Trader's Tips Stock Market Newsletter

Published March 02, 2008 ...by oextradingresources.com
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Stock Market

The S&P 500 Monthly has clearly broken out from a bullish price channel developing since the 2002 low, but closed above first Fibonacci support in February. With RSI 25 at mid readings, this market has yet to reach an oversold condition, longer term.

Major trendline support is still intact on the OEX Monthly Chart after touching it intra-month i December and now again closing right above it, after the February trading month. This strong support around 600 also happens to be the first Fib. retracement (38.2%) support level, calculated from the 2002 low. So this support convergence and the position of the SBV Volume oscillator below, makes odds good that an attempt to rebound from this area will be seen. In addition, the daily RSI 25 indicator should once again dip below 40 at the point this support is reached, which more often than not, is a warning about bottoms forming.

Although not expected right away, any clear monthly close below this strong Fib. & Trendline support, could lead to more weakness for the SP markets.

From a daily Murrey Math point of view, i doubt the strong 8/8th MML (Murrey Math Line), found roughly 5 points lower at 595, will give in to the bearish forces right away, before seeing a short term reaction up first. For more Murrey Math related resources, visit my MM web page.

The trend is your friend and we can't ignore the fact that MACD is still firmly in bearish mode after the Feb. trading month, so any rebound could turn out to be brief and temporary, until proven wrong by MACD making a bullish crossover again. If this occurs, this could mean a correction is over already and the wave structure may have to be revised, although a potential wave 2 of C scenario would be a valid Elliott Wave interpretation, until the Sept. 2007 high is violated. According to this EW Principle, any wave 2 can't retrace more than 100% of wave 1, to remain a valid count.


monthly chart



Also by using the combination of a 13 & 34 EMA on a weekly chart, there is no doubt the S&P 500 has entered a bearish trend and here the trendline support seems broken, using closing prices only. See how nicely this EMA combination would have kept one on the right side of the overall trend since 2003, despite dips on the way up. It sure is worth keeping an eye on, in my view.

Regarding these dips, on the same chart, the 65 EMA has in the past proven to be an important support/resistance area to watch. Used with a weekly momentum oscillator, like Stochastic 5-3-3, most of the short term bottoms since 2004 probably could have been catched this way. Following the more rewarding technique of only trading in the direction of the dominant trend is important, where the 65 EMA is a good candidate to show the way more clearly.

As for the tech market, here represented by the QQQQ Monthly chart, a monthly trendline violation is observed, with RSI 25 yet to reach an oversold state. But as you can see, this indicator is about to meet strong trendline support, so a reaction up also in this market, is not ruled out, especially because Cycle10 has bottomed out as well.

In case you didn't get it after subscribing to this newsletter, here is the Download link to a useful RSI 25 & Market Timing Report.

A look at the QQQQ Daily chart, shows that a breakout from a possible wave iv Symmetrical Triangle pattern is likely next week, given the ongoing downside pressure phase from Cycle10. So a five wave structure from the Dec. 07 high coming to an end next week, is high on the list of likely scenarios. If so, an a-b-c zig-zag to the upside, is in the cards thereafter.

Volume Analysis
The S&P 500 60 Day SBV Volume oscillator fell below the 20% level (red line) before the real sell-off in the new year started, thus gave an early warning to go Short this market. From a conservative angle, it would now take a reading above the lower 20% line, to turn positive on this market again. A more aggressive strategy (with more whipsaws) though, is to go for it's reversals instead, when it's deeply "oversold" like now. Currently it seems this oscillator is preparing for a reversal, so a market reversal could be near, which gives support to the above market view of a likely reaction up soon.

volume chart
Chart courtesy of marketvolume.com



Gann Angles
I have calculated a new Gann Angle date (04/04), which marks 90 trading days from the Nov. 07 low and roughly 180 TD's from the July 07 high. A powerful GA convergence with the potential to cause a market reversal of minimum short term degree. As usual, the date is given a +/- 1 day leeway and the short term directional trend going into the GA, would indicate a reversal in the opposite direction, once the time window is reached.




