Trader's Tips Stock Market Newsletter
Published April 05, 2009 ...by oextradingresources.com
The OEX reached the L2 50% DGL (Dynamic Gann Level) target on the monthly chart before recovering and closed up for the March month, right below the 2002 low resistance line. The Dow 30 also closed up for the month on heavy Volume, reflecting that buyers came to the market. RSI 25 made a positive reversal because of this, after dipping below 30 in February. So this is a positive technical setup for the Dow but the odds of a confirmed bottom in place would increase with a clear monthly close above the trendline. So until this occurs, the market is still vulnerable to fall back for support.
Looking with more conservative eyes on the market, the condition is still not yet right for stock investments, as the Monthly MACD and 13 - 34 EMA trend charts are both in bearish mode despite the March advance, although they could be close to a reversal these days.
The OEX has a few challenges to overcome first before the path higher can be taken with less trouble, mid to long term. One challenge is the 2002 low which is now being tested from below. Any monthly close above this resistance level (385 area) would be a positive indication for the market outlook. Another challenge coming, is the upper part of the old weekly descending triangle pattern, which the market closed into again this week. This upper triangle line could cause the next pullback in the market especially because of the condition on the daily charts, with i.e. key Fibonacci zone reached this week. When these challenges are overcome, the market horizon looks clearer.
From an Elliott Wave long term point of view, my current preferred count is a just ended Primary degree wave 1 impulse structure, down from the Oct. 2007 high, if we exclude a less likely Expanded Flat wave 4 scenario (one degree lower) developing from the Nov. 2008 low. If this turns out to be the case however, then there could be some more unfinished business to the downside (in the last wave 5) before the larger Primary wave 2 to the upside finally can start.
My Primary alternate count from Oct. 2007 is a wave C, which would be quite bullish for the market, because in this scenario, a huge A-B-C correction from 2000 may have reached it's termination point. This count will be moved to the forefront if the Oct. 2007 high is broken, because the wave 2 preferred scenario can be excluded at that point. Technically, wave two's can't retrace more than 100% of wave 1 to remain a valid count, according to the Elliott Wave Principle. A typical retracement for wave two's in general, is the 50% or 61.8% of wave 1. So given Primary wave 1 has ended, that could lift the OEX market to the 530 or the 580 level, before a Primary wave 2 peak is looked for.
It's an interesting time ahead because if a wave 2 top really is the next major event in the markets, most Elliotticians are aware of the power of the wave threes thereafter, which are always the strongest and sharpest ones, within a five wave Impulse structure. So taking into account this would be a wave 3 on the Primary degree level, for the sake of the markets and the economy, i tend to hope i will be wrong about this wave count.
That said, it is possible to prosper in tough times in my view, with sound strategies, the right financial instruments and a correct interpretation of the markets. Of course, the challenge is to get it right, which is one of several reasons i personally find this principle so interesting to use, combined with other techniques.
A recent (03/31) COT Report (Commitment of Traders) shows that Commercial Future Traders (Smart Money) are still net Short the market with - 78,842 contracts, in the face of the recent market advance. Chart courtesy of timingcharts.com
QQQQ - Nasdaq 100 Index Tracking Stock
As for the tech market, here represented by the QQQQ Monthly stock chart, the outlook seems positive, closing near it's month high and even above the strong resistance produced by the 3 previous months highs. With RSI 25 just leaving it's oversold zone, there should be plenty of room to move further to the upside. With this in mind, first Fib. resistance is at 36.5.
Mid & Short Term
As mentioned above, the OEX Weekly is facing resistance from the upper Triangle line next week. Any weekly close above it could open up for even higher prices thereafter.
QQQQ Weekly could reach the trendline at around 34.4 before making a pullback, short term. Weekly Cycle10 may have reached it's normal reversal level at that point.
The OEX reached the key (61.8%) Fib. zone this week, which is the level the market wants to reach most of the time, in any time frame, before making a reversal. See the Murrey Math section below for a comment on the bearish divergence now developing, in the face of the new OEX highs.
DGL - Dynamic Gann Levels
A look at the DGL chart shows that the OEX has yet to overcome a strong L2 & L3 convergence. So this is another technical reason for a likely pullback next week.
QQQQ Daily RSI 25 is about to climb above the 60 level, which often is an alert about potential short term tops forming soon.
Murrey Math Lines
The OEX Stochastic is tracing out a double bearish divergence versus the new high in this market. So the next time Stochastic reverses, (now nearly reaching its overbought zone) a sharper sell-off is not ruled out then. Friday's Hammer low came at the weak 7/8th MML (Murrey Math Line)
The next daily (short term) GA is found on 05/14, 2009, +/- 1 day. It's a slightly weaker GA, marking 90 trading days from the Jan. 2009 high but forming no convergence with other important GA cycle numbers, in this upcoming time window.
