart of the SPX (courtesy of QChart) shows how the correction from 1687 progressed in two downward phases separated by a three-legged rally. I am assuming that the decline ended at 1560, just a little above the (grey) 144-DMA, and after retracing .382 of the uptrend which started at 1343. So far, the rally has retraced a little better than .618 of the decline from B and, if it continues its up-move to the vicinity of the top downtrend line before correcting, we will have one more reason to label this move as the first up-wave of a new uptrend which should take the index to a new high, especially if it manages to close decisively above its (light blue) 55-DMA.

S&P500 Index Daily Chart
Larger Image

Early confirmation that a new uptrend has started can be seen in the A/D oscillator which has already become strongly positive, rising above the former minor peak to create good positive divergence vs. price. The other indicators, which normally follow the lead of the A/D, are still neutral to slightly negative, but should turn positive as the rally resumes and continues until it finds resistance and comes to an end in a back-test of the former trend line from 1343. After a short-term correction, the uptrend should resume.

The hourly chart shows in greater detail the path taken by the different phases of the correction. The rally has been stopped by the 233-hr MA after getting past two other resistance points created by former lows. This upward penetration of these resistance levels is a sign of strength.

So far, I have labeled the rally either as an incomplete impulse wave or as an a-b-c correction, with the former being the preferred count, and the current consolidation being contained between the two parallels. The entire short-term move will probably not be strong enough to break out of the larger correction channel and will have to wait for more consolidation before it does.

The hourly indicators are still correcting, suggesting that the current minor consolidation is incomplete. If this is to be only a small wave 4, we could be done by the end of the day Monday, or Tuesday at the latest. If we go beyond that time frame, or if we greatly surpass the limits of the lower channel line, the short-term count is incorrect.

S&P500 Index 60-Minute Chart
Larger Image


If the correction ended at 1560, it is likely that the 1-yr cycle low is already in place.

The next cycle to bottom should be the 10-wk cycle which is due in a few days, followed by the 7-8 week cycle low in 3 to 4 weeks.


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

After becoming extremely oversold, the McClellan oscillator made a series of rising bottoms and, after the third one, managed to become positive once again. This kind of pattern suggests that the correction is over.

Especially since its action has managed to start turning the Summation Index and its RSI. The pattern of the latter is very similar to what happened at November's low, and we should expect similar behavior going forward. In a bull market, the Summation Index RSI follows a consistent pattern of moving from overbought to oversold. Once it turns up, it usually keeps on going until it has become overbought once again, at times with some minor interruptions along the way.

NYSE McClellan Oscillator Chart

NYSE Summation Index Chart

Sentiment Indicators

The SentimenTrader (following chart courtesy of same) has returned to neutral. I had suggested that it would, with the possibility of going even lower, before the correction ended. As the market moves higher and higher, this indicator should become more and more negative at the top, so let's look for a potential 70 reading in the long term indicator at the next top.

Sentiment Chart


VIX is following the market inversely. It has probably reached the limit of its advance for now, and will continue to consolidate as the market makes a new high, establishing a new base from which to move higher as the market makes a higher top which is followed by a more severe correction.

VIX 4-Hour Chart
Larger Image

XLF (Financial SPDR)

XLF is simply trading in sync with the market. It did not show any divergence at this high, (probably because it was not significant enough) but may do so at the next one when SPX completes intermediate wave V.

XLF 4-Hour Chart Chart
Larger Image


The weekly chart of TLT shows that this index has most likely made a long-term top at 132. The current intermediate consolidation is finding temporary support at a level where is has done so previously. While it may hold there for a while, its prospects for remaining above this former peak are not very good, and it's only a question of time before it starts to move lower and extends its intermediate correction into a full-blown long-term descent.

TLT Weekly Chart
Larger Image

GLD (ETF for gold)

GLD deserves more than casual scrutiny, so I am presenting a weekly chart (courtesy of QChart) which portrays its current status more clearly.

GLD has recently broken a very long-term trend line which starts at its 1985 low when it was trading at 41. The value of trend lines is made obvious on this chart. The index tried to hold at the very long-term trend line level for several weeks, but when it finally gave way, the bottom fell out and GLD is now in a free-fall which could continue until it reaches 110 where it has excellent projections both from P&F and Fibonacci. It also has channel support at that level.

If it does reach 110 in a selling climax, history should repeat itself and a very strong, oversold rally should take place. After a suitable recovery, GLD may continue its downward trek since, even at 110, it will still have retraced less than 50% of its move from 1985 to 2011.

SPDR Gold Shares Weekly Chart
Larger Image

UUP (dollar ETF)

The same inevitable, long-term forces which have been gathering and are beginning to affect bonds and gold will have an inverse and bullish effect on the USD.

UUP is building a long-term base which will enable it to start and maintain a long-term uptrend when complete. The uptrend has not yet started. To show that it has, UUP will have to break out above the red trend line and through the top of the blue channel.

Dollar ETF Weekly Chart
Larger Image

USO (United States Oil Fund)

USO has been helped by the strong uptrend in stocks and yet, all it has managed to do is to keep from continuing its long-term decline. If USO has not been able to generate an uptrend by the time that SPX gets to the top of intermediate wave V, it will very likely decline to new lows.

United States Oil Fund Weekly Chart
Larger Image


Although it is not yet absolutely confirmed, there are strong indications that SPX ended its correction at 1560 and is now resuming its long-term uptrend in the form of intermediate wave V. If this is the case, we can guesstimate that this move will take it to a minimum of 1750. A more accurate projection can be made when minor waves 1 and 2 are complete.



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