Mar 9, 2013

Weekly review

Short term view - squiggles up an down expected.
Intermediate term view - we should see soon 8%-10% correction.
Trading system signal (swing trading) - Direction: UP | Last entry signal: at SP500=1514 on 01.03.2013 | Stop at: 1523

We saw move up which was the preferred scenario. The upper trend line (now purple see the hourly chart) was touched on Friday. Nothing unexpected... The system still points up. I took profits a little bit earlier because I did not feel comfortable with the market action. What I mean - the market is crawling 2-3 points up per day. That is not because the buyers are strong but the sellers are missing. I have seen this many times and one red day wipes out a week or two gains.

Next week - with all this hype all time highs do not expect the market to revers just like that. It has inertia and it will take time. I hope the SP500 will move lower to support ~1530 which should be another good entry point for a short term trade on the long side.

Short term - SP500 touched the upper line of the megaphone again. There is no bearish signs, but I hope that we will see a drop to support, which will give us another opportunity. The alternate scenario is explosion on the upside. This option has lower probability for me because the market tells me there is no sellers and not the buyers are strong... but who knows.

- Triple cross(EMA10 and EMA20 crossing EMA50) - EMA10 and EMA20 are above EMA50 so the direction is up.

Intermediate term - the trend is still up, but the MACD is showing a divergence, so if I am right we a nearing the correction, which I am talking about for weeks.

- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so intermediate term trend is up. MACD starting to diverge so we must be careful for intermediate term trend change.
- Momentum Histogram/RSI - the oscillators are pointing up momentum is up.

Long term - the plan stays the same correction and one more move higher. I do not think that this is the top for the cyclical bull because the indicators showed strength and major tops form with weak indicators. I have changed the EW labels this wave is longer than the previous one so no ending diagonal. I think we are in Y of Y of Y and the correction will be X followed by one last wave up Z.
P.S. Look at the weekly cycle chart for the long term picture. The cycles are telling the same story.

- Trend direction EMA50/MACD - MACD above the zero line and price above EMA50, the long term trend is UP. Triple divergence on MACD watch this veeeery carefully.
- Momentum Histogram/RSI - the oscillators are pointing up momentum is up.

The Market Breadth Indicators have turned up, but it looks more like they are building divergences and not new highs to confirm the move of the indexes.
McClellan Oscillator - moving higher but it is bellow the previous highs.
McClellan Summation Index - issued buy signal but it look like a divergence is developing.
Weekly Stochastic of the Summation Index - still on sell.
Bullish Percentage - issued buy signal but it look like a divergence is developing.
Percent of Stocks above MA50 - moving higher but bellow the previous top.
Fear Indicator VXO - double bottom or divergence??
Issues Advancing - at last showed some strength but still bellow the previous tops.
Issues Declining - moved lower but it is still higher than the previous bottoms.

The strong up move says that we saw already the bottom of the previous 20 day cycle and now we at day 9 of the next one.

I have decided to take a step back and take a look at the very long term picture. My forecasts were bearish most of the time in Q1 2013 because I was expecting another 18 month and 4 year cycle lows, and the previous two 18 month lows in 2010 and 2011 were very violent - 17% and 21% drops. So I was wrong. We are at week 16 of the last 20 week cycle for a 18 month and 4 year cycle and the best I see is a normal correction 8%-10%. What means that we will hardly see the 4 year cycle low on the chart? That means that we have a dominant 9 year cycle. What are the implications?
- I do not expect violent 15%-20% move lower, just a correction.
- 2013 should be a transition year when the bigger cycle turns from up to down. We should see sharp moves first down and then up.
- The next 4 year cycle probably will not carry the prices much higher. H&S or double top is to expect and the indexes are still working on the first shoulder. So this should not be the top and we should expect one more move higher.
If I compare the move now with the top in 2007 I would say the action now corresponds to June-July 2007 intermediate top, which was followed by scary but short living move lower in August 2007.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Another TD Sequential was finished this week. That is the problem with TD Sequential, you never know if another one will follow. But you can use it as an advantage. The technical analyses and the system say the move is not finished - how long can it go? - another TD sequential.

Last week another setup on the weekly chart was finished. The indexes reached the next level of exhaustion. Lets see if this time the correction will start.

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