Last week I stated:
At this point it sure does seems as the real number that the SPX wants to challenge is my two month old target of 1360. Amazing to watch this train run everyone over as it's destined to reach it. We have not been able to issue a sell signal yet!
Next week we will be glued to the screens watching what happens at 1360. Do they vibrate around it for a bit or just reverse from it?
We hit the number! The week started out in a range, which seemed to be building a triangle, until the news hit the wires that a plane had crashed into a N.Y. building. As soon as the news wires verified that it wasn't any kind of terrorist act, the bulls once again showed the bears who was in control. Condolences go out to the families of the deceased. The SPX rallied off those lows to close Friday at 1365. My target, which was issued exactly 2 months ago today, was perfectly hit and The SPX now sits five points above it.
I still think that we're late in the game and I have much more concern for a reversal, rather than worrying about missing the rest of the move, if there is any left. The trend is still up, which might not be the case on Monday or Tuesday, but there is no confirmation of a turn at the moment. At this point, the levels we are watching need to stay within the forum, as it's impossible to set forth any kind of guidelines to such an important juncture in the markets within this update. Those levels and ideas will be adjusted and discussed every day as we go forward. If the SPX reverses early in the week, I will be watching its structure as well as where it finds support, to determine its intentions. Since this rally has become quite strong, there is a possible bullish count that will need to go a bit higher from here. That high shouldn't be seen without a 20-25 point pullback first. At that point we will need to decide if the pattern needs the higher move. Something you can keep an eye on is the Dow Jones Composite chart that I showed last week, which was in need of another high. On Friday, that index and the NYSE both pushed to squeeze out marginal new highs. Will those highs satisfy the structure, or is there more to come?
Next week we have some important economic reports as well as earnings from some market moving companies. Between that, and the fact that we hit an important target, I expect the market to continue to display its energy, but possibly with a down bias.
No need to be guessing as we will simply want to see a confirmation of a reversal and 1360 act as resistance.
The 4 charts below clearly show that this market is not advancing as it was in the past. Prior to the May highs we had leadership, now it seems as the S&P is pushing the old leaders up to achieve new highs. That is not the sign of a healthy market. The four charts are of the S&P, NYSE, SOX, and Dow Jones Composite. As you can see, the S&P is the only one that has broken out. The Dow, which isn't shown, also hit new highs. The leadership would need to come back, for me to think there will be a large continuation from here.
Below is a chart that Bob Carver, a market advisory member from Market Clues, has posted to the forum. Bob has been updating us with this SPX/Russell spread since he first expected money to flow from the Russell 2000 into the S&P 500 over a period of time. The Russell is far more volatile than the S&P 500, so when the market dips, the spread gains value (and, of course, when the market rallies, the spread loses value). Because of the way it's structured it has a margin requirement of only 20% of the normal margin. The spread can also protect a position in the market from erosion in the event of a major adverse news event.
As you can see, Bob has also been following a count on this spread that suggests a reversal soon, which would correspond to a down turn in the general market.
The bottom line is, as Wall Street is getting more bullish by the day, I am seeing reasons to be concerned of any rally above 1360ish. I believe we are at an important price projection, accompanied by weekly Elliott wave counts that that finally can be counted as complete, bullish sentiment and technicals that are starting to diverge.
Just like going long in Aug, it won't look or feel good to try and short this market, but if we get the technical evidence to do so, we will look to take that trade. If we need to wait a while or for some additional gains, we will not be looking to short an advance. If there is a Santa Clause rally in the markets later this year, it will come from the low of that move, not from here.
In the last two months I have updated these articles every week knowing that this important move was surely going to catch many positioned wrong. Hopefully it was profitable for some. More importantly, it should have stopped readers from selling the market short, as many were calling for a crash into the typical Oct low. Since we have now achieved that move, I can't continue to update on a weekly basis as I have an obligation to my Forum members and also to a financial magazine. If I can find a writer to help out with them, I will have them available every week. If you know of someone, please have him or her email Dominick@tradingthecharts.com
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