COT Report
A recent S&P 500 COT Chart (Commitment of Traders) as of 02/26, shows that Commercial Future Traders (Smart Money) are net Long, with 8041 contracts. Chart courtesy of commitmentoftraders.com

Popular Stocks
After the blow-off phase mentioned in the Nov. 07 issue and the pullback from trendline, in the Outlook 2008 Report the Google stock went through more weakness since then and is probably working on a sharp wave 3 impulse to the downside. Any break above the wedge looking pattern, would indicate an ended wave 3.

More chart updates:
Breadth



Cycles & Neural Nets

WCA Model
The WCA Zig Zag Diagram is bullish from 01/21 to 07/07. The WCA Model (courtesy of wcamodel.biz) is an original cyclical method for predicting the US Stock Market. Using the ZigZag Diagram technique, a July 2007 hypothetical track record update, showed a 1730% compounded profit since Jan. 2000. Initial capital $20,000 - as of July 12, 2007: $366,057 ( Profit Graph ) See also his new Profit Test


Bradley Indicator
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 larger tops and bottoms."...

Bradley dates indicating market turning points in 2008, dates in bold marks more important turning points:

  • March 08
  • April 04
  • April 27
  • May 24
  • June 07
  • September 09
  • September 20
  • December 14

    bradley

    Chart courtesy of amanita.at




    Artificial Intelligence (Neural Networks) is another helpful tool in finding potential tops and bottoms. Here is a recent output with a market projection into April (chart courtesy of chartsedge.com). Inversions can also occur in neural network patterns, so it should be used in combination with other indicators.



    Sentiment

    Investors Intelligence
    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. a reading above 60% Bulls could mean a bearish reversal is near. As of 02/26, the II Chart shows:

    42% Bulls
    36.4% Bears




    Charts courtesy of market-harmonics.com


    Bullish Percent Index
    BPI closed at 39 Friday. Strong trendline resistance comes in at around 50. See description for this sentiment indicator.


    Chart courtesy of stockcharts.com



    Forex
    Because the USD Index was only able to find temporary support on the earlier discussed trendline, this additional weakness against the EURO, has brought the EUR/USD pair even higher, in what looks like a large five wave impulse structure from the 2000 low, on this monthly chart. Given the monthly Stochastic overbought extreme and RSI 25 now climbing above 70, i would be surprised to see rates breaking through the strong 8/8th MML at 1.5625 (monthly closing basis) before forming a major top. Any monthly close below trendline support would most likely confirm a larger top in place.

    See Forex TV online...


    US Economic & Fundamental Condition

    Consumer Confidence
    As of February, CC is at 75, - 12.3
    CC fell like a rock in February, 12.3 points lower. I can't find any support before the roughly 60 level is reached, which is the 2003 low.

    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.

    consumer confidence

    Chart courtesy of market-harmonics.com



    Yields
    The TYX has climbed higher, after testing decade lows a few months ago. An important trendline coming in from the 80's, should be met at around 5. If clearly broken on a monthly closing basis, it would open up for even higher rates, long term.

    USD Index
    With all the important lows since 1992 and the earlier discussed trendline now broken, there are no larger support levels left to watch. But RSI 25 touched the 30 level in February, the last time this occurred in 2004, a significant recovery started. And this is in fact a bullish divergence developing, given the over 10 points lower low in the USD index itself, compared to the low in 2004.

    Real Estate
    After recovering from the key 61.8% Fib. support early this year, the bearish channel roof was tested this week but failed to overcome it. It would take a clear breakout from this channel, to turn more positive on the Real Estate market.

    OIL
    The XOI OIL Index took a sharp intra-month dive in January, which was warned by the bearish RSI 25 divergence from 2005. However, it managed to recover and closed at trendline support. The same occurred for the Feb. trading month. It would take a clear monthly close below this support to open up for more weakness in this market.

    Gold
    Gold is probably in a blow-off phase, blasting through the trendline i drawed in the Outlook Report. However, another trendline using the early 2003 high as a starting point, comes in at around the 1000 level, which would also be a tough psychological barrier to break through, on the first attempt. So by also taking the RSI 25 overbought extreme into account, a correction may start from this zone.

    Charts courtesy of stockcharts.com

    The Gold & Silver Index ran into a convergence of two strong trendlines, at the end of the Feb. trading month, so a pull-back from this area is probable.

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    info@oextradingresources.com
    http://oextradingresources.com

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