The GE stock closed higher in March, on heavy Volume and with RSI 25 making a positive reversal below the 30 level. So any convincing monthly close above the trendline, could turn the picture positive for this stock. Charts courtesy of stockcharts.com
For those new to Bradley, here is an excerpt from an earlier Outlook Report:
..."The Bradley Siderograph is a popular indicator many traders rely on, to get an overview of possible larger turning points in an upcoming trading year. It is known for it's inversions, so it's not so good in showing whether highs or lows are coming but more so ... when major highs and lows can be expected. So using other indicators in combination with the Bradley, could give useful clues about future larger tops and bottoms."...
Bradley dates indicating market turning points in 2009, dates in bold marks more important turning points:
This survey report is used to determine the percent number of Bulls to Bears, to find sentiment extremes that can lead to market reversals. I.e. readings above 55% - 60% Bulls reflect extreme optimism, which can be seen with indexes at record highs. This usually means a bearish reversal is due. Readings below 20% reflect extreme pessimism and a positive market reversal is likely.
As of 03/31, 2009 the II Chart shows:
31 % Bulls
38 % Bears
Bullish Percent Index
04/03 - BPI Daily closed at 49 Friday. See the description for this sentiment indicator.
Forex - Currency Market
The EUR/USD pair climbed higher in March, after finding support on the 5/8th MML in February. With Stochastic just leaving its oversold zone, odds are good a test of the 6/8th Pivot MML at 1.3671 is in the cards, as a minimum upside potential. This MML caused the significant 2004 high in this pair, so some stiff resistance should be met at that level.
US Economic & Fundamental Condition
A few facts about the economy:
03/31, currently at 26 + 0.07
Consumers represent two-thirds of all domestic spending in the United States. So measuring consumer opinions is an important part in gauging future consumer spending and in turn the economic condition. High Consumer Confidence holds up the economy.
Debt - Last updated, April 2009
As pointed out in an earlier published article about the 60 year Kondratieff Cycle the purpose of the Winter part (from 2000 --- >) of that economic cycle, is to cleanse the economy of debt via payback, liquidation and usually bankruptcy. This process creates tremendous stresses to the economy and financial system. The next Spring should again bring growth and prosperity. As the below chart shows, for the first time in many decades, consumer debt has actually turned down, reflecting the ongoing cleansing process in this current Winter cycle.
From the May 2008 Update
- 2007 total debt increased $4.3 trillion (up 8.9%)
- Federal government debt (incl. added debt owed trust funds) increased $549 billion (6.3%)
- Household debt increased $877 billion (up 6.8%)
- Business debt increased $1.1 trillion (11.7%)
- state & local government debt increased $184 billion (up 9.2%)
- Domestic financial sector debt increased $1.6 trillion (11.1%).
Each sector reached a new, all-time high. As of 2006, 26% ($1 Trillion) of the total debt increase of $3.9 Trillion was owed to foreign interests, up 11%.
Source Michael Hodges
An ongoing upside pressure phase in monthly Cycle10 could push the TYX towards a test of the old broken trendline around 4.13, in the coming months.
It would take a monthly close below trendline support to move me from the overall bullish stance on the USD Index. A monthly close above trendline(s) resistance could be quite bullish for the buck, especially if the 2005 high is broken at that point.
Trendline support produced by the 2001, 2002 and 2008 lows, still holds in the Dow Jones REITs Index (closing basis). With RSI 25 near the 30 level, i doubt this index will fall below this support before seeing a significant rebound in this troubled market. Any clear monthly close above the trendline, drawn through the recent months highs, could be bullish for the Real Estate market thereafter.
I would turn bullish on oil when/if the XOI can manage to close above strong trendline resistance. With this index getting close to the Apex of two converging trendlines, either a bullish or bearish breakout has to occur soon.
I'm still holding on to my bearish view on Gold. A wave c should force Gold rates back to trendline support, if the minor trendline drawn through the recent monthly lows fails to hold (closing basis). This would be a confirmation of a top in place. Although not expected, any monthly close above trendline resistance and the all time high, would prove me wrong and instead turn me bullish on this market. Charts courtesy of stockcharts.com
XAU - Gold & Silver Index
The XAU is oscillating within a wedge looking pattern, struggling to overcome the 50% retracement resistance. Any monthly close below the lower wedge line would be bearish for this market.
With my best wishes for the Easter holidays,
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