Oct 12, 2013

Weekly review

Short term view - more upside expected after short living pullback.
Intermediate term view - intermediate term will be more clear in week or two.

As I wrote the traders was not scared enough to see a bottom, but three day push lower has done the job. FOMC nailed the reversal... again, why do we use other indicators when FOMC is always the reversal point:) The week did not give us the answer which scenario will play out... will just follow the market and with the strong move from the bottom SP500 will probably make ATH for DJ it is not sure.

The two scenarios which I see are - more bullish one we saw 20 week cycle low and another 3-5 weeks higher probably to 1800 before significant correction, more bearish this was just 20 day cycle low and this move will not last very long before it reverses. How to make the difference - there is more upside in the next days but the bearish scenario should top around 17 or short after that. If this move keeps moving higher the week after next the bullish scenario has higher probability. See the daily and cycle charts how the two scenarios should look like.
I am leaning more to the bearish scenario because I think important events(the debt ceiling) does not happen in the middle of a move rather they are top or bottom, the big boys use them to buy cheap/sell high and after months of a topping process am skeptical of the indexes blasting higher for a month or two.
Of course I can not prove or guarantee this so we should stay bullish but cautious until we see evidence for something bearish.

Short term - more upside probably after short living pullback... I do not see a reversal in the next 2-3 days.
- Triple cross(EMA10 and EMA20 crossing EMA50) - triple cross up the short term trend is up.

Intermediate term - the lower wedge line was breached and we must exclude the candle's shadows to redraw it again, but I think it was fake break out. Green the bullish scenario and red the bearish one. The MACD divergence does not look good. Even if the bullish scenario plays out I think we will see another MACD lower high and significant correction will follow.
- Trend direction EMA50/MACD - the intermediate term trend is technically up, but be very cautious watch the MACD double divergence.
- Momentum Histogram/RSI - momentum has turned up short term trend is up.

Long term - MACD is struggling not to break its trend line... the bulls should master strong rally to negate all divergences.
- Trend direction EMA50/MACD - ong term trend is up - the price above MA50 and MACD above zero.
- Momentum Histogram/RSI - momentum is trying to turn up...

The Market Breadth Indicators - are not very helpful at the moment. The big picture says the same - multiple divergences the indexes are topping.
McClellan Oscillator - moving up after oversold levels.
McClellan Summation Index - sell signal with double divergence.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - sell signal with double divergence.
Percent of Stocks above MA50 - another lower high?
Fear Indicator VXO - another higher low and double divergence?
Issues Advancing - nothing interesting.

Here are the two alternate scenarios. We can not say which one is the right one, or I do not know, I am not an expert:)

The first chart the bullish one - we saw 20 week cycle low and move higher for several weeks should follow.
What bothers me with this scenario - you have the first two 20 week cycles moving higher, the third one moving sideways making the transition from up to down for the 18 month cycle and than the last 20 week cycle moving up again!!??!! It does not make sense at all... move now to the weekly chart it continues there:)

On this chart the 20 week cycle does not look finished. You can say we have very short 40 day cycle or we have 20 day cycle several days longer than the average one. If I go back through the chart I see both cases occur equally often..... and I can not say which one is more probable.

Now look back the previous three 18 month cycles - even with the very strong bull market, which we have since 2009, the last 20 week cycle was always down twice really very hard 15%-20% down and ones milder but 9 of 11 weeks down. Why the difference? - the first two 18 month cycles have started very strong, moving higher and higher with no correction, that leads to too much greed and such moves finish with sharp correction, which is very common in a bull market. The third one was interrupted twice from corrections and was moving more sideways - no excessive greed. Compare with the current one which case do we have? Why should this time be different?

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Nothing interesting on the daily chart price flips on both directions. The weekly chart is interesting the setup is still in tact at 5 now. If the bullish scenario plays out it will be finished and we should follow it closely.

No comments:

Post a Comment