Jun 1, 2013

Weekly review

Short term view - more to the downside in the next 2-3 days.
Intermediate term view - there is probability that the expected correction has begun.
Trading system signal (swing trading) - Direction: DOWN | Last entry signal: at SP500=1646 on 31.05.2013 | Stop at: 1645

A lot of up and down whole week and then the last two hours on Friday showed that A-B-C was the right choice. The move looks like an impulse and we are in wave 3 which is not finished. That means 2-3 days more downside and target A=C ~1620. Support, MA50 and the trend line are between 1600-1610. So I expect short term bottom between 1600 and 1620.

I was expecting after this pullback another move to the highs - test of the highs or marginal new high... Now on one side the weekly chart does not look very nice with two bearish candles and divergence on the histogram, on the others side a lot of indicators are moving lower rapidly and the McClellan Oscillator for example is already very oversold and when we see such levels some kind of a bottom follows.
My interpretation - expect short term bottom in the 1600-1620 area and deep retracement before a plunge for two weeks to lower levels. The charts are updated accordingly.

Short term - looks like impulse and we are in wave 3. Target is between 1600-1620 before short term bottom. On Monday we should see confirmation with a red day.

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

Intermediate term - I moved the target for the correction a little bit higher. Looking back in the history(the three marked areas on the weekly chart bellow) - the correction was 38,2% Fibo retracement around 7% move lower. For the current move that means ~1550. We must admit that this move looks stronger and parabolic compared to the others so we should suggest that a deeper correction is possible. A deep correction is 10%-11% and 50% Fibo point to ~1520. So I will watch the 1520-1550 area for the end of an intermediate term correction.

- Trend direction EMA50/MACD - the price is above EMA50 and MACD above zero so the intermediate term trend is still up.
- Momentum Histogram/RSI - momentum is down.The histogram is bellow zero and RSI broke its trend line but it is still above its support line.

Long term - the bigger picture has not changed. We have bearish candles and momentum pointing down - histogram lower bars with divergence, RSI tested its broken trend line and turned down(see cycles weekly chart). Expect more downside in the next weeks.

- Trend direction EMA50/MACD - price is above EMA50 and MACD above zero so the long term trend is up.
- Momentum Histogram/RSI - momentu pints down and we have histogram divergence so we can expect something on the down side for several weeks.

The Market Breadth Indicators - all issued sell signals saying we should take this move serious. But there is no evidence for a major top.
McClellan Oscillator - in oversold territory outside the bollinger band and we should see short term bottom soon.
McClellan Summation Index - in sell mode since last week confirming the move lower.
Weekly Stochastic of the Summation Index - issued sell signal, there is high probability that the correction has already begun.
Bullish Percentage - issued sell signal but still strong. This is the reason why I think that this is not a major top.
Percent of Stocks above MA50 - dropping rapidly, high amount of stocks is moving bellow MA50.
Fear Indicator VXO - after higher lows and a tight bollinger band a sharp jump was expected. We should see higher high to confirm that this time the correction is for real.
Issues Advancing - broke bellow its support since November confirming that a significant amount of shares is moving lower.
Issues Declining - broke above its resistance since November confirming that a significant amount of shares is moving lower.

The shorter cycles are not very clear and I will concentrate on the longer ones - and they say the 80 day nominal cycle(~40 trading day) cycle has topped and the indexes should move lower in the next 2-3 weeks.

The 20 week cycle probably has topped and we should see sharp move lower into 20 and 40 week cycle low.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Tom Demark sequential is not very helpful in the last several weeks....

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