Strategesis

From Safehaven.com:

On Tuesday 5/24 the SPX started another near-term uptrend from 1312 which reached 1333 by the end of the week. Is there any chance that this rally becomes a legitimate end to the correction? Maybe! Because the 14-15-wk high-to-high cycle is due to top in about a week and, assuming that it is the cause of this rally, and that it will bring about a high and not a low, the upward push could extend by several more points until the cycle has made its high (ideally 6/6). Then, a reversal should take place, perhaps bottoming on 6/13, the date on which the Armstrong 8.6-yr cycle is due.

Using cycles for market forecasting can be helpful, but I have learned to take them with a grain of technical salt, meaning that, based on experience, I take the cycles into consideration, but rely primarily on what my technical indicators are saying; especially when several cycles are clustering in a narrow time frame (like now) — and some of them have a history of inverting!

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From Safehaven.com:

The near-term pattern which is being made by the SPX suggests that the low of the correction may have been 1319, and that a break-out from its corrective channel may be imminent.

This is supported, in part, by the sentiment index which has grown more bullish over the last week, and the charts of GLD and USO which may be ready to start retracing their recent decline.

If the SPX extends its down-move below 1328, it will put the break-out scenario in doubt or, at least, delay it.

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From Safehaven.com:

After reaching its 1370 projection, the SPX started a consolidation process — which is normal. The stock market progresses through a process of accumulation-uptrends, distribution-downtrends, which repeats itself continuously in various degrees over various time frames. Elliott came to the same conclusion when he identified corrective and impulse patterns as the basic frame work of the market. Point & Figure charts give us a much clearer picture of this process than bar charts. In addition, they have the capacity to tell us how much energy is stored in these accumulation and distribution phases, and how far the following move is likely to carry.

Based on a conservative count taken across the 2009 base, the top of the bull market could be as low as 1365, or substantially higher if the liberal count prevails.

Since the index has already reached 1370, we know that the conservative count has been filled, and that we could be at a bull market top. Are we done? Probably not! As the trend develops, there are periods of consolidation which are known as re-accumulation or re-distribution phases that are very helpful at projecting the extent of the next move. Several of these past patterns point to another push higher before we get to the end of the current intermediate trend. I am going to assume that they are correct and that the consolidation which is underway is only a precursor of the next uptrend.

Let’s go to the charts and see if we can find some justification for this premise.

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From Safehaven.com:

Last week, some indices appear to have reached a critical time frame. The dollar may have come to the end of its intermediate decline in what appears to be a selling climax characterized by the heaviest selling volume in five months. Gold also displayed buying climax characteristics which could put an end to its rally and trigger a correction. Both indices exceeded the Point & Figure projections that I had given by a small margin.

Equity indices, or the other hand, do not seem to be as vulnerable yet to an important reversal, but a short-term correction could come as early as Monday. Both the SPX and QQQ are severely overbought on the short-term, with extensive deceleration in their momentum indicators and substantial divergence showing in the breadth oscillators. Combine that with a minor cycle bottoming over the next couple of days, and you have a high probability recipe for a near-term correction. The SPX, however, has not reached its target for this phase of the move, and this may turn out to be only a breather before climbing the next few points to fill its P&F projection of 1370.

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