Signals

Short term signal: DOWN
Intermediate term signal: DOWN
Comment: we have a strong reaction higher, but the price is still testing MA20 and MA50. I would enter long trade if a see corective move lower with higher low.

Expected behavior for:
- sell off resumes - sharp move lower should begin
- the move higher is not finished - choppy reaction lower

Levels to watch SP500:
- 1640 61,8% retracement X pink?
- 1624 the gap - 50% retracement X pink?
- 1598 is now support
- 1582-1585 support, must hold if the low is in.
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Levels to watch Xetra DAX:
- 7870-7840 - is support for the short term move down
- 8040 - is first resistance to the upside
- 8070-8130 - the gap/strong resistance/MA50



On the weekly chart I am posting for months that before a significant top we have acceleration phase(which is not "THE TOP"), correction, a rally to new highs and topping for a while. We had this behavior before the top in 2007 and before significant tops in 2010 and 2011. I wanted to see if the same pattern repeated in 2000... the answer is YES. I think that it is all about psychology - before the top the bears give up, everybody jump on the long side which causes strong rally, the bull burns its energy, the herd can not understand that the party is over which causes the new high and the smart guys need to offload their long position which causes the topping process before the reversal.
When we talk about psychology - I was asked once about gold after the first sell off... than I explained about psychology, that the first sell off is not the low, it is followed from a rebound and another sell off to lower low which should be the bottom. So if you interested in GOLD the bottom fishing can begin:)

Note - acceleration phase is not just a strong rally, it is all about time. Usually a rally lasts from 2-4 months than you have a correction. Rally lasting 5-6 months or longer without correction is indication for too much excitement, the greed can not be cleared, the bull burns its energy too fast which leads to a significant top.
Now why I post this chart - do you see the correction? It is 1:1 with my green scenario. I have no prove that the green scenario will play out, as I wrote it is more feeling... but I find the fact interesting and we will have a road map if it is the real deal:)

Weekly review

Short term view - one or two red days and up again
Intermediate term view - I am not sure if the intermediate term bottom is in.

This week the markets has followed my plan again moving higher and testing MA50, but compared to last week I have to change it a little bit:)

The move higher takes too long, we have green week, and the intra day charts show that we have corrective action, which means we are not finished to the upside. If I am right than we have two scenarios - one very simple the correction is over and the second complex correction which is still not finished.
- the correction is over - we had a simple zig zag W-X-Y(red count on the hourly chart), Y=W, 7.5% correction (perfect between 7% and 8%), just 5 points shy of 38,2%, exactly the same development compared to the previous occasions of such strong rallys(see the weekly chart)
- complex correction - the red count is just part one or wave W pink(see the hourly chart) of something bigger and we are now in the middle of wave X pink.
It can sounds confusing, but the trading plan is simple - buy the dip as long as it stays above 61,8% Fibo or the 1582-1585 range.

TECHNICAL PICTURE
Short term - the action is corrective and after one or two red days the move up should continue. The line in the sand is 61,8% Fibo - the 1582-1585 range.

- Triple cross(EMA10 and EMA20 crossing EMA50) - no clear direction.

Intermediate term - I am not sure which scenario has higher probability. My feeling says the green scenario, the logic(the indicators) are more favorable for the red one. I will just follow the market and not think too much:)

- Trend direction EMA50/MACD - the price have tested EMA50 and MACD is bellow the zero line - the intermediate term trend stays negative.
- Momentum Histogram/RSI - momentum is short term up, but the histogram is still bellow zero and RSI is testing the 50 level... not strong enough for now.

Long term - no change, corrective move and higher high expected.

- Trend direction EMA50/MACD - the long term trend is up.
- Momentum Histogram/RSI - momentum is pointing down, intermediate term trend is down.


MARKET BREADTH INDICATORS
The Market Breadth Indicators - do not help us much to decide which scenario is in play. They favor probably more the red scenario.... the interpretation can be ambiguous - I can say we had enough action to the downside and correction is over or one more push is missing.
McClellan Oscillator - moved to positive territory, which can be the correction is over, but it could be "every time when it moves to -100 it moves back above the zero line" but the correction is usually not over....
McClellan Summation Index - still on sell, does not help us much.
Weekly Stochastic of the Summation Index - sell signal. Reached oversold territory the usual behavior is expect reversal in the next 1-2 weeks.
Bullish Percentage - sell signal... does not moved to the usual levels for a correction 40-50...
Percent of Stocks above MA50 - just 2 points shy of 25%... the correction could be over or not...
Fear Indicator VXO - touched 22... the correction could be over or not...
Issues Advancing - the divergence warned us for a reversal... he correction could be over
Issues Declining - the divergence warned us for a reversal... he correction could be over


HURST CYCLES
If the green scenario plays out the count stays the same. If we see the red scenario developing than we have saw already 20 and 40 week cycle bottom.

The same story here we will see how it develops to adjust the 20 and 40 week cycle bottom.

Tom Demark SEQUENTIAL AND COUNTDOWN - this technique spots areas of exhaustion.
Nothing interesting - 3 of a sell setup on the daily chart and 3 of a buy setup on the weekly chart.