ANOTHER PAUSE ? - Market Turning Points

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January 09, 2012 Market Turning Points By Andre Gratian ANOTHER PAUSE? 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 down and, if they make their lows when expected, there will be another steep and prolonged decline into 2014. SPX: Intermediate trend – Intermediate uptrend still intact, but short-term top likely soon. 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 Last week, as expected, the indices continued the uptrend that was started in early October, when the 3-yr cycle made its low and the SPX reversed its decline from 1370 at 1075, with a spectacular 217-point rally to 1292 in less than three weeks. This was followed by a .618 retracement to 1159. Subsequently, the uptrend resumed, but at a much more subdued pace until last week when the index got back within eight points of the late October top. The recovery high of 1284.62 was reached on the first trading day of the new year, last Tuesday. Since then, the SPX has been struggling, along with the DJIA and the Russell, but the QQQ has forged ahead making a new high on Friday, while the VIX came within 24 cents of its recent low. Clearly, we have a short-term fragmented market. The Dow Jones Industrials and Transportation are the only major indices which have surpassed their October highs but, over the long term, the QQQ (NDX) remains the strongest equity index since the 2009 low, with the DJIA a close second. With their daily indicators overbought, equity indices are in need of a near-term correction. But since there is no sign of negative divergence in any of them, I would expect it to be a short-lived 3-5 days before there is another attempt at resuming the rally. If negative divergence does develop in the daily momentum indicators, a longer correction could ensue. From a cyclical standpoint, the 3rd or 4th week in January appears to be better suited to bring about a short-term top than the current time frame. Chart analysis We'll start with the Daily Chart of the SPX. Longer-term you can see how the band of resistance between 1260 and 1370 has halted the rally from the 1075 low. The intermediate trend from that level is confined to a wide channel which is marked by two purple trend lines. The lows of that trend have recently been accelerating upward, which would be bullish, except for the fact that the tops have been limited to the high of the first rally. If the SPX can overcome 1292, it could challenge the red downtrend line which is currently at about 1335. Considering the status of the indicators, that would be a tall order right now. Not only is the MSO overbought, but the A/D indicator is showing negative divergence. The trend lines on the indicators match the trend lines from the secondary bottom of 11/28. If they are broken, it will be a preliminary sell signal, especially since this would also take them below the horizontal red line which marks their former near-term low. Normally, when this happens, there is one more price rally which goes to a new high, but which fails to make a new high in the indicators. That creates negative divergence and signals that the index is ready to make a short-term top. Although this is not a sure thing, I am assuming that since this process is still taking place, we have not yet made the final high of the rally, and the SPX will still have a chance to get up to its 1293-94 target. 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)
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