Published August 6, 2006
The small gain in the July Consumer Confidence Index (106.5) is the seventh in nine months and has rebounded 25% since the hurricane related low in Oct. 2005.
U.S. payrolls up 113,000 in July, unemployment rate rises to 4.8%, hourly wages up 0.4%.
Chart courtesy of briefing.com
After the OEX Hammer candlestick warnings in March and April, up against strong resistance, weakness in this market brought prices down for a test of Wedge support, as seen on this Monthly Chart. Both the June and July monthly lows were caused by this strong support. However, it's still intact on a monthly closing basis, any breakout from it would indicate a completed wedge pattern and possibly a faster moving market, regardless of the directional breakout. Rising Wedges normally breaks to the downside though.
May was an important time target for a potential top of larger degree, as outlined in the Stock Market Outlook 2006 Report, published in January this year. Time will tell how significant the May high will be, which is still intact with the entry into the Fall months.
The 05/19 weekly Gann Angle and Bradley apparently had an impact on the market, both well in advance showing May as an important month to watch for a trend reversal.
From an Elliott Wave point of view, the May - June weakness looks like a three wave a-b-c zig-zag correction, although an impulse structure is not ruled out either. This weakness resulted in RSI 25 dipping below 40 in June, once again warning about a significant bottom in place. Taking the ongoing recovery into account, the May high must hold to make a wave 2 scenario a valid count, as wave two's cannot retrace more than 100% of wave one, following the EW rules.
Right below the May high level, two trendlines crosses at around 600 (see daily chart) and will be a tough resistance area to overcome. A top forming here is not out of the question.
The OEX is gaining ground after testing weekly trendline support this summer. The potential May wave 5 top of larger degree remains a valid count as a long as that high
is not broken. Weekly Cycle10 is now well into it's sell zone, so odds are good a top will be in place before the May high is reached, thus giving support to this preferred wave count.
Nasdaq Comp closed up against trendline resistance for the week. Given the current Cycle10 upside pressure phase, any weekly close above it, would open up for even higher tech prices, towards the 50% - 61.8% Fibonacci retracement area.
The QQQQ Weekly chart shows prices still within a bearish channel from Spring, this week forming a doji like candlestick up against channel resistance. Doji's often marks turning points, so a resumption of the overall bearish trend is a possibility.
The OEX struggles with the L2 DGL (50% Fib. & Dynamic Gann Level) resistance zone. If overcome, the cross points of two trendlines (605 area) will be the next resistance challenge.
RSI 25 could climb above 60 at that point, warning about a top of minimum short term degree forming.
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Here is the preferred short term wave count for the OEX, as suggested by the Advanced Get software.
The next calculated (daily based) Gann Angle (09/14, +/- 1 day) marks 90 trading days from the May high. This GA number alone is powerful enough to cause trend reversals, without forming convergence with other GA numbers like 135, 144, 180 and 270. Of course, if that was the case, it would just be an even stronger indication of a trend reversal. The OEX directional trend going into it, would point to a reversal in the opposite direction, when this GA time window is entered.
Weekly VIX (Volatility) readings getting close to trendline support, with momentum indicators bottoming out, gives support to the above view that a top is near.
After a two week long advance, QQQQ Daily
has reached channel resistance, with Cycle10 now in the early stages of a downside pressure phase.
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BPI closed at 54.12 Friday. It reached the 45 level at the June low, which was a growing bullish sign for the market, although stronger buy signals occur when BPI falls below 30% and then reverses up by at least 6%.
AAII Sentiment Ratio Updated. See description below the chart.
TYX weekly rates have pulled back from trendline resistance, now resting on the first (38.2%) Fibonacci support level. Any close below it would open up for even lower rates, although the dowside potential would be limited, given the bottomed out cycle10.
The Dollar has reached an important trendline coming in from 2004. If it fails to hold, more weakness towards the 2004 low (81 area) could be the outcome.
In retrospect, the May Hammer really was a warning about a pullback for gold, which fell sharply in June and has recovered a bit since then. Despite the weakness, RSI 25 is still in overbought territory.
OIL is still in a long term bullish trend, with tremendous trendline support still intact. The deteriorating RSI 25 vs. higher OIL prices is still flashing a strong divergence warning though and the observed Ending Diagonal pattern is often found at the end of trends.
Any clear close below trendline support, would be a mid to long term bearish signal for this market, in my opinion.
Or at least a pullback towards first Fibonacci support is expected, if this occurs. These Fib. support levels will be drawn in a future update, in case of a breakout from the bullish trend.
Other indicator updates:
Forex - EUR/USD Currency Pair
The bullish signal (blue dot) generated over 1/2 a year ago is still intact, as of the end of the first week of August.
Weekly EUR/USD rates tested important trendline resistance this week. If overcome, the next trendline challenge is around 1.3040. Weekly momentum should be
in overbought territory at that point, so a top is looked for then. A larger Double Top scenario forming from Spring is not out of the question, given what looks to be a bearish divergent pattern in momentum.
Near term, lower rates are in the cards, as suggested by the early stages of a downside pressure phase in Daily Cycle10 and this week's failure to overcome trendline resistance, which makes the EUR/USD pair vulnerable to fall back for support.
From an Elliott
Wave point of view, the structure developing from the Nov. 2005 low could be the five wave impulse type, with the
wave 3 part of it completed in Spring this year and currently going through a complex wave 4 corrective phase, as seen
on this updated EW Chart. Once a wave 4 is completed, the
last wave 5 of this potential impulse structure should take rates up for a test of the Spring highs.
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