Sep 1, 2012

Weekly review

Short term view - with the long weekend it is difficult to say if the index will move first down and than to new highs or straight up to new highs. The open on Tuesday will tell us more which option will play out.
Intermediate term view - I expect a new high followed by intermediate term top.

Three weeks later there is no surprises - SP500 made new high as expected and started a pullback. In previous posts I have mentioned two targets ~1415 and ~1425, SP500 touched the upper line of the wedge at 1426 and reversed. 1426 is also the level where W=Y=97 points. After that the index should have begun a topping process. Everything worked perfect for months and 1426 should have been the top but the move down from 1426 looks corrective and very weak. It looks like a pause before moving higher so I think that 1426 is not the top and we will see one more higher high before an intermediate term top.
As I say many times trade what you see not what you want to see:) so I will not call a top when I do not see bearish signs.

Short term - SP500 is moving in a range for several days. If it breaks below 1398 we will see a-b-c ending around ~1385 where the trend line is. If it breaks above 1415 the move up will begin with target the upper trend line 1450-1455.
Intermediate term - the move lower looks corrective. I expect new high around 1450 where the trend line is with divergence on MACD.

Market breadth indicators are weak but no extremes or divergences to warn us that the top is in. McClellan Summation Index has sell signal but this is still not confirmed from price. Staying bullish but cautious.
McClellan Oscillator - is negative but no extremes or divergences. The weakness reflects the pullback nothing more.
McClellan Summation Index - issued sell signal and we have double top but there still no price confirmation.
Weekly Stochastic of the Summation Index - in sell mode too... decent correction should start soon.
Bullish Percentage - still in buy mode reaching the upper boundary of 70.
Percent of Stocks above MA50 - bellow the overbought level of 75 probably we will see a divergence after the next high.
Fear Indicator VXO - hit the lowest level under 13 for the whole cyclical bull market since March 2009. The market players are complacent. Probably we will see a divergence after the next high.
Percent of Stocks above MA200 - this chart shows the weakness of this rally. SP500 made new high but only 67% of stocks were above their MA200 compared with 78% the last time.

CYCLES (TD - trading days)
The firs leg lower 28 points marked the low of the 20 day cycle which lasted 21 days. The next one has begun, currently 6 days. I expect another 4-8 days on the upside before the high for this cycle. After that we should see a sharp sell off into the bottom of the 20 week cycle between the end of September and the first half of October.
The bigger picture - the 20 week cycle lasts usually 14 to 20 weeks. The current one is already 13 long and mature so the upside should be limited and a significant correction should start soon. After SP500 makes its intermediate term top the rest of the year should be negative because all bigger cycles point lower. This 3 month rally started with the beginning of the last 9 month cycle in June and it should be soon over.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Another 9 setup finished as expected. Probably we will second countdown/combo before the move is over.

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