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.
UPTREND ASSERTING ITSELF?
On Friday the bears and the bulls both had a shot at determining the trend, and it looks as if the bulls came out on top - for now! E-mini futures emerged from the Thursday holiday strongly positive in anticipation of a good jobs report, and added to their gains when the numbers came out even better than expected; but then, concern that it could induce the Fed to modify its easy-credit policy sooner than anticipated dropped prices from 1631 to 1608 over the next two hours. At that point, the bulls took charge and never looked back, closing the cash index on its high of the day!
Strength is evident in the Small Cap Index which hit a new high, as well as XBD (Amex Securities Broker/dealer) which is a widely followed leading index, and with several other leaders such as IWM, XRT, XLY, etc... showing superior strength. This type of action strongly suggests that the bull market is resuming its uptrend with the major indices getting ready to make new highs -- but perhaps not right away.
Structure: There is good evidence that the C wave of intermediate wave IV made its low at 1560 and that minor waves 1 and 2 may now be complete. It's also possible that minor wave 3 is already underway, but that will require more confirmation.
Cycles: Based on last week's market action, it looks as if the one-year cycle has completed its down-phase and has turned up. (still applies)
P&F - Fibonacci projection: The immediate goal of SPX may have been reached, with higher targets in store over the next few weeks.
Support/resistance zones: Several trend and channel lines have already been overcome, along with important MAS, including the 55-DMA which has been surpassed by all the indices. IWM has even closed above its top downtrend line, but SPX, DJIA and QQQ have yet to do so.
Sentiment: The SentimenTrader remains essentially neutral, and VIX has reversed its short-term trend to down.
The following is a daily chart of the SPX (courtesy of QChart). In spite of the bullish tone of the overall market, SPX has a few hurdles to overcome before we can state with absolute conviction that it is ready to continue its long-term uptrend.
The first, and most obvious, is the downtrend line across the tops. There are several trend lines (some not shown on this chart) converging around 1635 which make it doubtful if this can be accomplished without some additional consolidation above 1600. One of the most important ones is the trend line from the 1343 low which is about to be back-tested. This one alone is likely to repel SPX as it attempts to move back into its broken channel, since it would take exceptional strength to do so and the technical condition is in the process of weakening instead.
If we look at the indicators, the A/D oscillator was the first to give a buy signal. It quickly became overbought and is now correcting with some negative divergence showing after Friday's move. The one above (SRSI), on the other hand, is showing some positive divergence after giving a buy signal on Friday. It moved decisively above the trend line which corresponds to the tops trend line as well as above the B wave top.
But MACD has not yet confirmed a resumption of the uptrend. It is still negative, and its histogram just turned positive on Friday; but it looks more like the end of a move rather than the beginning of one. MACD looks as if it will require a little more time before it turns positive.
Below, I also want to show the weekly indicators. They could give us a feel for the timing of the next top. Note the similarity between the patterns of the histogram and that of the MACD going into the April top and where they are now. Back then, the histogram went negative about 7-8 weeks before the top and before the trend line of the MACD was broken (blue arrows). The recent histogram pattern went negative 3 weeks ago and the MACD is declining but is still above its trend line. Since today's patterns appear to be shaping up in a similar fashion, we could perhaps assume that the final top will be some 4 to 5 weeks away, and that the SPX will make a new high before rolling over and starting a significant correction.
The pattern being made by the hourly chart (below, also courtesy of QChart) shows an SPX which is coming into a short-term top and ready to do some correcting. The price momentum from the low pretty much peaked around 1620 and, although the index has continued to move higher, it does not have the same zip that it had from the low.
This is being reflected in the MACD which has gone flat since 1620 and is even displaying a little negative divergence after Friday's top. The loss of momentum shows even better in the A/D MACD which is still negative and showed plenty of divergence after Friday's new high in the SPX.
