Apr 13, 2013

Weekly review

Short term view - probably retest of 1575 break out.
Intermediate term view - probably short living correction 3-4 weeks in Mai.
Trading system signal (swing trading) - Direction: UP | Last entry signal: at SP500=1560 on 08.04.2013 | Stop at:1565

I have warned last week that we can expect something on the upside because the price is still in the channel and above EMA50... well I did not obey my system, which gave long signal on Monday and missed the move waiting for a pullback.

Everything what I follow - technical analysis, market breadth, Tom Demark Sequential, Cycles says we should see correction, but price action does not confirmed this... not yet. And we are trading the price so we should follow it. Watching the smaller times frames there is no signal for a top just a pause before another move higher. Intermediate term direction stays up, short term we should see another move lower to around ~1575 support, 38,2% Fibo retracement and EMA50 on the hourly chart.

The current move is maybe last blow off to trap most of the traders, but for that to be the case I want to see a top next week. Probably test of the previous top around 1575 marginal high above 1600 with divergence. The swing is lasting already too long and the size is bigger than an average swing. Simple - we have the expected correction soon or something else is going on. Something else could be euphoria stage - indexes move higher with some set backs for 2-3-4 days ~20-30 points along the way. In percentage term the indexes will not move much higher ~5% something like 1650-1700 but imagine the euphoria..... all time highs,the market will never correct, fed will not allow the market to go down, this is new secular bull market,this time is different. It sounds bullish but it is not. Corrections let the market bleed an balance the greed. This is good for a bull market. Euphoria sucks in too much capital too soon and prematurely burning out the bull advance. Euphoria stages end in tears and if this is the case after a top probably in June expect very sharp and deep sell off ~15% more than 200 points.

Short term - the move which started on Friday afternoon looks corrective but not finished. So the short term we should see positive start on Monday and another move lower to test the previous top around 1575. The alternate scenario is the indexes just continue moving higher - somebody surprised?

- Triple cross(EMA10 and EMA20 crossing EMA50) - short term moving averages and price above EMA50. Short term direction is up.

Intermediate term - I think we will see another higher high next week, but the double divergence on MACD says just marginal new high to kiss my trend line for good bye:).
When... if:) the correction starts the price will flirt for a while with the trend line and EMA50 before move lower for 2-3 weeks.

- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so intermediate term trend is still up, but we have double MACD divergence and we must be careful. When the price break bellow EMA50 and MACD bellow zero beware of violent move lower.
- Momentum Histogram/RSI - momentum is positive.

Long term - the idea stays the same expect correction but this is not a major top. DJIA RSI made new record high above 78 for the bull market. That is very extreme for a weekly chart. We had four such occasions and the result was twice very deep counter trend move and twice correction 9%-11%. It will not be different this time. Stretching into euphoria stage is not very healthy for a bull market.

- 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 - momentum is positive but stretched, RSI making record highs for the bull market.

The Market Breadth Indicators - not really excited about the rally, this is not something new this is for months. The indicators are levitating at their upper range. Only the McClellan Oscillator jumped above the zero line currently at 2.... not really very strong.
McClellan Oscillator - jumped above the zero which is no surprise it was at oversold levels.
McClellan Summation Index - no change, we have a divergence and a sell signal.
Weekly Stochastic of the Summation Index - still on sell.
Bullish Percentage - moved above EMA10 but we have another lower high another divergence... for now.
Percent of Stocks above MA50 - jumped above 75 but made another low high and double divergence now.
Fear Indicator VXO - still showing divergence but nothing serious.
Issues Advancing - in the middle of the range there is not really many stock advancing which means the rally is not really broad based.
Issues Declining - in the middle of the range there is enough stock declining, underneath the surface there is weakness.

Such move should be the begging of a new cycle and I think we saw the bottom of 40 trading day cycle. The alternate scenario is we saw bottoming longer than usual 20 day cycle. Currently at day 5 of the next cycle so there is at least several days more upside expected.

At week 7 of the 20 week cycle. I think the 40 week cycle is dominant.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Posted monthly chart very interesting and import to mention is that all time frames will complete combo synchronously.

As expected the setup lower was negated and we have now 12 of a combo. Next week after higher high it should be finished. We have 8 of a countdown and if the move just continue higher expect the 13 countdown to be finished.

We are seeing 12 combo on the weekly chart another higher high next and it will be completed and I think we will see this 13.

I do not pay much attention to very long term charts because my trading horizon is short and today playing with the monthly chart, I realized that this is a big mistake:)
First look at MA20 - simple and easy, you know if you are in bear or bull market and it is usually support/resistance through the whole bull/bear market. At the moment the market is way too far from MA20 expect a snap back to the moving average. Bullish case sideway move for several months so the moving average can catch up with the price.
I am not very good with EW it is more for fun... my two cents the market is ready for the next X wave. If you measure the size of the moves for the second light red W (the current move since Oct 2011) the first rally to April 2012 is 348 points, add them to the bottom in June 2012 and this is 1614... we are veeery close to the target where A=C. Of course this is monthly chart and it could last 1-2-3 months before we see the top. Another steep drop will scare the shit out of the central bankers and if they continue trying so desperately to save the current system at all costs, and there is no doubt about that, I think the bull can surprise us with one more leg higher into H1 2014.
Tom Demark - amazing how good the counts work:) This month we have setup and combo finishing and countdown at 12. We have the same situation like before the big red X - setup+combo an second setup within the combo. Time for the next X?
I know we saw many setups/combos/countdowns come and go for the current move an the price just continues moving higher and higher.... I think this time is different:) The strongest signal is when the counts at all time frames start completing synchronously at the same time. Now look at the daily,weekly and monthly chart - wow next week we should see setup+combo finished on all time frames. It might not be this month, but X wave of a bigger degree should be around the corner.

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