Stock Market Updates – Charts & Commentaries July 2016

S&P 500 Daily

NYSE A/D line | Put/Call Ratio | McClellan 21 EMA |Carlucci (?)
NYSE Summation Trend: Daily | Weekly | Sentiment
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07/29 
Long term, updated monthly charts shows key stock market indexes making a July close above important resistance and into all time high territory.

I.e. the S&P 500 broke out from a Triangle pattern but failed to close above a trendline coming in from the 2000 top. At the same time, monthly RSI-25 is forming a clear bearish divergence vs. prices. As the chart shows, major tops in the past occurred with a similar technical set-up as observed now.

With this in mind, the Bull trend underway from the February low is best interpreted as a last wave 5, as part of a five wave impulse (one degree higher) wave c from the 2011 low. When it has reached it’s ending point, it could also finally end a Cycle degree pattern from the 2009 low.

For the long term Bear camp, it’s crucial that Volatility – VIX monthly finds a floor on the major support area it’s most likely to test again in August. A convincing monthly close below it, could be good news for the Bull camp.

If S&P 500 trendline resistance is overcome in August and also able to enter (above 2,187.5, closing basis) the earlier discussed 3/8th – 5/8th MML range , it could mean this market is going for another test of the major monthly L3 DGL (Dynamic Gann Level) which was tested several times in 2014 & 2015.

So the question is, beside the price action and wave development, is a major topping phase supported by other technical factors? Well, A/D monthly div. continues to flash a warning. On the other hand, the New High – New Low indicator actually backed up this move to new all time highs, so some mixed readings here.

Long term momentum reached an overbought extreme in July but without any severe bearish div. as i.e. seen around the 2007 major market top.

The Dow Transport Index continues to trace out a huge bearish divergence vs. the Dow 30. In addition, it struggles to overcome major trendline resistance on the daily chart.

Long term Sentiment is facing strong trendline resistance this Fall.

So odds favor a several months long stock market pull-back starting sometime this Fall (seasonal weakness).

The Bond market – TLT monthly formed a Doji (indecision) looking candlestick up against tremendous long term resistance in July, with RSI-25 at the same time reaching mildly overbought readings. This market could turn south long term, with higher interest rates as the outcome.

This is also indicated by TYX monthly – 30y T-Bond Yield touching lower Wedge support in July, with a ‘bullish’ div. observed in RSI-25.

Real Estate – REIT monthly broke above trendline resistance in July. The next higher resistance area is up around 1,906. Despite it’s 600 points higher compared to the 2007 top, RSI-25 has failed to overcome it’s 2007 peak.

After going through an a-b-c (weekly chart) upside corrective phase since Feb. 2016, Light Crude monthly is heading lower in what could be a wave 5. This is a revised wave count, indicating even more trouble ahead for the oil market.

The Feb. 2016 low was probably the end of wave 3 only, not a wave 5 as earlier labeled. The reasoning is the three wave looking pattern from the Feb. 2016 low. The first leg of a major new Bull trend should start in a five wave impulse, not in three waves.

The close near the low in July, could mean more weakness coming in August, at least intra-month. As the weekly chart shows, key Fib. support is down around the 36 level, where a rebound could start.

The Oil index – XOI monthly is still trading within a bearish channel from 2014, so the outlook for Oil continues to be bearish at this point.

Both Spot Gold – Gold monthly and the XAU – Gold & Silver Index could face some weakness soon. Gold has reached important trendline resistance and is probably finishing the first wave a of an a-b-c zig-zag pattern to the upside. So i’m looking for weakness in wave b.

The XAU has nearly reached first Fib. resistance, any reversal candlestick forming up against this resistance in August, could mean a pull-back is coming thereafter. Any monthly close above it, would indicate a further advance towards the 50% retracement level.

After a brief dip in June, Junior Gold Miners index is again underway towards it’s next higher target, around the 54 level. Any clear close above it, could open up for even higher prices thereafter.

The Buck – USD monthly formed a Shooting Star candlestick up against trendline resistance, so a pull-back is likely in August. Support comes in at the 92 level.

As for a few popular stocks, Apple monthly is trading within a Triangle pattern. The directional breakout from it could set the tone for this stock, in the months thereafter.

After it found wedge support in June, Google monthly is pushing higher and is probably going for a test of stiff upper wedge resistance. The bullish trend for this stock is intact as long as it trades within this wedge.

Mid term, the OEX weekly is getting quite overbought and seems to prepare for a pull-back. Support is down at the old broken trendline, in the 935 area.

