Pause Nearly Over -- Market Turning Points.

January 02, 2012 Market Turning Points By Andre Gratian PAUSE NEARLY OVER 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 – After a pause, the intermediate uptrend is almost ready to resume. 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 The market pause predicted in the last newsletter is now a week long. After meeting its 1265-1270 projection, the SPX only had a brief two-day pull-back of about 20 points before it rallied. The consolidation extended into Friday with some minor selling at the close. Next week, the index should attempt to extend its uptrend into the third week of January and reach the next P&F target of 1278 or 1293. This should be followed by some additional corrective action, but how much is not clear at this time. Some Elliott Wave theorists believe that the uptrend from 1075 is a minor wave 2 giving way, when complete, to a very sharp decline as wave 3 unfolds. After the correction from May to October, I thought that there was a good possibility that we might have started a bear market. Since then, I have become more skeptical of that scenario for a number or reasons, some of which I have already mentioned. The long term cycles which are scheduled to make their lows in 2014 certainly are a strong argument for a nasty decline into that time slot. However, the timing for the beginning of a significant wave 3 decline at this time does not feel right. The behavior of some confirming indicators also argue against it. For instance, the VIX is not warning of a major downtrend in the market. And bond indices -- which normally move inversely to stocks -- appear to be in the process of forming an intermediate top. We will analyze these two contrary indicators toward the end of this letter as well as the dollar ETF: UUP. That third one is a little more difficult to fathom, especially since the dollar (currently at 80.17) has created a Point & Figure base which is capable of sending it to about 90, but this is not necessarily something that would have to take place over the short term. These apparent contradictions do not guarantee that we will not start a wave 3 in the next few weeks, but they argue against it. We'll have to wait for the market to clarify its intentions. Let's look at some charts! Chart analysis The Daily Chart of the SPX illustrates how insignificant last week's correction was. Here, it looks like it is undergoing a minor consolidation after challenging the previous short-term top and the downtrend line from 1356, before it is ready to push beyond these obstacles to a new near-term high. A couple of technical factors support this outlook. First, the P&F chart gives us a projection for this move to at least 1278, and perhaps to 1293. P&F projections have a strong history of being met before a reversal occurs. Second, negative divergence normally develops in one or more of the indicators before the end of a trend. This has yet to happen. The MSO has reached an overbought condition giving us a warning that we are getting close, but this index can remain overbought for an extended time (as we can see at the previous top) and there are indications that this could happen again this time. 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)