Trader's Tips Stock Market Newsletter

Published March 05, 2006

Long Term
February, intra-month, a pullback brought OEX prices down for a test of the January low, before recovering and closing in the upper part of the range and near the open for the month, thus forming another Hammer like candlestick, as seen on this OEX Monthly chart. Since neither the Jan. high or low was broken, an Inside Month was also formed, which reflect market indecision.

The directional breakout from this indecision, (as signaled by a break of either the Jan. high (588.7) or low at 569.4) could set the tone for months thereafter. Since the Wedge pattern is still intact with the OEX making a monthly close up against Wedge resistance and taking the weak underlying technical factors into account, odds are greater the breakout will occur to the downside... and at that point signal further weakness towards Wedge support in the 554 area.

This excerpt from the January issue of the Trader's Tips newsletter still has validity, as there has not been much market change since then:

..."An end to this roughly 2 year long consolidation pattern, will be signaled by a monthly close, either above or below the Wedge, although Rising Wedges usually breaks to the downside. The trend developing after wedge breakouts, can be sharp in nature."...

From an Elliott Wave Principle point of view, a five wave impulse structure from the Oct. 2005 low is still worked on, as the earlier Jan. wave 5 high, probably marked wave 3 only. The advance from the early Feb. low, could be the last wave 5 of this impulse structure and may end this coming trading week. If so, one likely scenario is a significant Triple Top or secondary high coming in May, before a sharp, mid term sell-off could be in the cards.

Five wave structures are also coming to an end in several transport companies. Chart Update ..."The Transport Sector can give clues about the development in the economy. I.e. more activity in transport companies often reflect more activity and orders for companies in general, which is positive for the stock market and vice versa."...

Short Term
Weak underlying technical factors suggests a top of minimum short term degree is forming on the OEX Daily Chart. One example of this underlying weakness is the strong bearish divergence observed on this updated 25 RSI chart. Friday's OEX high came close to the Jan. high but lacked back-up from RSI which made it's second lower peak since Nov. 2005. This smells danger for the market, once the wave 5 top is in place, possibly next week. One more small push to the upside, is not ruled out.

Underlying weakness is also a fact for the New High - New Low Index on top of the long term divergence which started a couple of years ago, with lower peaks vs. new highs in prices since then. Given the magnitude of this divergence, this reveal a lof of what is coming, when the impulse structure finally ends.

The OEX has already entered the time window of the next Gann Angle convergence, (03/02) which may have an impact. A powerful GA is also coming up at the end of the month, with 03/31 marking 90 trading days from the Nov. 2005 high, 270 TD's from the important March 2005 high and 360 TD's since the Oct. 2004 low. The usual technique is to determine the directional trend going into that GA, which portend a reversal in the opposite direction, when the GA is hit.

The 39 Week Cycle is due to bottom out in March.

The QQQQ Daily chart, shows a minor trangle pattern developing right below the old trendline coming in from Fall 2005, which is a stiff resistance area. A downside breakout from the triangle, would indicate a test of the Feb. low & 50% retracement area.

The Nasdaq Comp apparently found support on the cross point of two trendlines, mentioned in the previous issue. Cycle10 is in the early stages of an upside pressure phase. So the upper wedge line could be the target, short term (roughly 2400).

The TYX should break out before the Apex of the two converging trendlines meets. Let's see if the TYX is able to overcome trendline resistance, which should be tested next week. Any upside breakout would fit with the overall technical picture for the stock market.

The Dollar is making a retreat, after a snap-back move towards wedge resistance but is still within a bullish channel from early 2005.

Bullish Investors Intelligence Advisor Sentiment readings have deteriorated, in the face of higher stock market prices, so a divergent pattern is developing.

BPI (Bullish Percent Index)

Other updated charts:

Put/Call Ratio

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    Forex - EUR/USD Currency Pair
    The EUR/USD pair briefly violated the pivot (Hammer) low made 2 weeks ago, before recovering strongly and closing near it's week high. This setup portend even higher rates next week, signaled by a break of this week's high (1.2055). Bollinger Band resistance comes in at 1.2200, if Fibonacci resistance on the daily chart is ignored.

    Here is a longer term chart of the EUR/USD, (last updated 03/03) which also includes an Elliott Wave count as currently interpreted by the Advanced Get software. The Elliott Wave Oscillator is usually good at filtering out minor price "noise" and tend to show true trends.

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