Jun 2, 2012

Weekly review / Седмичен преглед

Short term view - expect bottoming process to start soon, but we will see lower prices
Intermediate term view - we are near to an intermediate term bottom... it could be next week or it could take another 2-3 weeks. No reversal signs yet.

Last week I said its difficult to predict short term moves when have long weekend, wait for the open. That was right:) the indexes opened higher and the alternate scenario played out. I said also that MACD and the Histogram on the hourly chart look very bad - that was eventually right too:). SPX500 touched 1335, five points from my target 1340, made double top and plunged lower.

This week I do not have short term chart because I have no idea how the next move will look like.
The intermediate term picture - the trend is still down, no signs of reversal but the huge candle on Friday smells like exhaustion and capitulation.
I expect one of the following two scenarios to develop:
- early next week to see lower prices touching support between 1260 and 1250 which is 50% Fibo retracement, strong rally after that and deep retracement into mid June.
- the second one some consolidation with upward bias to resistance ~1292 followed by final move lower into mid June.This one is shown on the chart.
It does not mater which one will play out I think that we will see lower prices but the ~1250 support level will hold. I think we will see divergences on the Histogram and many other indicators which will mark the bottom. The question mark is the time - next week or in 2-3 weeks.
Look at the divergences here - RSI, Histogram, Volume....
The big picture - MACD is nearing the zero line, the indexes a near to a support level and the trend line. Intermediate term bottom is upon us. The duration and size of the following rally will tell us what to expect in the future.

The market breadth indicators are near levels which usually mark the end of intermediate term corrections. There is NO reversal signs BUT..... the message from the indicators is we are near to a bottom. That means - if you are short you should start thinking about taking profits, if you think to take short positions(for longer time) its a little bit too late.
McClellan Oscillator - I think we will see a divergence and that will mark the bottom (as expected according to the plan:)
McClellan Summation Index - the trend is still down, not a surprise it is still too early for a reversal
Weekly Stochastic of the Summation Index - waiting for the next swing up...
Bullish Percentage - in the 40-50 area where intermediate term correction usually end, but be patient there is no reversal signs
Percent of Stocks above MA50 - at very low levels
Fear Indicator VXO - we are nearing the area which usually marks the end of intermediate term corrections 28-30
Put to Call Ratio - we will see here a divergence too, like last year August-October

CYCLES (TD - trading days)
Short term cycles - expecting bottom of the 20TD cycle(probably we saw it on Friday) and the beginning of the next one.
I do not know how it will play out. On the chart is shown the perfect setup the up part of the cycle reaching resistance and then the down part hitting support at 50% retracement. The move of course will not be perfect, but expect some relief move or consolidation followed by another sell off.
The bottom of the next 20TD cycle will mark the end of the intermediate term correction and bottom of the 20 and the 40 week cycles.
The short term cycles are arguing that we should expect the second scenario.
Intermediate term cycles - waiting for a bottom of the 20 and the 40 week cycles in the next several weeks.
The last 20 week cycle lasted longer so I expect this one to be shorter 14 to 16 weeks. Currently 13 weeks so another 1-3 weeks to see a bottom.
After that we should see a move higher for at least 2-3 months.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
The counts currently - countdown at 7(chart is wrong) and combo at 11 on the daily chart.
Two days which make lower lows will finish sequential 9 plus combo 13 on the daily chart and weekly sequential 9 - this is scenario one.
Another possibility is sequential 9 plus countdown 13 on the daily chart - this is the second scenario which will take some time.
On the weekly chart sequential is currently at 8. So any lower low next week will complete buy sequential 9-th bar on the weekly time frame.

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