Feb 8, 2014

Weekly review

Short term view - we should see topping early next week and the sell off to resume.
Intermediate term view - the correction to continue another 2-3 weeks.

I was expecting a final low on Monday and relief rally... technically ok but the huge bar on Monday surprised me. The pattern has changed and now I do not think, that we have an impulse lower, instead the move looks more like a zigzag. I have suggested that this is an exhaustion bar and short after that we should see the bottom so I hope you have not been fooled to short on monday,took some profits and even took long positions.

The facts are - we have finished zigzag, bullish weekly candle (the huge drop from Monday is erased), sharp rally from support/trend line, the cycles 20 week/18 month could be considered finished, the minimum requirements for a correction are met time/price/indicators. All of this was enough to trigger short covering and late bulls jumping on the "next rally".
What I do not like so I can say the correction is over - 18 month cycle low with only two red weeks... in previous occasions the move lower lasted longer, we saw several corrections 4%-5%-6% through 2013 and this one should be of a bigger degree 8%-10%, sentiment is still at elevated levels the herd has not been scared at all, other indexes are much weaker and the move up is corrective, the August 2007 comparison saw strong rally too and just reversed, if you think this one is strong think twice - 2007 3 days/80 points/5,6% now 3 days/55 points/3,1%.

I like to trade facts/signals and not my expectations/forecast:) I do not like the current situation when facts and forecast point in different directions so I can't and I don't want to tell you what will happen.... we should be open minded now.
I still think that there will be another leg lower, but without confirmation I will not go against the market. I will wait the next several days to see what happens. If the market wants to move lower we should see topping Monday-Tuesday and the week should finish in the red leaving the weekly hammer without confirmation. If the market takes a breath Monday-Tuesday and end the week in green moving above MA50 and resistance 1810 than expect at least the highs to be tested.

P.S. On the charts is shown the forecast.

TECHNICAL PICTURE
Short term - the zigzag is wave W now we are in wave X. Monday Tuesday we should see small pullback 10-15 points another move higher which should stay bellow 1810 and than reversal.
- Triple cross(EMA10 and EMA20 crossing EMA50) - short term trend is up.

Intermediate term - EMA50, resistance and the broken trend line will be tested and the next leg lower should start.....
- Trend direction EMA50/MACD - intermediate term rend is down.
- Momentum Histogram/RSI - momentum turned up, short term trend is up.

Long term - we saw bounce near MA50, another green week will confirm the hammer and that another rally higher has begun.
- Trend direction EMA50/MACD - the 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 points down, intermediate term rend is down.


MARKET BREADTH INDICATORS
The Market Breadth Indicators - no signs of a reversal for the intermediate term, the oscillators have warned us to expect something on the upside so the rally is not surprise.
McClellan Oscillator - was mildly oversold,dropping outside its BB so some relief move was expected.
McClellan Summation Index - sell signal.
Weekly Stochastic of the Summation Index - sell signal.
Bullish Percentage - sell signal and dropped bellow 70 which is a warning that probably this is a correction of a bigger degree.
Percent of Stocks above MA50 - touched 25 where usually corrections end in a bull market. Ar least relief rally and we will see if the correction is over.
Fear Indicator VIX - reached 21. For the whole move in 2013 when the VIX reached the 20-22 area this was the end of a correction. It's not are surprise to see such reaction from the traders - they are not scared enough.
Advance-Decline Issues - have not move lower enough to say we have oversold condition... it looks premature the correction to end now.
Put/Call ratio - made a historic low bottom and now it is pulling back, but I do not see fear...

HURST CYCLES
The move is long enough and mature enough so we can have a 20 week cycle bottom. We do not have an edge at this moment using cycles.

18 weeks is long enough and technically we could have 18 month cycle bottom. The rally was strong enough too for a start of the next 20 week/18 moth cycle. I do not like that the move lower was only 2-3 weeks. The previous three 18 month cycles the move to the bottom was bigger and lasted longer. We can only wait and see what happens.


Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
On the daily chart we have price flips up and down all the time. That makes the probability for a corrective structure lower(zigzag not an impulse) much higher.
On the weekly chart we have the next bar 3 from a buy setup.

5 comments:

  1. Nice objective analysis

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    1. Well I have learned my lessons the hard way trading emotions and my analysis and it was a catastrophe... This was the reason to start the blog.
      Now I wait for the market to confirm. I could be right this time, but the next 2-3 times I will be wrong and the net result will be negative. It is not worth trying to be smarter than the market.

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  2. Very hard to know what's going to be happened this week....

    1) We may see the index topping around 1811-1816 and resume the dropping again...
    2) Or the index retrace back to 1770 level and bounce back, possible another ATH at 1859.......

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    Replies
    1. Now it is guessing game like in the casino.... I prefer to step back and wait for a pattern with higher probability.
      The most important in such situations is not take a side so you can trade what ever it comes....

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    2. I couldn't agree more for your point :-)

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