Strategesis

The purpose of technical analysis of market price charts is to a) filter out the cyclical up/down tactical changes in momentum so as to reveal the underlying strategic trend, b) to de-trend the price graph so that only the tactical cyclical changes in momentum remain, and c) to use volume and/or open interest to measure the level of commitment to a price move.

Trading strategies based on technical analysis require taking less risk on trades against the trend (perhaps none at all,) and entering trades when the tactical momentum shifts direction from extreme levels.

That’s it. It’s that simple. The only differences are the mathematical tools used to smooth out tactical cycles of momentum and to de-trend the price data in order to emphasize them.

From Safehaven.com:

Last week, the SPX squandered an opportunity to extend its uptrend. Although it has not yet violated its series of higher lows since 1101 on 8/09, and has a good chance of starting next week with positive action, the odds are stacked in favor of the resumption of its long-term downtrend.

With the 3-yr cycle scheduled to make its low in early October, equity indices are facing an adverse cyclical configuration and, among other negatives, last week the dollar appears to have broken out of an intermediate downtrend. Also, TLT and the VIX are in solid long-term uptrends which may be ready to be extended.

The structure is playing out as a likely wave V for the downtrend which started at 1370. There was a question as to whether wave V had made a truncated low at 1121 but, with the recent market action, it makes more sense to place wave IV at the SPX 1230 high on 8/31, with wave V currently underway. There will be a good rally after the completion of wave V, but not before the index has made a new low — perhaps in the vicinity of 1065 (preliminary target).

On Friday, SPX probably ended its decline from 1204 and is now ready to start a near-term bounce or, it could end on Monday instead. Either way, as we will see on the hourly chart, the short-term indicators appear ready to reverse. Should the bounce develop exceptional strength, the structural analysis would probably have to be revised.

Continued

From Safehaven.com:

The second rally phase of the equity indices ended on Wednesday 8/31at 1231 on the SPX. Or is it the first? It depends on what kind of an analyst you talk to. Some EW experts believe that the decline back down to 1121 was a wave V failure from 1371, and that is when we started a corrective wave up. If it was not, and if we just ended a corrective wave IV, we are heading for a new low. We’ll find out which is right over the next few weeks. What is certain is that the depth of Friday’s retracement has nullified the possibility of the rally developing into an impulse wave for SPX.

In the last newsletter, I discussed the cycle configuration that lies ahead which will most likely determine the course of the market (until early October when the 3-yr cycle is scheduled to make its low). In spite of the current weakness, the trend may soon turn up, perhaps until 9/12 when the 14-15-wk cycle will make its high (assuming that it has not already done so). It will be between that date and early October that the market will be the most vulnerable to make a new low.

My crystal ball for early next week is prophesizing more weakness into about 1165-1158, and then the beginning of another near-term uptrend which could last until that cycle top on the 12th. That date is also interesting from an astrological view point. According to Raymond Merriman, the renowned Financial Astrologer, the second half of September has astrological signatures which could be adverse to the stock market. After early October, we should have a better idea of what kind of market trend we are in. In spite of the recent rally my long-term trend lead indicators have only consolidated and are still bearish. This, and the fact that the intermediate downtrend channel is still intact continue to give the long-term market trend a negative rating.

Let’s illustrate the current market position with charts.

Continued