Sep 21, 2013

Weekly review

Short term view - more to the downside expected, but after a bounce from support level - the breakout level.
Intermediate term view - short term top or intermediate term top? we will know in the next 2-3 weeks.

Lets say "surprise" no taper and that is bullish. If you ask me first 5-10 billion more or less it does not matter and second QE will never stop or the system will implode and everything is just talk. For the bears this is not necessary a bad news, if you expect a top you want to see very bullish sentiment and a great news. Markets top on good news not on a bad news.
On the technical front no surprises - move to the upper channel of the wedge and reversal. The DJIA retraced the whole "great news" and we have nice shooting star on the weekly chart, the other indexes does look so bad for now, so I can not state "definitely we have the reversal" but it is a good start for the bears.

For the next week or two - I think the indexes need to cool off. Than we will see how the move lower will look like and we will know which scenario has higher probability. IMPORTANT there is a scenario that an important top is in and a short trade is very good idea.
The bulls need to win some time to consolidate, some indicators/oscillators to reset from extended levels and no more than 50% retracement.
If you are bear you want to see the opposite prices retracing more than 50%, moving bellow support levels MA50 etc.
Trading plan - the price is still above the break out level and MA50 on the hourly chart and I do not expect it to gap lower and plunge. I expect some bounce and when this bounce is over with lower high or higher high with divergence you have a short trade opportunity with very low risk.

Short term - I expect a test of the break out and another move higher, which should fail. Why a lot of oscillators need to reset and I expect at least a pause.
- Triple cross(EMA10 and EMA20 crossing EMA50) - triple cross is positive and short term trend is up.

Intermediate term - The wedge pattern is working for now. The price touched the upper boundary and reversed. It looks like we have double divergence on MACD. The bulls must consolidate the price and push higher to negate the divergence or a bigger correction will follow.
- Trend direction EMA50/MACD - the price is above MA50 and MACD above zero the intermediate term trend is up. Watch out for MACD double divergence.
- Momentum Histogram/RSI - momentum has turned lower.

Long term - the pattern starts to deviate, but the idea for a topping pattern is not negated. We are in up trend until proven wrong but we continue to watch carefully for a top.
- Trend direction EMA50/MACD - long term trend is up.
- Momentum Histogram/RSI - momentum turned up.

The Market Breadth Indicators - the signals are bullish, but the indicators do not show a lot of "enthusiasm" and double divergences everywhere .
McClellan Oscillator - pulling back from overbought lvels.
McClellan Summation Index - buy signal, but weak and way bellow previous tops... making a double divergence?
Weekly Stochastic of the Summation Index - buy signal.
Bullish Percentage - buy signal, but no "enthusiasm" at all... double divergence?
Percent of Stocks above MA50 - another lower high.
Fear Indicator VXO - higher low and divergence? bad for stocks.
Issues Advancing - no information to help us.
Put/Call Ratio - the traders are very bullish, which usually happens around tops.

I have decided to swap the daily cycle chart with this one. It gives us more information and it is more useful.
We see that there is 40 trading days dominant cycle the size and length of the rallys and pullbacks/corrections.
Where are we stand now? In the middle of the second 40TD cycle of a 80TD(or 20Week) cycle. So according to the cycles 3/4 of this 80TD are behind us and the market should move lower for the next 2-3 weeks to finish it.
Notice how the last 2 moves lower were bigger ans lasted longer than the usual. This is a sign that the bulls are not so strong and the larger cycles start to pull the price lower. So if the bulls are in control in the next 2-3 weeks we will see sideway move pullback which does not make any technical damages - no more than 50% retracement stay above MA50. See the previous cycle tops - small double tops or sideway moves. Based on the previous tops is my bullish projection the green scenario.
If the bulls are loosing control expect the red scenario and deeper correction at least to MA200.

Looking at the smaller cycles I think that the current 20 week cycle is not finished. It should bottom in the next 2-3 weeks around mid October.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
There is no price flip for now... is is suspect that the countdown/combo will be finished.
Bar 2 of a setup printed this week. Look at the top at the beginning of 2011(the first 13 on the left of the chart). Are we there finished weekly countdown followed by minor higher high before a serious correction?

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