Apr 6, 2013

Weekly review

Short term view - more on the upside next week, all this is part of the topping process.
Intermediate term view - I think that the correction has started - expect at least 4-6 weeks move lower.
Trading system signal (swing trading) - Direction: DOWN | Last entry signal: at SP500=1562 on 04.04.2013 | Stop at: 1566

We saw the squiggles on Monday and Tuesday follow my forecast and then the price broke bellow the last minor low and EMA50 on the hourly. The break was tested which was a nice opportunity for an entry on the short side. Overall the forecast was good enough for trading:)
A note about trading - it is much better when you trade such amount, so that you can take part of the profits - 2 contracts for example. There will be all the time situations, when you are not sure if the prices will continue moving higher/lower when they reach support/resistance. At such point it is a good idea to take some profits. No guessing and wondering if you right or wrong book some profits and you sleep well not worrying that you can stay with empty hands.
This week we had two such situations. On Tuesday the prices reached the upper channel at 1573 and I knew that there will be something to the downside, but with 1 contract and chasing bigger move if you are wrong you can end with nothing. On Friday huge bar lower 1 point shy of support than 3 hours and no follow trough at all - booking profit is not a bad idea.
This week as an example trading with 2 contracts - first trade on Tuesday take 1 contract profit at the upper trend line (I even wrote that you can take profits:) 12 points, second trade on Friday no follow trough for hours take profit 1 contract that is around 1547 or 15 points. Overall 27 points profit if you book part of the profits and holding the position... nothing:)

Ok is this the top or could it be just another pullback followed by a rally? Everything is possible - the indexes are still in the channel and above EMA50 on the daily chart so we must be cautious until we see confirmation. Statistically we should expect an intermediate term top and correction - the current swing is already a little bit bigger and longer than the average one and we had already two pullback along the way. The technical indicators and the market breadth indicators does not look good so I think that a top and correction have higher probability.
I think we will see a-b-c up (Friday was a) followed by a move lower which should break bellow the last minor low 1538,the trend line and EMA50 on the daily chart(see the second chart). Than buy the dip crowd will appear and we will see another lower high probably testing the broken trend line. After that the final move of the correction which is the strongest should follow. See the previous tops - this one will not be exactly the same but similar.

TECHNICAL PICTURE
Short term - the move bottomed 1 point shy of the support level 1538 and is 1 point shorter than the first drop:) I think that the move lower has bottomed and a new one to the upside has started. It should be a part of the topping process and should stay bellow resistance at 1564. As always the exact path is difficult to predict but the next week we should see pressure on the upside.

- Triple cross(EMA10 and EMA20 crossing EMA50) - short term trend is still down but I expect upward pressure and crosses again next week.

Intermediate term - we saw the first cracks but still there is no confirmation for bearish move - close bellow the last minor low 1538. You can see on the chart that the price is still in the channel and above EMA50. Look at the previous tops - I think that the indexes are still in the middle of a topping process and there will be up and down. The last phase of the correction will be the violent move lower and that will happen when the price break bellow the channel and EMA50.

- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so intermediate term trend is still up, but we have MACD divergence which warns us for troubles ahead. When the price break bellow EMA50 and MACD bellow zero beware of violent move lower.
- Momentum Histogram/RSI - momentum points lower.

Long term - the idea stays the same expect correction but this is not a major top. Momentum on the weekly chart has turned lower - RSI and Histogram.

- Trend direction EMA50/MACD - MACD is above the zero line and the price above EMA50, the long term trend is UP. No divergences so I think that the cyclical bull is not over.
- Momentum Histogram/RSI - has turned lower which warns us for a correction.


MARKET BREADTH INDICATORS
The Market Breadth Indicators - look very weak for weeks and support the idea for some kind of a correction. The McClellan Oscillator and some oscillators look oversold so again w should be still in a topping process and we will see up and down moves for a while.
McClellan Oscillator - did not react to the sell off on Friday which confirms that we should see more on the upside a-b-c
McClellan Summation Index - no change, we have a divergence and a sell signal.
Weekly Stochastic of the Summation Index - issued sell signal.
Bullish Percentage - we have a divergence and a sell signal.
Percent of Stocks above MA50 - we have a divergence and a sell signal.
Fear Indicator VXO - divergence the indexes should move lower.
Issues Advancing - made lower low but nothing impressive the real correction has not yet begun.
Issues Declining - still quite... we have not seen jump in the number of declining issues, which hits that we are still topping, and the real correction has not begun.


HURST CYCLES
Currently at day 12 of the 20 day cycle. It topped out at day 9 which is earlier in the cycle suggesting that a corrective move has begun. I think that the top of the bigger 40 day cycle was on Tuesday. Translated - the current short term move up should be an a-b-c corrective move making lower high followed by a move lower into the 40 day cycle bottom.

At week 6 of the 20 week cycle. Again I think the 40 week cycle is dominant and the current 20 week cycle should top earlier.
P.S. There is an one year cycle which is not a Hurst cycle, but it is very consistent since 2009 - we see tops in April and bottoms in June. Looking at the technicals and the Hurst cycles it fits perfect and I think that this cycle will not disappoint us:)


Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
We have a price flip and 3 of a setup which confirms that the momentum shifted to the downside. I doubt that this setup will be finished. Usually the first part of a correction is very choppy and I think that this setup will be negated next week.

Nothing interesting - I doubt that the countdown will be finished before a correction.

2 comments:

  1. krasi, did u get a long signal today for your trading system?

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    Replies
    1. Yes, but would wait for a pullback.

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