Oct 13, 2012

Weekly review

Short term view - I expect positive start of the week 2-3 green days.
Intermediate term view - in a pullback waiting for the bottom in the next week or two.

The deep pullback last week let me doubt in my forecast for a correction in October but this week confirmed the initial plan. There were only one direction this past week - down. This happens often I should trust myself more:)

When I look at the smaller charts I think short term we will see a move up but the market players are still too complacent and we will see one final move lower to shake out the weak hands.

Short term - small divergence on the hourly tells me that wave "a" of the final wave Y is finished and we will see a "b" up. Resistance is at 1450.
I can not say exactly where the pullback will finish the two targets for now are W=Y=1420 and Y=1,618*W=1395-1400. I think the lower one have higher odds but lets wait and see what will happen with wave "b".
Intermediate term - again the two scenarios with preferred target 38,2% retracement. Of course we should be cautious at this point the market can find support at the MA50 and the channel line, MACD is almost at the zero line, the histogram made two troughs - the alternate scenario. Pullbacks have the ability to finish abruptly followed by a strong rally.

Market Breadth Indicators are confirming the move lower showing weakness but nothing troubling and that is the way it should be this not a major top just a pullback. One more sell off to scare the herd will not be bad. This will very healthy for the bulls:)
McClellan Oscillator - showing small divergence confirming the idea for a move higher in the next days.
McClellan Summation Index - still in sell mode, well we are in a correction:)
Weekly Stochastic of the Summation Index - says there still a week or two until this move lower finishes.
Bullish Percentage - not impressed at all.... again a sharp sell off to finish the correction and scare the herd is not a bad idea.
Percent of Stocks above MA50 - in the middle of the range around 50. One more move lower will give a nice buy signal around 25-30.
Fear Indicator VXO - moving higher but still too low. Move to 20 will be a healthier to finish this correction.

CYCLES (TD - trading days)
This daily cycle is getting very long and it should finish soon. The last 20 week cycle was only 61 days long so it is not a surprise that this one lasts longer. You can see the previous two on the chart - the same story 78 days and 106 days.
Waiting for the end of the 20 week cycle and the beginning of the next one which should bring a rally for 2 months into year end.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Last week I was not sure if the countdown or the combo is the right option - well it was the countdown. Currently SP500 at 4 of a setup. The correction is not finished but I am not sure that the bears are strong enough to finish this setup.

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