Market Overview

Short-Term Top in Sight After New High - Market Turning Point

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November 13, 2011 Market Turning Points By Andre Gratian

SHORT-TERM TOP IN SIGHT – AFTER NEW HIGH

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 (which appears to have already started) into 2014.

SPX: Intermediate trend – The rally from 1075 has consolidated and is ready to make a new high, followed by another consolidation.

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 rally which started at 1075 in early October had a 218-point rally to 1292 in less than four weeks before pausing. That's a lot of strength which has a lot of former bear market advocates beginning to change their minds. After a ten-day correction which retraced less than .382 of the uptrend, it looks as if the SPX may be ready to extend its move to the low 1300's (see pink box on the chart below).

That would be the logical target. Several trend lines which, collectively, should provide some resistance come together in that area, and they coincide with a P&F count derived from the base which was formed just above 1220.

After this target is reached, it should be followed by another correction, but that is not likely to be the end of the move. Besides the obvious strength in the index, the consolidation which started in early August and lasted into early October created an enormous accumulation base which can lead to higher prices, perhaps even new index highs.

That base has also proven to be an area of strong support. The pull-back from 1292 could not even penetrate the higher layer of the congestion level, and the consolidation formed at its very top. On the Point & Figure chart, that accumulation base is clearly far more substantial than the distribution pattern that was formed at the 1371 top – although it does not look like it on the bar chart. One of the P&F tenets is that when an accumulation base is bigger than the preceding distribution top, the next move should carry to a new high. We'll see if this holds up in this case. In the meantime, as long as we don't see some real weakness coming into the market, it is probably best not to be too bearish.

Chart analysis

After creating a distribution phase below 1371, the SPX finally dropped below 1260 and out of the mid-point channel from the March 2009 low. It found strong support at 1075, just above the bottom channel line (chartreuse line) and started an impressive rally which recovered three quarters of the decline in one fell swoop. This took it outside of a broad declining (red) channel after which it made a corrective pattern in the form of what looks like a triangle. A triangle suggests that prices will break out in the direction of the original move. So, if this is a triangle, and if, early next week, the pattern is completed by a minor pull-back into the 13-wk cycle low, the following move should be up and to a new high.

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:

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Posted-In: News Economics

 

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