Add to that the fact that the stochastic RSI is overbought and very close to giving a sell signal, and we have a strong warning that the short-term trend is ready to reverse and the SPX about to undergo some additional consolidation before making a new high. While Friday had the appearance of a strong day, a reading of only 420 A/Ds is not a good showing for a 16-point price move, especially since they remained negative throughout the day except for the last hour as a result of the short-covering which often takes place at the end of the session on Fridays.
The one-year cycle made its low on 6/25, and the 10-wk cycle probably bottomed on Friday.
The 7-8 week cycle may bottom during the week of 7/22.
The McClellan Oscillator and Summation Index appear below (courtesy of StockCharts.com).
After becoming extremely oversold, the McClellan Oscillator started to slowly recover through a series of higher lows, showing positive divergence when SPX hit 1560 and then going positive along with the market rally. It reached a high of about 40, which is not a particularly strong reading considering the rally strength and has, since then, pulled back to about 15 where it now is showing negative divergence after Friday's market move higher.
Its positive action has reversed the course of the summation Index and its RSI, but has failed to generate much upside momentum in either one -- not even enough to move the RSI out of oversold territory. Considering the fact that the SPX has rallied about 72 points from its low, this is not exactly supportive of that big a move and could call into question the view that the SPX has resumed its uptrend.
After returning to neutral for two consecutive weeks, last week the SentimenTrader (following chart courtesy of same) increased its short-term reading to 60, which is in accord with my perception that some additional consolidation may be needed before SPX can move higher.
VIX has pulled back from its high as the market rallied, but it is still in an uptrend and looks as if it is merely correcting after falling just a little short of its P&F projection. If the market undergoes further consolidation before moving higher, VIX will do the same but inversely.
VIX is essentially in sync with SPX right now and does not have any immediate forecasting value.
XLF (Financial SPDR)
XLF is making an interesting pattern. When SPX touched 1626, XLF had a wide daily range which looked almost climactic. Its move on Friday fell well short of the previous high, while SPX made a new high. The relative weakness of XLF on Friday is something which we have not seen for a long time and it should be at least a yellow flag. It may not have longer-term implications, but over the near-term, it supports the behavior of the A/Ds which are calling for a short-term top.
TLT did not like the strong jobs report and this caused it to close at a new weekly low, breaking decisively below the green support line for the first time in over a year. During the past few weeks, the downtrend has also accelerated with the price moving below its correction channel. Prospects for a decent rally are not good and it is likely that TLT is beginning to confirm that it has started a long-term downtrend.
GLD (ETF for gold)
GLD also responded negatively to the jobs report, giving up about 41/2 points on Friday, although it did recover some of that by the end of the day. In the report which I did last week, I mentioned that GLD had a good projection to 110. This is where I would expect it to go before it attempts a worthwhile counter-trend rally.
UUP (dollar ETF)
By contrast, UUP thrives in a stronger economy and it had a good move Friday, getting back near to its previous short-term high. The last dip was a successful test of the low and it may be time for UUP to challenge the top of its blue channel and the longer term downtrend line which lies just below it. If it does, it will undoubtedly find resistance at that level, but this could also be a prelude to a breakout and the start of a long-term uptrend.
USO (United States Oil Fund)
Concern over the Egyptian situation and how it might affect oil shipments through the Suez canal has driven oil prices upward. This has sent USO in a short-term uptrend which may end quickly if matters settle down in Egypt. USO is also challenging a 2-year (red) trend line which may stop its advance and which will be blamed if prices start to move back down. Going thru the trend line would be important technically and could signal a continuation of the move toward 40, at the top of the blue channel.
The general tone of the market is bullish with several leading indices outperforming the SPX and the DOW by a good margin -- some already challenging their bull market highs.
Short-term, however, SPX looks as if it is at a high and will require more consolidation before moving higher. While is it likely that the former 1687 top will be surpassed, the next 3 or 4 weeks could be laborious for this index with distribution taking place in preparation for a more serious correction than the one we recently experienced.
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