Market Turning Points Newsletter
May 22, 2011 Market Turning Points By Andre Gratian
Precision timing for all time frames through a 3-dimensional approach to technical analysis: Cycles - Breadth - P&F and Fibonacci 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
Very Long-term trend – The continuing strength in the indices is causing me to question whether we are in a secular bear market or two consecutive, cyclical bull/bear cycles. In any case, the very-long-term cycles are down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014-16.
Long-term trend - In March 2009, the SPX began a move which evolved into a bull market. Cycles point to a continuation of this trend for several more months. SPX: Intermediate trend – The SPX has met its 1370 projection and is consolidating. The odds still favor a rise to the next logical target of the low 1400s before the beginning of an intermediate correction. (There is no change from last week's analysis)
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 email@example.com
The SPX correction which has followed the filling of the 1370 count continues, but it could be nearing its end.
Since its inception, the correction has been orderly, traveling in a well-defined channel about 30-points wide. It is now making what could be a terminal pattern in the form of an inverse Head-and- Shoulders pattern which I will point out when we look at the charts. We could be in the process of completing the right shoulder of this pattern, which is itself a potential inverse H&S that may also be putting the final touch on its right shoulder. We seem to have formed a proliferation of H&S patterns (I count at least 5) since the February high. But I must admit that I have only given them a ball-park glance, and have not subjected them to a rigid volume test.
In any case, there are a number of other technical factors which support a near-term resumption of the rally from 1249 which I will point out as I analyze the charts. Beside the potential reverse Head-&- Shoulders pattern, they also include higher Point & Figure projections, bullish sentiment, favorable near-tem cycles, a lack of relative weakness in the NDX/SPX ratio, and a potentially bullish position of the daily indicators. That should be enough to place the odds on the positive side, but I also see the possibility of an attempt by GLD and USO to retrace their recent decline.
If the reversal which took place at 1319 is legitimate, we could have its confirmation as early as Monday.
We'll begin by analyzing the Daily Chart of the SPX, starting with the still bullish, longer-term perspective.
The index is still in an up-trend, trading within its intermediate channel which, itself, continues to rise well inside the long-term channel. However, we must acknowledge that the trend is decelerating. Not only did the intermediate trend not make it to the top of the larger channel, but it is also decelerating within the smaller one. Resistance is developing at a (dashed) line which is a parallel to the channel lines, and the extension of a former support line. The SPX, which had previously tested the bottom of its intermediate channel three times, did so again last Friday.
The blue trend line and the light-green support line both enabled the index to rally, but it is coming back down after failing to overcome the short, red down-channel line. If it breaks both of these lines, it will bring it a little closer to the end of the trail, but it would have to trade below the red horizontal red line in order to give an intermediate sell signal. Trading below that level would stop the steady progression of higher highs and higher lows which have created the uptrend since 1011 in early July.
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