Market Turning Points Newsletter

June 19, 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 appears to be making a fairly shallow intermediate correction. 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 Week seven and counting…! After a decline of 112 points, the SPX finally had an up-week – by 52 cents! WOW! The SPX and the QQQ both essentially met their potential Point & Figure projections for the decline when they dipped to intra-week lows. Now we must wait to see if these will work their magic again and give us a worthwhile reversal. The VIX finally awoke from its torpor and rallied past the 20 mark to which it had been confined for the entire decline until the past three days when it finally rose to 24.65 last Thursday, and promptly reversed to 21 on Friday, before closing at 21.85. What does this mean? Is it bearish or bullish? It depends on what it does next week. It is now in an uptrend channel and would have to close below 19 on an hourly basis (below 18 would be more convincing) to get out of it. That's one! Two, is the QQQ. Last week, it dipped and closed slightly below its March low and slightly violated its 200-DMA, finishing right on it. This is obviously a level which it must hold if it is going to rally right away. Just the fact that it is underperforming the SPX is a negative. Three, concerns the dollar! Last week, it challenged its weekly downtrend line from the April high, closing right on it. Exactly 7 weeks ago (when the decline in the SPX started) it bounced off a two and a half year channel bottom and, although it has not given a convincing weekly reversal yet, the daily trend will be doing so if it can move outside that trend line. Granted, the dollar and the SPX have not always trended in opposite directions, but they have most of the time. On its daily chart, the UUP (dollar ETF) has met with strong resistance every time it has rallied to its 200-DMA. On Friday, the moving average was at 22.26, and UUP closed at 21.45, so it has some room to move up before hitting it. When it does, it will also meet with other resistance lines, and possibly complete an a-b-c correction in a downtrend. If it breaks above its downtrend line, this could take another week or two to accomplish. Would the SPX be able to rally, or even stand still, during that time? Four, the XLF (financial sector) which has never convincingly reversed from its long-term downtrend, and which has now been in a decline not seven, but seventeen weeks, has yet to show that it has bottomed. Last week looked more promising; it kept its weekly range slightly above the previous one, and closed a little higher on a weekly basis. Also, the good news is that it, too, seems to have met its downside P&F projection, and on the daily chart, it looks like it has made a double-bottom. And that's not all! We are in the middle of a cycle cluster (which will be discussed under “Cycles”). By contrast to these potential (or real) negatives, the SentimenTrader is showing some very bullish readings which are usually indicative of a low in the market. Therefore, when we consider the above, we are left with a lack of certainty as to whether the decline is over, if there is more to come, or if the indices need to do some base building. It would appear that the third option may be the most likely one, especially considering the current cycle configuration. We'll find out next week! As we do every week, let's look for clues in the charts. Chart Analysis I won't show the weekly chart of the SPX, but I can assure you that the MSO, being flat on its bottom is not giving us any indication that it's ready to reverse. Its MACD is still declining with the histogram also in a downtrend-- not exactly a sign of strength! But, at 15.86, the MACD it is still positive! (I would feel much more bearish if it had already gone negative.) Below is the Daily SPX Chart. There are a lot of technical clues on that chart, and they are not all negative. Let's start with the price pattern itself. When you are watching the market all day long, time passes sooo slowly and the down-trend seems interminable, with the hourly chart making lower low after lower low! It's no wonder that traders have to guard against getting into a bearish funk as the decline progresses! One way to get your perspective back is to look at a daily chart. At a glance, you can see that the current pull-back has the profile of a short-term correction -- just like the others that you see on the chart -- only a little more extensive. And, although deceleration of the downtrend is obviously occurring, a little more time may be required to turn things around. Why? Because after making a shallow downtrend for about three weeks, the SPX suddenly got weaker and dropped to the bottom half of a wider channel where it has been trading ever since. Until it shows that it is ready to get back in the upper portion of its channel, it won't be ready to resume an uptrend. There are good reasons for the price to firm up at the present level: the SPX is still trading in the top half of the intermediate channel and has only retraced to the middle of that channel where it could now get some support from the mid-channel line (dashes), and from the light-blue internal trend line parallel to the channel lines, slightly below. That trend line has 3 former points of contact: in August, in September, and in November, and is currently at 1255 – which is in the vicinity of the SPX downward projection of 1250-1253. Last week, the SPX rallied from 1258, just above it. It also enjoys the support from its 200-DMA. On a scale of 1 to 10, my competency as an Elliott Wave analyst probably ranks a 3 or 4, but it does not stop me from second-guessing the market structure along with the worst of them. Everything considered, I think that we could be making an intermediate-term correction in the form of a triangle before resuming the uptrend. (One of the best, Tony Caldaro, thinks it's an “irregular” pattern.) And what do say the indicators? As opposed to the weekly, the daily MACD is showing some deceleration in its histogram. Note, however, that it made a decisive new low vs. the mid-March price. This is negative divergence and does not bode well for the next rally! Hence, we could eventually see the correction developing into a triangle pattern which would require one more down-leg. The price MSO has gathered a little bit of positive divergence over the last few days. It must now punch through its larger down-channel to signal a reversal. The A/D MSO is the most bullish with pronounced positive divergence taking the form of an uptrend as the SPX was progressively making new lows. This is the shape that reversals take: the A/D is the first to give a signal, the price MSO is next, and the MACD always lags. It is clear that the indicators are warning us that an incipient market bottom is forming. This weekly newsletter regularly analyzes the SPX, the Dollar, Gold, oil, and other important indices, as well as breadth and sentiment indicators. To read the current newsletter in its entirety, please go to: www.marketurningpoints.com Click on “Newsletters” (Allow about 30 seconds to open)