Jul 27, 2014

Weekly review

Short term view - choppy down up down, a lot of news FOMC GDP NFP....
Intermediate term view - pullback for 2 weeks.

I was expecting one more high for 3-5 days to finish intermediate wave 3 and that is what happened no surprises. Now I am curious if my next forecast for a pullback wave 4 will be right:)

My forecast is for a pullback wave 4 targets 1925 or 1900(see second chart).
Last week I wrote why we should see a top using different approaches EW/Cycles etc. Now I will try to explain why the move lower should be only a pullback:
+ Cycles - we saw another right translated 40 day cycle with top late in the cycle which hints that we should see another higher high.
+ EW - when I watch the SP500 and DAX chart I see missing wave 4 and 5 intermediate term.
+ Market breadth - tells me we are in a correction for a while... McClellan Oscillator and Weekly Stochastic of the Summation Index for example hit already oversold levels. That is not the way usually the corrections start. Such behavior is common for corrective moves against the trend.
+ The price is above MA50 and MA200 - it will be very rare to see the price just plunging trough the moving averages. This could happen if we saw some kind of exhaustion huge bars up... but the indexes are just crawling higher for the last several months and topping process has higher probability.
- Weekly chart - huge divergences MACD divergences which could lead to a sharp correction 10% or more
I see only one reason for something bigger than a pullback... even if this is the case, the mistake will be in our favor so I do not worry about that:) We will just watch the price action and decide if we should adjust the forecast.

I think that something to the downside has begun because the price action looks like an impulse, the candle formation looks bearish, double MACD divergence, we are late in the 40 day cycle. I am wrong if on Monday the price gap higher and move above resistance 1982(first chart).
Next week should be choppy - we have a lot of news FOMC / GDP / NFP, the first impulse lower should finish on Monday, correction mutate very often, the corrective moves begin weak and choppy next week we should see wave A and B.... so I do not think I can give a good forecast for the short term, rather we should adjust it on daily basis.

Short term - my best guess is one more push to finish an impulse than a retracement for the beginning of the week.

Intermediate term - MACD broken trend line and double divergence - something to the downside has begun. Two support areas are visible 1925 support/trend line/38,2% Fibo and 1900 support/the lower trend line/50% Fibo.
The surprise will be if we see only 23,6% Fibo retracement to around 1950 and MA50... but it is possible.

Long term - I do not think that any move higher will clear the MACD divergence and start another long lasting rally. I think the next big move will be lower, but it could last months until we reach this point. Do not fall asleep, double MACD divergence on the weekly chart means expect something nasty...

The Market Breadth Indicators - are telling for a while that we are in a correction and I think the price will follow in the next days. But such behavior is common for corrective move against the trend.
McClellan Oscillator - bellow zero for a long time, correction is running.
McClellan Summation Index - sell signal
Weekly Stochastic of the Summation Index - sell signal and already in oversold territory.
Bullish Percentage - sell signal.
Percent of Stocks above MA50 - in the middle of the range, correction is running.
Fear Indicator VIX - making higher lows and warning us for a reversal.
Advance-Decline Issues - this time the cumulative chart - for the first time for a long time we see a divergence... come on bears:)

Day 30 the cycle it is time to see the downward phase of the 40 day cycle. SP500 toped even later in right translated cycle so I expect another higher high after the pullback.

No change - waiting a few more weeks and the top of the 40 week cycle.

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