From Safehaven.com:
…what happens if an oversold market doesn’t bounce and the selling continues?
The answer: oversold becomes more oversold, and like the overbought market that gets stuck in “overbought”, a new trend is likely to form. In this case, it would be a downtrend. And that is the juncture this market finds itself in.
From Safehaven.com:
Every time there is a correction in the stock market after it has had a good run, there is a lot of speculation that it might be the beginning of an important decline. This is the case again today, especially when there are signs that the economy is slowing down. Last Friday, the unemployment rate ticked up to 9.1%, and the number or jobs created fell to 54K, far below the previous month’s report of 232K, and far worse than what had been anticipated, and this was only one of several negative economic reports.
Since the SPX filled its phase count of 1370 five weeks ago, the indices have been correcting. But there is no technical evidence that the equity indices are at the end of the bull market which started March 2009, or even that it has started an intermediate correction (yet), for that matter! This is what I intend to demonstrate in this newsletter. We’ll look at the weekly, daily and hourly charts of the SPX, as well as sentiment.
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!
From Safehaven.com:
Although the long-term economic trend is contracting, we’re currently passing through a small window within the yearly Kress cycles which began at the end of 2008 when the 6-year cycle bottomed. The bottom of this important cycle lifted a sufficient amount of downward pressure from the financial market to allow for a temporary reprieve in the de-leveraging process which began in 2007 with the credit crisis. The nominal force behind the credit crisis was the metastasis of toxic debt but the impetus behind it was the long-term yearly cycles which compose the Grand Super Cycle of 120 years and is scheduled to bottom in late 2014. The final “hard down” phase of the 60-year component cycle, for instance, began in 2007-08.
With the bottom of the 6-year cycle in late 2008 and the corresponding “good years” of 2009-2011, individuals and institutions have had an excellent opportunity to get their balance sheets in order and expunge debt from their lives as much as possible. The 6-year cycle is scheduled to peak in October this year but as Mr. Kress has emphasized, it’s a possibility that the weight of the long-term 30-year, 40-year and 60-year cycles could end up foreshortening the peaking process before October. It’s important therefore to be prepared for the eventual end of the Fed’s loose money policy and the closing of the 6-year cycle window, the effects of which should be felt within a few months.
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.
From Safehaven.com:
The VIX is calculated by averaging S&P 100 Stock Index at-the-money put and call implied volatilities. The availability of the index enables investors to make more informed investment decisions. Going over the VIX history along with the S&P 100 OEX index it is quite evident that all of the spikes in volatility accompanied market downturns and significant events that affected the market.
(Click on image for larger view)
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.
From Safehaven.com (by Toby Connor):
Despite my bias to see new all time lows in the dollar index, I think the dollar probably put in the three year cycle low last week. Sentiment at the time had reached multi-year lows and as of yesterday the dollar had moved back above the 50 day moving average.
If I’m right then this should usher in the next deflationary period just like the rally out of the ’08 three year cycle low signaled a coming recession, the next leg down for stocks in the ongoing secular bear market, and a collapse of the CRB into its 3 year cycle low.
From Safehaven.com:
For the past two weeks, I have stressed that oil, gold, and the dollar were reaching significant Point & Figure targets. It turned out that these projections were only off by a fraction. Here were the projections, the actual price reached, and Friday’s closes.
Oil (WTIC) Gold (GLD) Dollar Projections 115 153-154 74 (P&F counts) 154-156 Reversal price: 114.88 (5/2) 153.61 (5/2) 72.69 (5/4) Price on 5/6 97.33 (lo 94.77) 145.30 (lo 143.47) 74.92 (hi 74.93) I also had a target of 1370 for the SPX. The high on 5/2 was 170.58, before the correction started. So far, the low for the decline has been 1329.17, and it closed the week at 1340.20.
I am supplying these figures for a couple of reasons: first, to illustrate the immense value of using P&F analysis, and second, to show that these wild price swings may indicate that the stock market is at an important juncture.
Based on the accumulation pattern that was created during the correction into mid-March, there are higher potential P&F targets for the SPX. Also, that correction formed a H&S configuration which has been validated by a clear break-out above the neck line. The normal projection for this H&S pattern closely matches the more liberal count taken across the P&F base.
The pull-back which occurred last week could simply be a deeper than normal return to the H&S neck line. However, the severe corrections in commodities suggest that this is more than a minor consolidation, and it creates some doubt about the ability of the SPX to reach its higher targets.
By the same token, we will see that sentiment is still not suggesting that we are at an important top. This leaves us with a greater than normal challenge to determine the future course of the market. Let’s turn to the charts and see if we can derive some technical clues which will clarify its current position.
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.
Strategesis 