Oct 12, 2014

Weekly review

Short term view - some small waves up and down to finish the current move lower before a move higher.
Intermediate term view - correction of a bigger degree is running. 1-2 weeks relief and another move lower.

Last week was "complex" this one has been just crazy. Till now I have not seen so many reversals in a row. The ugly price action should be some kind of a corrective move. DJ and SP500 are the strongest among the indexes, but look at other indexes Russell2000 DAX they remind me of the tops 2007 and 2011. So I think that a correction of a bigger degree has begun.

What we have:
- A lot of technical damages the weekly charts does not look good at all. The positive - SP500 is near to MA50 weekly, MA200 daily and support zone.
- EW - I think the indexes have already toped out. If you look at DAX, FTSE, Russel2000 and many others the picture looks clear - impulse. DJ and SP500 show some messy price action which should be a corrective wave. The positive -it looks like the move is near its end and should bottom soon than a move higher should follow.
- Cycles - at week 10 of the 20 week cycle(average 14 weeks) and with this weekly chart I would say we already saw the top for this cycle.
- Market Breadth Indicators argue that we are near to a bottom. Some with divergences other at levels which usually mean a bottom.
- Tom Demark - see the last chart monthly, I have already shown it for several weeks the big picture says we have already started a correction of a higher degree.

When you sum it up - overall picture bad, but some signs that we could see a bottom(market breadth, near to important MAs/support) I think we will see soon a short term bottom and relief for a week or two, another sell off and intermediate term bottom followed by the "Christmas rally".
The alternate scenario if I am wrong is some ugly 1-2 1-2 1-2 and series of wave 3 begins which means serious plunge and mini crash. Does not make sense, but in panic mode there is no place for logic and indicators.This is the scenario if the indexes does not find a bottom in the next 2-3 days and SP500 moves bellow 1885.

Short term - a bottom will probably look something like that.... Watch on the daily chart the support levels - 1904, MA200 1905, previous highs at 1897 and 1885.

Intermediate term - At the moment the move does not look finished and there is no signs for reversal. But I think the move lower will find support between 1897 and 1885. The histogram looks oversold. The next move should be retest of the broken trend line and previous support now resistance. Look at how MA50 was resistance many times that is bearish. It should be a resistance for a relief rally.

Long term - The bullish candle from the last week has not been confirmed and we saw bearish candle this week closing at the low. Momentum(histogram) looks bad. The MACD divergences start playing out.

The Market Breadth Indicators - are saying that we should expect a bottom. Some with divergences other at levels which usually mean a bottom.
McClellan Oscillator - multiple divergences.
McClellan Summation Index - sell signal. Pretty oversold levels since 2009 we saw the index at this levels only several times around important lows.
Weekly Stochastic of the Summation Index - sell signal, but in the oversold zone. It is time for a swing higher.
Bullish Percentage - sell signal. The lowest level since 2012. It tells us that this time is different,
Percent of Stocks above MA50 - reached the oversold zone and we see usually a bottom at this levels.
Fear Indicator VIX - at levels which usually mark the end of a correction.
Advance-Decline Issues - divergences.
Percent of Stocks above MA200 - pretty weak market.

With the price action from this week obviously the bigger cycle has topped out. I have adjusted the daily cycle to reflect the change.
I think we saw short 40 day cycle(25 days) and the next one is running at day 15. Another 3-4 weeks lower will look perfect.

At week 10. Several more weeks lower to finish the cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Countdown is running at day 4 at the moment.

I have shown the chart several times. It was flashing warning signs for a long time and now it looks like we have a confirmation that something to the downside has begun - the histogram is bellow the zero line and RSI broke its trend line.


  1. Carnap:
    Congrats to you weekly update. Your are right the on the weekly there is a terminated Sell Countdown and if I had read the signs rightly a bearish price flip has been established and buy set up has started already (candle one).
    Trend exhaustion in correction and in impulse pattern (trend phase) is different and I am studying the situation in case reports actually to examine different rules for correction and in impulse pattern.
    This issue has not been highlighted in a good way by TD. Sure TD Set up only is seeing more in correction patterns while TD Set up and countdown in trend phase. But TD Setup works well for ZZ pattern and combination with small X waves but very lousy for Flat, Combination with large X wave and triangles. In my opinion a tool is needed for more corrective standard patterns. That is what I am looking for.

  2. Carnap:
    If 1918 breaks the second ZZ will beterminated most probably.