Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Heading for a Successful Test of March Low

Stock-Markets / US Stock Markets Jun 29, 2008 - 06:00 PM GMT

By: Andre_Gratian

Stock-Markets

Current position of the Market

Best Financial Markets Analysis ArticleLong-term trend - The Dow Jones Industrials are deviating from their typical decennial pattern in an election year. Important cycles going into the Fall could be the reason for this, but one also has to consider the possibility that the downward pressure from the 120-yr cycle, which is due to make its low in 2012-2014 has began to take effect and that October 2007 was the top of the bull market. This is not yet confirmed.


SPX: Intermediate trend - The initial phase of the intermediate correction came to an end on 3/17 at 1257. After a tentative uptrend to 1440, the index is now in the process of testing its March low and expanding its base.

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 determines 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

Overview:

By trading below its January low last week, the Dow Jones Industrials are deviating from their normal Decennial pattern in an election year. The Dow Financials and the S&P100 have also broken to new lows. This could be a cause for concern, and one has to consider the possibility that October 2007 was a major top instead of intermediate. However, the fact that the other indices have not joined in and some have remained relatively quite strong should prevent us from jumping to that conclusion too soon, especially with the current correction probably due to come to an end by early next week.

The strongest indices continue to be the Dow Jones Transportation Index, the Nasdaq 100, and the Russell 2000. The Dow Transportation alone should raise some caution about calling for a bull market top; it made a new high in May of this year which was unconfirmed by the Industrials but, according to the Dow Theory, by staying well above its January low in this correction, it is not confirming the start of a bear market . Since we cannot decide at this time whether or not we are in a long-term downtrend, let's concentrate on the intermediate term.

The decline currently underway is most likely within a day or two from making a low and reversing. Short-term cycles along with a large cycle are causing this weakness. The shortterm cycles are ready to reverse in a couple of days, and only the type of rally we get from here will tell if the longer cycle has bottomed as well. Most of the time, it makes its low later in July and this would be a little early.

As we will see later on, breadth and sentiment are also telling us that we are near the end of a decline, but not necessarily near the end of the correction which started last year. It could go into the Fall.

There is no question that a good part of the market decline is directly correlated with the rising price of crude oil. We had a small proof of this on Friday when, after crude made a new high and the SPX a new low, a small drop in the oil futures caused a 12-point rally in the S&P. If we are near an important reversal in the stock market, it would be logical to expect oil futures to be heading in the opposite direction.

What's ahead?

Chart pattern and momentum:
From the last newsletter: The fractal similarity of the patterns underscored by a heavy light blue line on the daily SPX chart below continues and is now becoming more and more apparent. There is a good chance that it will last to the very end, since the current decline is anticipated to persist into the end of the month.

The patterns are not exact, but they are certainly very similar, and if we get a reversal at the anticipated time, one will have to wonder if they will continue with a strong rally, followed by another decline. The odds are pretty good considering the cyclic configuration, not only short term, but into the Fall as well. Let's not get into a mind set that the forthcoming rally and decline will be both of similar intensity as the ones which took place late last year. It will be interesting to see if this similarity of patterns continues, but we are not going to base the crux of our analysis on it.

We'll analyze the cycles a little later on to show that it is unclear whether we are only making a short-term low or putting an end to the intermediate trend at this time, but we are at or near some sort of low.

The chart pattern of the SPX makes this ambiguous, as well. Note that since the secondary high at 1440, the decline began at an angle of descent which became steeper as it went along. This created two distinct channels. The red channel contained the price for a while, until it started dropping into the steeper blue channel. The coming rally will probably take the price pattern out of the blue channel, but not necessarily out of the red channel. If we fail to break out of it, this decline could be extended.

The imminence of a rally is signaled on this chart by the position of the two indicators. The MSO is oversold and beginning to show some positive divergence to price as it crowds its downtrend line. The divergence in the A/D indicator is even more pronounced. To signal a reversal, both indicators will have to break out of their trend lines and start an uptrend along with the index. The strength of the rally will be determined by the ability of the SPX to break out of both its blue and red channels.

If the index does not trade outside of its red channel, it may signify that the larger cycle has not yet made its low.

