Trader's Tips Stock Market Newsletter

Published April 18, 2010
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Short & Mid Term Update

To share with you a few interesting market observations after this week's close, the weekly S&P 500 prices have now reached the 62% key Fibonacci zone, calculated from the 2007 - 2009 decline. 60 - 70% of the time, in any time frame, the markets wants to reach this important Fib. level, before making a reversal. So the odds in favor of a top have increased. The OEX is at the mid point between the 50% and 62% retracement level though but this week's close came up against a trendline coming in from the Dec. 2008 peak.

S&P 500 weekly chart

Here is also a few other technical reasons why the markets could soon roll over, with weekly trendline support as a minimum downside target. In general, weekly RSI 25 readings above 60 often alerts of market tops soon to be formed. In fact, this week a S&P 500 reversal type of candlestick formed up against the key Fib. resistance area, on heavy volume. This, in addition to it's down close for the week, reflect distribution and institutional selling going on.

The first down close in 7 weeks also resulted in a Cycle10 reversal, which has been in a positive cycle pressure phase since mid February, apparently catching a large chunk of the price trend from the Feb. low. So any break of the week low at 1186.77 (OEX 542.52) would further increase the odds of a top in place.

OEX weekly chart

Growing fear among traders and investors is also observed, as the daily VIX (Volatility) chart shows a breakout from a near term falling trend. A test of the upper channel line is not ruled out in the coming days.

VIX daily chart

As for an update on the Elliott Wave Principle count, despite further delay caused by the break of the January high, (stop out level) the overall advance from the March 2009 low is (although extended) still viewed as a Primary degree wave 2 scenario finally coming to an end, if not already so, as the 62% is a typical retracement for wave 2's in general. This wave count remains firmly intact until the Oct. 2007 high is taken out.

Any clear break of OEX weekly trendline support would most likely confirm a top of minimum mid term degree in place at that point. If it holds, more price oscillations to the upside within these two converging trendlines could be the outcome but possibly not taking out the current high. In the OEX, these two trendlines will meet in mid July, so a breakout ought to occur before that point in time.

The lower degree waves from the March 2009 low traces out a likely w-x-y-x-z looking pattern but who knows for sure... it could also be a large a-b-c pattern developing. In the bigger picture it's not that critical to be 100% correct about the lower degree waves, as long as we know the market still trades below the Oct. 2007 peak and if larger trendline support fails to hold at some point, the valid wave 3 impulse scenario to the downside simply can't be ignored.

Below is also a re-trained Nerual Net and updated weekly OEX signal chart, which turned bearish after the close for the week. The previous Long signal was generated in mid February. The Neural Networks used is from the Sidekick Edition of the Stock Assault 2.0 software.

nn signal chart

For more charts and also more frequent market updates than this casual email newsletter can offer, check out the web page which is usually updated every weekend, if not out of the office.

Best Regards,


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