Nov 17, 2012

Weekly review

Short term view - bounce for 3-4 days from oversold levels and another sell off.
Intermediate term view - waiting for the final sell off after a bounce.

So I was expecting some bounce to 1395-1400 and move lower as the next support level is 61,8% Fibo around 1345.... well SP500 made it only to 1390 and plunge to the support level - no surprise.

This whole correction lasts too long and is too deep so I think it is a part of a bigger move as we should see soon the end of the first wave down. I think we saw a four year peak in September and now we are moving towards 18 month and a four year low around the end of January (see cycles chart).
So what I expect - bottom in the next week or two, a rally in December 3-4 weeks and THE low for the correction around the end of January.

Short term - bounce to relief the oversold conditions. Targets are 1370 and 1380.
Intermediate term - a lot of technical damages, broken trend lines etc. But the correction is running for 9 weeks already. The move is too stretched to the downside, look at where the MA50 is. So I think after some work on bottom we will see a snap back rally to MA50 and to test the broken trend line.
New high(red lines/count) is still on the radar but it does not look very promising....

The Market Breadth Indicators are negative no doubt but at levels at which we can see a bottom soon. Of course they can get more negative and oversold:) What I mean is if we see something like a bottom it will be credible.
McClellan Oscillator - hit extremes at 92. Usually when we see such levels a bounce follows - exactly that happened on Friday. I looked back the charts and after such extreme there is a bounce for 4-6 days and that is not the low. There is a lower low with divergence and that is THE low.
McClellan Summation Index - still on sell, that is to expect when the oscillator is bellow the zero line.
Weekly Stochastic of the Summation Index - reached oversold levels, now waiting for a bottoming signal. It can stay oversold for a few weeks.
Bullish Percentage - has fallen to 58. As i have said the pullback morphed to a correction and the indicator is confirming this. Pullbacks stay around the 65-70 levels and correction around 45-50.
Percent of Stocks above MA50 - has fallen bellow 25. At this levels correction usually find a bottom.
Fear Indicator VXO - touched 20 again and reversed. The chart is looking bearish which is in line with my expectation for a move higher in the next days.
Put to Call Ratio - nearing to zone for a bottom.

CYCLES (TD - trading days)
As I have said above the correction lasts too long and is too deep so I think we saw a four year peak in September and now we are moving towards 18 month and a four year low around the end of January. I have changed my cycle count because this one fits much better.
In August the Indexes were moving sideways for 3-4 weeks and that was probably the low of a 20 week cycle which was short and lasted only 13 weeks. now we are in the middle of the next one - week 11.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
At last something interesting after all this noise:)
I do not expect SP500 to close 25 points higher on Monday so we will see a setup completed on Monday that fits perfect with short term bottom and a bounce.
On the weekly chart we have 6 of a setup. I will not be surprised to see a buy setup finished as the indexes need some time to work on a bottom before a snap back rally in December.

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