Short term, as the S&P 500 hourly chart shows, the long standing consolidation phase has established a sideways channel, which often gives excellent trading opportunities, with entries done in the direction of the breakout from it. Any downside breakout from it, would signal weakness towards the first support area, around 2,141.

S&P 100 BPI (Bullish Percent Index) daily Sentiment chart.

The Neural Net System is Long on the OEX weekly.

07/22 
Below are a few observations after this trading week:

The market is in a (upside biased) consolidation phase, as better seen on this S&P 500 hourly chart. Any break below channel support, would increase the chances of a near term top in place. RSI is making lower highs vs. higher highs in hourly prices, which is often a warning sign.

Volatility – VIX daily failed to break through the major support area, as mentioned in the previous update. Re-test coming Monday.

The Dow Transport Index pulled back from major trendline resistance. It’s likely making another attempt to overcome it early next week.

Overbought Weekly Momentum has reached levels where many mid term tops have formed in the past. Once a bearish mode is seen, minimum downside potential would be the old broken trendline (OEX 935, S&P 500 2,139 area) which now acts as support instead.

If it fails to hold, first Fib. support comes in around 2,105, if Wednesday’s high holds. If broken, this Fib. support level will be adjusted.

On the daily chart i’ve labeled 3 possible wave scenarios, with a five wave Impulse from the Feb. low still being the preferred one.

But because of the three wave looking pattern from the June low, an alternate view is that this could also very well be the last wave e of a complex a-b-c-d-e expanding triangle pattern we’re dealing with, which in turn could soon terminate a larger degree wave c from the 2011 low.

S&P 100 BPI (Bullish Percent Index) daily Sentiment chart.

The Neural Net System is Long on the OEX weekly.

07/15 
With the market at all-time highs, the charts below reveals what is really going on under the surface, as investors are withdrawing money from equity funds at record pace, reflecting a flight to safety.

It’s mainly global central banks asset purchases (to their highest levels since 2013) which have driven the stock market to all-time highs. This is also indicated by the below average Volume readings observed throughout this advance to unchartered territory.

 

So the question is, how high can this market go before a peak is seen? Well, i can’t predict for sure the effect of intervention on this market but i.e. BPI Sentiment is once again reaching major resistance soon.

Volatility – VIX daily can also give us a clue here, as long standing major support down around 11.7 must be clearly broken on a closing basis, before the horizon is clear for significantly higher stock market prices.

If this occurs, then the market may want to enter the 3/8th – 5/8th Murrey Math trading range (2,187.5 – 2,312.5). This range is normally difficult to enter, but once entered the market trades within it roughly 40% of the time, according to the MM theory. I’ll come back and draw the 3/8th MML on this chart, when/if the market goes for a test of this 2,187.5 level, sooner or later.

The Dow 30 is also at all-time highs but not so for the Dow Transport Index which has reached major trendline(s) resistance. Until this stiff resistance is overcome, i think the upside potential for the stock market is limited.

The Transport index often gives a true reflection of economic activity and it has gradually deteriorated since the Fall 2015, in the face of higher stock market peaks since then.

Near term, with RSI-2 now heading lower from an overbought extreme, a minimum pull-back could be towards the broken trendline which now acts as support instead (2,137 area). If this support gives in, the next lower support is the first Fib. level at 2,103, better seen on this S&P 500 hourly chart.

The Bond market ETF – TLT weekly made a pullback this week after reaching major trendline resistance. Based on the EW structure, this market could be peaking long term and with it, higher interest rates could be the outcome.

This is also indicated by 30y US T-Bond Yield – TYX monthly likely forming a large Ending Diagonal (Falling Wedge) pattern, which will be confirmed completed, sooner or later, with any upside breakout from this wedge.

That breakout (monthly closing basis) would be a hard technical signal that much higher interest rates are coming, with the major trendline coming in from the 80’s as a first possible target.

If a Pin reversal bar is formed at lower wedge support after the July trading month, that would signal an advance towards upper wedge resistance, in the coming months.

A potential much higher interest rate doesn’t bode well for the stock market long term, as it would attract investors to alternative positions like cash, especially if the nearly longest bull market in history finally rolls over soon.

S&P 100 BPI (Bullish Percent Index) daily Sentiment chart.

The Neural Net System is Long on the OEX Weekly

07/08 
A better than expected jobs report (278,000 Estimate: 173,000) was the catalyst for the Bulls to lift the market beyond the June high and once again testing the + 2/8th MML (Murrey Math Line) as it did several times in the Spring & Summer 2015, before heading lower.

