May 18, 2013

Weekly review

Short term view - up until 1646 is breached.
Intermediate term view - up until we see signs for anything else.
Trading system signal (swing trading) - Direction: UP | Last entry signal: at SP500=.... on xx.xx.xx | Stop at:

Nothing really to write about in the last several weeks up is up. Everything was in place technical indicators, market breadth indicators, cycles, market behavior... and instead the begging of a correction we saw parabolic move higher. I wrote that if a correction does not start soon we will see euphoria stage and something between 1650-1700 - well we are in the middle of it.
Fast walk through the blogs show that the most people see only up,up,up. What I have read - it is 1995 and several years rally will follow(my opinion we are in secular bear not in secular bull), we are in 3 of 3 of 3 up to 1900-2000(show me an impulse since 2009, that it is not serious), this is an inflation pop to 2200-2300(really? why gold is moving lower and the USD higher?).
I think we are in an euphoria stage, but there is more upside. It takes time, the sentiment will not reverse abruptly, the history seem to support this(see the long term chart my forecast). We will know who is right(I or the supper bulls) at least after 3 to 6 months. In fact it is not important who is right or not, it is important to make some profits. My mistake was to concentrate too much on analysis and logic and I have forgotten to follow the system. There is such moments with serious disconnection between analysis and trading, but there is no parabolic phase which makes sense.

The plan for the next week(s) and months is simple to follow the market. Trading - follow the system and ignore logic that is the most important. Analysis and forecast - is shown on the long term chart it will be nice but not important to be right. Important and nice will be to make some profits. Short term - before seeing the price bellow 1646 forget about something bearish and I think that any drop in the next week or two should be bought.
Intermediate term - before seeing the price bellow 1500 the forecast for higher high stays the same.

Short term - I have no idea about the short term. Just watching the last minor support level around 1646. If it is broken probably a bigger pullback will start. If this happens the price will move bellow the trend line and EMA50 too so the odds are high that a pullback 40-50 points is really under way.

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

Intermediate term - any drop should end above MA50 and the trend line and at least one more move up is to expect before significant correction, even if it is only retest of the high or minor higher high. For a subsequent correction we will think when the time comes.

- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so the intermediate term trend is up.
- Momentum Histogram/RSI - momentum is up.

Long term - In my previous post, I have wrote about similar rallys for the last two bull markets. The chart shows these two occasions and what happened after that. My forecast without looking back the charts was:
- first - the markets do not top on strength and after correction to expect higher high.
- second - such long lasting rallys exhaust the bull, there is too much greed and it burns its energy too fast. After higher high a significant move lower should start.
The history seems to support my view so I do not see a reason to change it. Do not forget that this is a weekly chart and the markets topped in the first occasion 9 months later and in the second occasion 6 months later. On the chart is marked and the top in 2010. Notice that we had long rally, correction and higher high - similar behavior. Notice the MACD divergence in all three occasions too. So focus on the intermediate term - correction probably in June and higher high. It is way too early to be bearish.
- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so the long term trend is up.
- Momentum Histogram/RSI - momentum is up.

The Market Breadth Indicators are all in buy mode. Yes the swing is mature most of them are in overbought territory, but still there is nothing to worry about. Only the McClellan Oscillator shows serious divergences in the last two weeks. Probably a pull back should be expected.
McClellan Oscillator - serious divergences, a pullback should be in the cards.
McClellan Summation Index - in buy mode.
Weekly Stochastic of the Summation Index - buy signal, but in overbought territory already. The swing is mature, but several weeks before a top are not a problem.
Bullish Percentage - buy signal, nothing to worry about.
Percent of Stocks above MA50 - strong at 93, nothing to worry about.
Fear Indicator VXO - I think it is making a rounding bottom. It will probably jump higher after a pullback and make higher low with divergence when the indexes make higher high in June.
Issues Advancing - in the last weeks the index is advancing but the advancing issues are declining. Time for a pullback?
Issues Declining - in the last weeks the index is advancing but the declining issues too. Time for a pullback?
Put/Call Ratio - Option players are extremely bullish again, bu the tops follow several weeks later. That is my view too.

At day 21 it should turn lower soon... but who knows.

Another week higher 12 in the 20 week cycle.... If there is a correction it should not last long 3-4 weeks. This should be a 40 week cycle low and another strong rally should start.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
It is not worth posting a chart... setup,combo,countdown one after the other.. even on the weekly chart, really crazy. There is no point to look for an exhaustion on the daily chart in this environment with TD Sequential.
A lot of setups,combos,countdowns... Another setup has begun in April currently at 4. Combo from the previous setup has finished and the countdown is at 8. It is difficult to predict if they will be finished before a correction. For now the answer is yes.

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