Intermediate term view - I still think that SP500 either toped out or we will see soon an intermediate term top.
The call for a top last week was right and the forecasts throughout the week were right too... the only caveat now is that the retracement is stronger than expected, moved above 1800 and closed near the highs of the day printing huge bar. The bears were killed again and the bulls are cheering.
Positive:
- trend reversal is still not confirmed, the next 40 day cycle has begun, strong move with huge gap...
Negative:
- in fact nothing has changed - we have the same negative signals as for the last several weeks. 30 points lower has not reseted the indicators, scared the herd etc. so that we can think of the next rally.
- If EW matters after 5 wave impulse and a retracement another move lower should be expected.
- The last three weeks SP500 is not advancing the weekly histogram ticked lower and we are seeing reversal candlesticks - hanging man, dragon fly doji and the formations looks like evening star (see the last chart). That makes me think that the index is topping.
Short term - I do not know. H&S, double top,marginal new highs... everything is possible. One strong day does not mean anything, it could be the exhaustion bar which you see around tops. It was missing till now - huge gap and huge bar. They appear short before, short after or at the top(see the daily chart). How to make a difference - if there will be more upside, in the next two days we should see another huge bar, if the bulls can not master a rally in the next two days this is an exhaustion bar and part of the topping process.
Intermediate term - you know what I think - intermediate term top and for the next 5-7 weeks I am bearish. If I am wrong.... the indexes will go vertical above 1900.
How to trade - wait to see what happens. My opinion stays the same - if you see a spike higher or a move bellow 1800 take another portion of the profits.
TECHNICAL PICTURE
Short term - Head and Shoulders, double top, another rally I can not tell you.....
Intermediate term - it looks like topping process to me...
Around tops you will always see a strong move(exhaustion bar) to suck all the traders in kill the shorts. Till now it was missing and the bearish case looks better now.
- Momentum Histogram/RSI - ticked up.
Long term - we have reached the point where the price should decide to follow the pattern, as for the last 6 months, or it will negate it and go parabolic.
- Momentum Histogram/RSI - ticked lower, intermediate term reversal?
MARKET BREADTH INDICATORS
The Market Breadth Indicators - no change. The indicators are negative and do not support the idea for a rally at the moment.
McClellan Oscillator - made lower low for the first time since June. Early warning for a reversal?
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - another lower high expected.
Fear Indicator VXO - spiked higher... I think it started a move higher.
Advance-Decline Issues - continue to show weakness.
Put/Call ratio - the traders are very enthusiastic again
Percent of Stocks above MA200 - continue falling.
HURST CYCLES
I think the second 40 day cycle has begun. Until now the 40 day cycle were fairly symmetrical, now I think the 80 days cycle will be symmetrical and we will see straddled troughs. We are several weeks away from 18 months cycle low and think correction has higher probability than a rally.
The same length and size as the previous 18 month cycle has been reached. From cycles point of view - there is only one direction in the next 5-7 weeks and it is down.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Nothing interesting to show. This is just a closer view of the weekly chart to see the last three weeks.
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