A zoomed in version of Friday’s price action can be seen on the S&P 500 hourly chart

But the big boys didn’t participate in Friday’s party, as revealed by the below average daily Volume reading (or summer holidays effect?). And with the market again in Triple top territory from 2015, a close look at i.e. Breadth & Momentum tells that market trouble could be in the cards soon, of minimum short term degree. Below is my reasoning:

The Bond market, here represented by the TLT weekly ETF, is facing major trendline resistance next week. With a pullback likely and in turn higher Yields as a result, this could contribute to a lower stock market.

Prices climbed above the June high, the daily 10 MA A/D line did not, so a bearish divergence is again forming, like it did in April, warning about the price weakness we saw thereafter.

Volatility – VIX daily is reaching a strong floor Monday. If it holds, the higher fear outlook would put pressure on the stock market.

Put/Call Ratio readings are now at levels where many short term tops happened in the past.

A double bearish div. is seen in the daily NYSE Summation Index trend indicator vs. higher peaks in prices. The weekly div. indicates mid term price weakness as well.

Similar development is seen in the 21 EMA McClellan

From an Elliott Wave point of view, as long as the market is trading below the all-time high, there is still a tiny chance that the advance from the early 2016 lows is a wave 2.

Any break of the all-time high would finally exclude this wave possibility and instead clear the way for several other likely wave counts:

One wave possibility i’m looking at is a five wave impulse structure from the February low in it’s last stages, which is supported by the bearish RSI divergence now showing up in the wave 5 part (from June low) of this price structure and also by the general underlying weakness in Breadth etc.

This wave 5 could then complete a one degree higher wave 5 from the February low and possibly with it, a Primary degree wave C from the 2011 low.

This bigger picture chart shows the labeling of this alternate wave count. As seen on the same chart, the bearish outcome for this count is supported by the strong monthly RSI-13 bearish divergence.

Another, quite bullish scenario suggests a brief wave 2 correction ended at the June low, with the first leg of a wave 3 now underway to the upside.

Despite the strong jobs report, i’m more in doubt about this one, as i assume it would need a more healthy underlying condition to propel the market so far into new all-time high territory. Anyway, it’s a valid wave count which can’t be ignored at this point.

For an example of an underlying weak condition, FCX – Copper & Gold vs. S&P 500 is flashing a warning sign for the stock market. Only time will tell for sure though, i could be wrong, some outside forces could once again be the fuel for a potential wave 3.

Junior Gold Miners GDXJ weekly is soaring and blasted through it’s 45 target, closing at 49.41 this week. The next higher resistance level is roughly at 54.

Light Crude Oil is taking a dive again, breaking below trendline support, which could mean the a-b-c corrective move from the early 2016 low has ended. Key Fib. support is down around the 36 level.

S&P 100 BPI (Bullish Percent Index) daily Sentiment chart.

The Neural Net System is Long on the OEX weekly.

07/01
Because of the strong and deeply retracing advance from the June low, the weakness from the June 08 high was apparently an a-b-c correction and not an impulse pattern underway. This was confirmed when an overlap of the June 16 low occurred and with it, negating the wave 3 possibility.

If the market is able to break above the April & June highs, this could in fact mean this a-b-c correction was a wave 2 as part of an ongoing five wave impulse pattern from the February low, which could lift the market to new all-time highs, sooner or later.

But until the April & June highs are broken, the market remains in a vulnerable position. Friday’s Hammer candlestick up against trendline resistance, along with an overbought RSI-2 indicates a pullback coming, near term. Likely support levels are drawn on the S&P 500 hourly chart.

Strong Volatility – VIX daily support comes in at the 12.5 level and an even stronger floor is down around 11.7.

S&P 100 BPI (Bullish Percent Index) daily Sentiment chart.

The Neural Net System is Long on the OEX weekly.

 

06/10
The market is currently in a triple top formation from May 2015. As seen on the S&P 500 hourly chart prices broke out from a bearish Rising Wedge pattern Friday and finished the first ripple wave i or a, as part of either an a-b-c zig-zag or five wave Impulse structure underway to the downside.

So once a wave ii (typically retraces to 50% or 61.8%) now most likely underway to the upside has reached it’s termination point, the market should once again head south, possibly sharply, as a wave iii or c are the sharpest in the Elliott Wave Theory.

Volatility – VIX daily is facing stiff resistance early next week, a pull-back here should be positive for the stock market.

The NYSE Summation Index trend indicator came close to entering bearish mode Friday. This indicator has also formed a bearish divergence vs. the new high in prices, flashing a warning sign about what’s coming. A bearish divergence is also observed in the S&P 500 vs. FCX.

Mid term, on the weekly chart a Shooting Star reversal candlestick formed up against trendline resistance, with momentum at the same time entered it’s overbought territory.

The Neural Net System is Long on the OEX weekly.

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