Intermediate term view - not sure which scenario will play out.
The indexes are trying to bottom, at least for the short term. No surprise, the question now is - which scenario will play out?
I really do not know and the indicators does not give us an edge. Yes, they are signaling for a trouble ahead intermediate term and maybe long term, but there is no problem to see a new ATH before a reversal.
What to do? We will follow the market and wait for more information.
The bullish case(green on the charts) - SP500 reached support level, 61,8% retracement, the lower wedge trend line, MA50, MACD the zero line. We have deceleration(reg-green-red-green candles), the histogram turned up, bullish candle formation, the cycles are mature and probably a double bottom on the hourly chart. As long as the price stays above 1680 we should be bullish and expect a move toward the upper wedge trend line.
The bearish case(red on the charts) - we have a topping pattern for several months, supported by a lot of divergences on different indicators, bullish sentiment, everybody expecting the next ATH trained like the Pavlov's dog and than happens this one more leg lower - just a bounce and another leg lower. I do not see problem this scenario to play out - no flush to the downside to scare the traders and second the market does not make does what the most are expecting from it. Just watch the 1680 level.(I have posted the chart for two weeks "You are here" was up-to-date now we are at MA50.)
TECHNICAL PICTURE
Short term - 1680 is the line in the sand, as long as the price stays above it we should be bullish. If broken another leg lower to ~1640 W=Y.
Intermediate term - I have explained about the two scenarios, you can see them visually.
- Momentum Histogram/RSI - momentum is trying to turn up, the short term trend is technically still down.
Long term - DJ is very weak compared with the other indexes. I do not see anything bullish if you ask me. Three tops, shooting star followed by two red weeks, the histogram turned lower, MACD is ready to break it's trend line since 2009, the pattern which I am showing for months is working.... if I look at the DJ, I am more bearish than bullish.
- Momentum Histogram/RSI - not clear.... no useful information.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - no change weak but still bullish, oscillators are reseting and double and triple divergences everywhere.
McClellan Oscillator - overshooted the lower BB and a bounce is expected.
McClellan Summation Index - buy signal, but weak and way bellow previous tops... making a double divergence.
Weekly Stochastic of the Summation Index - buy signal... reached the overbought area. No much left to the upside and a lot of room for a move lower???
Bullish Percentage - buy signal, but no "enthusiasm" at all... double divergence.
Percent of Stocks above MA50 - in the middle of the range... every rally is followed by a lower high of the indicator - not good.
Fear Indicator VXO - made a higher low and pushed above the upper BB. Needs to cool off.
Issues Advancing - in the middle of the range.. still have hit a bottom on the indexes??
HURST CYCLES
We do not have an edge at the moment looking at the cycles(or I do not see it:). The short term 40 day cycle and the longer term 20 week cycle are mature enough and its possible that we saw a bottom on Friday. On the other side it will not be a problem to see another sell off for a 2 weeks.
The cycle is mature at week 15.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
The green candle in the middle invalidated the buy setup only for one point and on Friday we saw a price flip. I think we can accept it for finished and short term bottom was hit on Friday. Now we should see at least a bounce higher.
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