Aug 17, 2013

Weekly review

Short term view - I expect to see a short term bottom in the next day or two.
Intermediate term view - Intermediate top on 2.August and the indexes are in the middle of a correction now.

Move lower to the 1650-1660 area as predicted, but there is one "BUT":) that happened at the end of the week. The weekly chart looks now ugly, which changes the plan and any move higher should be just a retracement in a corrective move lower.

The daily chart was giving signals that it is nearing a short term bottom and I was not sure if one final high is in the cards. Yes SP500 reached my target and we are near to a short term bottom BUT the situation has changed. The sell off came at the end of the week and the indexes closed near the lows for the week. Now the weekly chart and the market breadth indicators are telling me that we are in a correction. We have bigger time frame(weekly) pointing down and smaller time frame(daily) saying expect something on the upside. The bigger time frame usually wins, but after the signal from the smaller time frame plays out.
In short - we should see short term bottom and move higher, but it should be only a retracement in a bigger move lower.
Why I think that we are near to a short term bottom - SP500 reached support level, MA50, 38.2% Fibo (from June), the histogram reached oversold levels(see second chart), McClellan Oscillator oversold, issues advancing/declining oversold. This usually happens around bottoms.

Short term - there is no signal for a bottom for now. It is difficult to predict what will happen on Monday, but I think that we are near to a bottom.
- Triple cross(EMA10 and EMA20 crossing EMA50) - MACD is bellow the zero line and EMA10/EMA20 bellow EMA50 - short term trend is down.

Intermediate term - I wrote above, why I think that we should see a retracement... now we will wait and see if I am right.
- Trend direction EMA50/MACD - MACD still above zero and prices above EMA50, but with the divergences we have and the weekly chart I would said the intermediate term trend is down.
- Momentum Histogram/RSI - momentum is pointing down.

Long term - no change, the indexes are following the plan. We have MACD divergence and the previous three occasions have signaled for serious correction ahead.....
- Trend direction EMA50/MACD - long term trend is up, but MACD and the oscillators show divergences and we must be prepared for a bigger correction.
- Momentum Histogram/RSI - momentum is pointing down, intermediate term trend is down.

The Market Breadth Indicators - the trend following indicators say for several weeks we are in correction, the oscillators like McClellan Oscillator and Issues Declining are oversold. We should expect reaction.
McClellan Oscillator - oversold bellow 80, but you can always see another day or two of selling.
McClellan Summation Index - sell signal. The market made new high, but the indicator does not reached even near to the previous high warning us for very weak market internals.
Weekly Stochastic of the Summation Index - sell signal. The indicator says we are in the middle of a swing lower.
Bullish Percentage - still above 75, but with huge divergence with the previous high and now with sell signal.
Percent of Stocks above MA50 - at 52, we are in the middle of a correction.
Fear Indicator VXO - shoot up above the bollinger band, usually followed by a rebound in the opposite direction.
Issues Advancing - reached extreme, some reaction expected
Issues Declining - reached extreme, some reaction expected

We are near to 40 day cycle low which confirms that we should expect short term bottom.

The current 20 week cycle toped very early at week 6, which means the 40 week and 18 month cycles are already pointing down. This is consistent with my expectation for a correction of a bigger degree.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
We have price flip on the daily and weekly chart..... shame on me, I have counted wrong the countdown on the weekly chart. It has finished perfect at 13 exactly at the top.

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