A 3-dimensional approach to technical analysis
Cycles - Breadth - Price projections
"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 - Election years that fall in the 8th year of the Decennial pattern call for consolidation in the early part of the year followed by a strong finish. But the 6-yr cycle which is scheduled to bottom in late Summer/early Fall could also play a restraining role, followed by an eventual bull market top in 2009-2010.
SPX: Intermediate trend - an extended intermediate-term consolidation is in the process of ending and may already have ended.
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 determines the course of longer market trends.
IS AN OLD MARKET LEADER LEADING THE MARKET AGAIN?
A picture is worth...! I could probably rest my case by simply showing the above chart. For several weeks I have been discussing sentiment and other indicators pointing to January being a potential low of the correction. Some of these indicators can be early, and it took a while for the market to generate the proper amount of base building accumulation before it could reverse but, judging by the action of GE (above), it now appears ready.
As you can see from the following charts of some of the main indices, they seem to be only one step behind. Note the similarity in the base patterns with GE, and in the MACDs which all show positive divergence. The Dow Jones Industrials is a little ahead of the others, having remained above its January low during the declines of the last two weeks and it is very close to breaking out of its trend line, but they are all basically at the same state of readiness.
Let's take a closer look at a daily SPX chart. After making its low in January, the index traded in a broad range for 8 weeks, ending with a test of the low which failed by only a few points intra-day when the 10-wk cycle made its assumed low. You could make a case for this cycle to have bottomed a week earlier, but this is something that will have to be verified with its next phase.
That low produced positive divergence in both indicators and on Friday, the A/D indicator (lower) finally joined the momentum indicator in producing a weak buy signal. A corresponding buy signal was given by price when it closed outside of its short-term downtrend line a second time, but it still has to close outside the next trend line of a higher degree before we can speak of an important reversal.
The weakness of the A/D oscillator buy signal suggests that there may be a little more consolidation before an attempt at going through the more important trend line can take place. However, judging by GE's chart, it's probably only a matter of time.
After this trend line is overtaken, the next challenge will be the former short-term tops of 1388 and 1396. Only when these have been surpassed can we say that we have an intermediate reversal.
Another date of interest is March 22. This is the next Martin Armstrong business cycle date which has frequently had an impact on the stock market in the past... Was it instrumental in bringing about the 3/16 low or is its impact still ahead of us? That remains to be seen, but some cycle analysts are concerned about another cycle possibly bottoming just ahead of us: the 5-yr cycle which is expected at any time with early April as the best estimate. And then, the 9-mo Hurst cycle is also due in April-May. So we may not be ready to get back into a firm uptrend until all of these are behind us.
What kind of an uptrend will it be with the 6-yr and 7-yr(?) cycles bottoming in the Fall? Will the 8th year of the Decennial pattern prevail and end this correction in the early part of the year as it usually has, or will this be an aberration as in the case of 1998? There are still many uncertainties ahead, but the whole picture seems to indicate that we are just about ready to complete the intermediate downtrend with some of the sentiment readings being the most bullish since 2003 and even beyond, in some cases
On the downside, the market is still trading within the range of the projection zone which was generated when it broke the 4.5yr cycle low.
On the upside, no reliable projection can be made until we are certain the base pattern is complete and we have broken above the important short-term tops of 1388 and 1396, but if the low of the correction remains 1257 and we do surpass those tops, the first target for the SPX would be about 1470.
During the month of March, the McClellan oscillator declined to an oversold level from which it has rebounded and is only now approaching the zero line. This has caused the Summation index to continue falling, but it is still well above its former lows. It will need to turn up and rise into positive territory to confirm that intermediate strength is returning.
The short-term A/D oscillator gave an unconvincing buy signal on Friday.
Market Leaders and Sentiment
All sentiment indicators are bullish, some reaching levels they have not seen since 2003 or earlier. The Insider Trading Ratio index remains bullish.
As you can see above, GE has gone from making a new low to a sharp bullish reversal.
The NDX/SPX relationship remains positive on the intermediate-term trend and neutral on the short-term.
The Banking index, is in basing pattern similar to the other indices and was up sharply on Friday, attempting once again to break out of its year-long down channel.
Some sentiment indicators suggest that an important low may be forming and GE, which has consistently been a market leader, has already made a very strong bullish reversal, but the SPX and other major indices may need a little more basing action before reversing their intermediate downtrend.
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