Jun 11, 2016

Weekly preview

Short term view - bounce and lower again.
Intermediate term view - lower for a few weeks.

I was wrong about the short term.... yes move lower has started, but I think the pattern which I was expecting zig-zag higher is finished. The SP500 just had very strong first leg than shallow move lower and weak second leg... no chance to ride the second leg and confusion if this is wave 5. Comparing with other indexes I do not think that this is wave 5 and looking at the indicators and market breadth I do not think we will see a short pullback and another move higher.

All three scenarios I see:
- short pullback and another move higher - looking at the indicators, market breadth and the finished TomDemark Sequential 9-13-9 sell count it is very hard to imagine continuation higher.
- this is wave 5 - comparing with other indexes(last chart) and looking at the indicators(second chart) I will give it very low probability. For trading it does not matter because the outcome will be exactly the same like the scenario below.
- finished zigzag higher - looking the price behavior from different angles (TomDemark, Market breadth, TA, other indexes) this is the scenario which looks the best so I will follow this one.

Short said either zig-zag to around 2070 or impulse lower to around the lows from May(looks more likely to me). I suspect a lot of volatility around FOMC and Brexit in the next two weeks... personally I will make trades only for 1-2 days until this events are behind us.

Short term - all scenarios are labeled on the chart. First the move lower looks like impulse which means we will see more to the downside. I suspect bounce before FOMC and another leg lower.
Red is what I follow impulse lower for expanded flat. Yellow labels for finished 5 and impulse lower(the same like red).
What if I am wrong - than we should see one more leg lower to finish a zig-zag around 2070 and the price should turn higher from the support level(green).

Intermediate term - again the scenarios on the daily chart I think it will be the red one. Why I do not think that this is wave v/1 yellow is the behavior of the indicators... even the green scenario has higher probability.
How MACD/RSI behave in a normal impulse-correction sequence - moving higher -> small divergence between waves iii/3 and v/3 -> short move lower for wave 4 -> bigger divergence between waves 3 and 5 -> broken trend line and move lower for the first leg of the correction -> bounce higher trying to test the trend line -> another move lower for the second leg of the correction.
Below you see text book behavior from MACD which points to a running correction despite the new high. The surprise could be higher low and a break of the trend line for the green scenario.

Long term - no change. The bearish scenario(red) is dying slowly - it needs strong reversal for impulsive wave C and 7 weeks already we are discussing zig-zags.

The Market Breadth Indicators - are making lower highs and look more and more like we are at an intermediate term top. Yesterday we saw only 1% lower but the indicators are reacting heavily.
McClellan Oscillator - turned lower below zero.
McClellan Summation Index - lower high with divergence.
Weekly Stochastic of the Summation Index - the only one which have a buy signal.
Bullish Percentage - lower high.
Percent of Stocks above MA50 - lower high.
Fear Indicator VIX - now really reacting to lower prices. This leg lower should show some fear. Expect it between 28-30 for an intermediate term bottom.
Advance-Decline Issues - lower highs.

Day 15 of the 40 day cycle.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
We have finished TomDemark Sequential 9-13-9 sell count which points to a bigger correction on the way. We saw a price flip on Friday which should be the beginning of a move lower.

This is chart of NYSE index. On this charts it looks clear to me where wave 5 is. After that I see two zig-zags with slightly higher high which points to a flat correction. Pullback and another leg higher to 10800-10900 will look very unproportional for expanded flat when we already have a higher high.


  1. The technicals and cycles are starting to look like a bounce will occur in few days, and perhaps the move lower or higher as you indicated. At what point would you look to enter or short the market?