Cycles

There is a cluster of 4 short-term cycles bottoming over the next couple of days. Since they are unlikely to make their lows exactly at the same time, we may have a little bit of base building in this time frame and around this price level before starting a rally. They have been driving prices down with the help of a larger cycle behind them -- the 2-year cycle -- which may or may not bottom at the same time. Since it would be more typical for this cycle to make its low 3 or 4 weeks from now, it could mean that this is only a short-term low to be followed by another later on.

The weakness which has resulted from this decline makes it improbable that we will be ending the intermediate market correction at this time. With the 6-yr cycle bottoming in the Fall, there is a good chance that it will continue until then before a potential resumption of the bull market.

Projections:

The price projections given for the SPX in this letter continue to be accurate. Two weeks ago, when the index was at 1360, I wrote the following:

After the decline resumes, the projection for the new low will be somewhat dependent on how far up this rally goes. Right now, about 1300 looks likely, but if there is a climactic bottom, 1278 or a little lower could be reached.

In the last Week-end Report to subscribers, I re-iterated this forecast:

The red horizontal dashed trend line represents an important support level. It was slightly violated on Friday and, if the index rallies strongly right away, it will probably be a false break. If, however, we go down to about 1304 before rallying, it will represent a more serious violation of that level, and if the 2-yr low comes at the end of the month, it will have triggered a projection zone for that low ranging from 1254 to 1278 with a preferred target of 1263 (horizontal line).

Last Friday, after reaching a low of 1272, the S&P 500 closed at 1278.38, and the target range has been slightly adjusted to 1252-1277. Since the final low may not come until Tuesday, we could dip farther into the projection zone before making a reversal.

Breadth
The McClellan Summation Index has continued to correct and is approaching its former lows. Since the McClellan oscillator is diverging from the price and will probably become positive before long, it is unlikely to go much lower. The RSI also confirms that it is oversold. This is consistent with our expectation of a market reversal early next week.

On Friday, some positive divergence developed in the hourly A/D indicator, signaling a possible reversal to continue on Monday. If it occurs, it is likely to be only a bounce since the favored time for a low is on Tuesday.

Market Leaders and Sentiment
GE is following the financial index which is very weak. There is no sign that either the stock or the index is ready to start an uptrend of consequence at any time soon. Can we continue the bull market without the participation of the financial and banking stocks???

On the other hand, the Nasdaq 100 is still one of the strongest indices, along with the Russel 2000. As long as these two indices remain healthy, I think that we are safe in thinking that this is only a selective intermediate decline and not a bear market. If they should begin to show real weakness, watch out!

There are several sentiment indicators which are calling for a low: The 4-wk moving average of the AAII Bull Ratio has dropped back into bullish territory, as has the Investors Intelligence index. My interpretation of the VIX also calls for an imminent low.

Summary

The decline from 1440 should come to an end within a couple of weeks and make another important low which will probably turn out to be a successful test of the March bottom. The above was written a couple of weeks ago, and we have arrived at what should be at least a short-term low in this time frame. However, the weakness in the Dow Industrials and the financial sector makes it likely that the correction will extend into the Fall.

The following are examples of unsolicited subscriber comments:

What is most impressive about your service is that you provide constant communication with your subscribers. I would highly recommend your service to traders. D.A.

Andre, you did it again! Like reading the book before watching the movie. B.F.

I would like to thank you so much for all your updates/newsletters. As I am mostly a short-term trader, your work has been so helpful to me as I know exactly when to get in and out of positions. I am so glad I decided to subscribe to Turning Points… Please rest assured that I shall continue to be with Turning Points for a long time to come. Thanks once again! D.P.

But don't take their word for it! Find out for yourself with a FREE 4-week trial. Send an email to ajg@cybertrails.com .

By Andre Gratian
MarketTurningPoints.com

A market advisory service should be evaluated on the basis of its forecasting accuracy and cost. At $25.00 per month, this service is probably the best all-around value. Two areas of analysis that are unmatched anywhere else -- cycles (from 2.5-wk to 18-years and longer) and accurate, coordinated Point & Figure and Fibonacci projections -- are combined with other methodologies to bring you weekly reports and frequent daily updates.

“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

You may also want to visit the Market Turning Points website to familiarize yourself with my philosophy and strategy.www.marketurningpoints.com

Disclaimer - The above comments about the financial markets are based purely on what I consider to be sound technical analysis principles uncompromised by fundamental considerations. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point of view which might be of interest to those who follow stock market cycles and technical analysis.

Andre Gratian Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in