Jan 25, 2014

Weekly review

Short term view - short relief another lower low before more significant pullback.
Intermediate term view - intermediate term correction for 4-6 weeks.

I was expecting an intermediate term correction for a long time. The move stretched in time, but if you look at SP500 weekly chart for the last 9 weeks SP500 has not advanced a lot, it was at 1800 in mid November. The bulls freaked out and guys like me suggesting a correction is coming looked like idiots for two months:) Now with one day two months are wiped out...
I have not nailed the top, but that is not so important. I have posted a warning on 17-th January to be careful not to be caught on the upside, that the DAX topped out and probably the top for the most of the indexes is behind us, on Thursday to expect something lower to 1830 or 1820 and on Friday to short bellow 1820. So if you read carefully you should not hold the bag now and even made some money.

I do not think that the move lower is over. As I wrote huge bars appear at the end of a move exhaustion or at the beginning igniting buying/selling. I think the move has just started. Based on cycles it should last 4-6 weeks. Based on sentiment(too much greed) and the furious way it has begun I will bet on sharp sell off which usually purge the greed and punish the herd. Such sell offs are short living because they are moving too fast - fear is stronger emotion than greed.
Short term - you do not see a low when there is maximum fear(and yesterday feels like that) so I think we will see soon relief move up because of seller exhaustion and another lower low.
Intermediate term sharp correction for several weeks - second half of February early March.

Short term - the low where you see a lot of fear is usually not the bottom... expect a relief move up and another lower low. In EW terms we are in wave 3 expect waves 4 and 5. I do not know if 3 is over and it is not important(if you shorted at 1820 as I wrote) the next tradable move is to short wave 4.
- Triple cross(EMA10 and EMA20 crossing EMA50) - the short term trend is down.

Intermediate term - Intermediate term correction has begun. Close bellow MA50 and the middle trend line.. very bad for the bulls. I think we will see a move to the lower trend line 1625-1650. The market breadth indicators and the divergence on many indicators support such development.
- Trend direction EMA50/MACD - the intermediate term trend is down, the MACD divergence is playing out.
- Momentum Histogram/RSI - momentum is down, short term trend is down.

Long term - the topping process was aborted, final blow off move and now is time for a correction.... too much greed for too long.
- Trend direction EMA50/MACD - long term trend is up - the price above MA50 and MACD above zero. There is scenario that this is the top for the bull market, do not worry there will be a second chance to get out of longs/load on shorts.
- Momentum Histogram/RSI - momentum is down, intermediate term trend is down.

The Market Breadth Indicators - were flashing red flags for the intermediate term for a long time now we see the price breaking lower and confirming the weekness. For the short term VIX and the McClellan Oscillator overshoot their BB and relief move in the opposite direction is expected soon.
McClellan Oscillator - we had divergence for a long time you should not be surprised. Now it is way bellow its BB so expect something in the opposite direction in the next day or two.
McClellan Summation Index - turned lower, no sell signal but it a matter of time.
Weekly Stochastic of the Summation Index - in overbought territory soon a sell signal will follow. Plenty of room to move lower.
Bullish Percentage - the strongest drop since May 2013. This time we will see a correction....
Percent of Stocks above MA50 - huge plunge, there is still room to the downside. We should see the indicator moving bellow 25 before this move is over.
Fear Indicator VIX - huge spike up... it needs time to calm down.
Advance-Decline Issues - multiple divergences, so you should not be surprised from the move or if we see a correction after more than a year only up and up...
Put/Call ratio - coming down from the moon:)

The short term cycles behave as expected... the last move up was shorter and smaller compared to the other ones, the current 20 day cycle broke bellow the low for the previous one... all this are signs that the cycles of bigger degree have topped out and the indexes should move lower for a while. Looking at the previous 40 day cycles 47/46/46 another 17 trading days or 3-4 weeks lower will fit perfect.

I was expecting the top of the current 20 week and the 18 month cycle for a while. The cycle have been stretched, but now everything falls into place.
Now let's look at the cycles - this should be a 18 month cycle low so the move lower should last several weeks at least. What happened the previous three times(18 month lows) - every time you have a topping for several weeks or longer and real sell off so to speak. The corrections from the top lasted 10/23/9 weeks and the sell off for 5/4/6 weeks. We have our topping, SP500 has not advance at all for the last 4 weeks and the sell of has begun so I expect another 3-5 weeks correction.
From another angle - the average size of the 20 week cycle is 14 to 16 weeks and we have several extended cycles 20/20/23. I do not think the correction is over so another extended cycles means another 4 to 7 weeks. Too much greed is purged with sharp correction. I think 7 weeks are too much so I will bet on something like 4-5 weeks.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Well this time the combo nailed the top..... no comment needed:)


  1. Hai Krasi, do you think 02/10 would be the bottom for a rally once before the crash?tq Krasi.Gbu

    1. I think another 3 weeks minimum which is mid February...