Intermediate term view - more to the upside for another 3-4-5 weeks , we will see.
I was expecting the low to be retested before a strong move higher.... I have never believed in impulse, wave 4, but I was surprised by the strength which we see. It is not an easy marker with sharp reversals.
What we have - corrective move lower (impulse on other indexes and markets) followed by another corrective move higher... strong move, but corrective if you look at other markets it is definitely corrective.
The bullish herd is singing kumbayaa again(great news for us:) and some EW guys, which I respect, expect the next wave lower to begin soon. I think the truth i somewhere in the middle.
I think we have a correction of a bigger degree and there will be one more leg lower before it is over. BUT if you throw cycles and market breadth in the mix I think the current move higher has more to go before it reverses.
Cycles - we have at least 20 week cycle low or it could be even 40 week cycle low. I do not expect to see a turn lower after only one week.
Market breadth - is showing strength and longer term indicators has turned up pointing to a intermediate move higher.
It is not only 1-2 days short covering it is something more. The week closed strong, no signs for reversals. Weekly charts - momentum turned up and the last two candles are bullish. I think we are now in the middle of a wave B or X. SP500 is the strongest index and we can even see a new high for an expanded flat... other indexes which a weaker like DAX for example will make lower high. If I am wrong strong sell off will start next week.... I doubt it but we will watch for this possibility. It is important to keep an eye on scenarios in the opposite direction so you do are not get caught unprepared:). We have FOMC next week. I think we will see a pullback before that, but I do not expect a serious sell off to begin before that. Watch the price action before Wednesday - if it corrective and stays above support 1925 expect FOMC to be a bottom and more to the upside. If I am wrong we should see an impulsive move lower.
TECHNICAL PICTURE
Short term - I expect to see a pullback before Wednesday which stays above 1925 than the move higher to continue(red). If I am wrong we are watching the white scenario.
Intermediate term - SP500 is testing the broken trend line and MA50, so expect a pullback to support/MA200. SP500 is the strongest among the indexes and could even make a higher high for an expanded flat.
Long term - bounce as expected. The short term moves do not change the big picture.
MARKET BREADTH INDICATORS
The Market Breadth Indicators - look at the McClellan Oscillator is not just short squeeze it is strength... and other indicators are turning up from oversold levels. I think we will see several weeks higher.
McClellan Oscillator - two peeks in overbought territory - this is strength. But this means expect cool off.
McClellan Summation Index - buy signal after reaching very low levels last seen in 2011 after the plunge.
Weekly Stochastic of the Summation Index - buy signal. The next swing higher should have begun.
Bullish Percentage - turned up and buy signal.
Percent of Stocks above MA50 - above 50 already.
Fear Indicator VIX - turned sharply lower. I expect another higher low after the current move higher is over.
Advance-Decline Issues - near to the overbought levels... the move higher shows strength.
NYSE New Highs-New Lows - another indicator showing strength.
HURST CYCLES
Given the strong bounce I think we saw the low for the current 40 and 80 day cycle and the next one has begun.
This was a 20 week cycle low and the next one has begun. I think we will see 3-4-5 weeks higher before a reversal.
There is a possibility that this is a 40 week cycle. I am not a fan of this count but we will see.
Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
The countdown has not been finished as I have expected. Now we are at 6 of a sell setup and if I am right (only a pullback) it will be finished.
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