Trader's Tips Stock Market Newsletter

Published March 01, 2009 ...by oextradingresources.com
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Stock Market

The broad market closed below the 2002 important low support and also the November 2008 low, after the February trading month. So the time is still not yet ripe for stock market entries on the Long side. The updated Monthly MACD and 13 - 34 EMA trend charts, are both firmly in bearish mode.


OEX  monthly chart



For technical reasons why these lows failed to hold, the following excerpts are taken from the earlier published Market Outlook Report for 2009:

..." Back to the Elliott Wave outlook for 2009, the reason why a re-test or even break of the Nov. 2008 low is not ruled out at some point in 2009, is that a full five wave impulse structure from the Oct. 2007 high looks not yet completed. Odds are good the five wave looking pattern from the Spring 2008 high, completed wave 3 (one degree higher) only, as part of an ongoing five wave impulse pattern to the downside, from Oct. 2007."...

..."The bigger Elliott Wave picture suggests a Primary degree wave 1 of C from Oct. 2007 is coming to an end in 2009, if not already ended, as outlined above. A significant countertrend advance, wave 2, likely taking the form of a simple a-b-c zig-zag pattern, should then lift the market towards the 50% or key Fib. 61.8% retracement area, which would be a typical retracement target for a wave 2."...


Fast forward to March 2009, the missing wave 5 which now seems to be underway to the downside, is the last wave before a completion of this Primary degree wave 1, from Oct. 2007. Using the Elliott Wave Principle a fifth wave should technically be weaker than the wave 3 part of the impulse structure. In terms of the NYSE New High - New Low Index, (see Breadth chart) NYSE Ticks, A/Ds and 52 week lows, readings are indeed weaker compared to the wave 3 extremes, supporting this wave 5 scenario.

Another technical pattern often observed in a fifth wave development, is divergences in momentum indicators. A look at weekly RSI 25 shows a clear bullish divergence being traced out, versus the new lows in the OEX. So overall, the bearish forces are no doubt getting weaker, indicating a positive trend reversal soon. Here is a download link (.zip file) to a RSI 25 & Market Timing Article, in case you don't already have it.

To come up with a likely price target for wave 5, major L2 DGL (Dynamic Gann Level) support comes in at 328, in the March trading month, as seen on the OEX Monthly chart. Any clear monthly close below this L2 (50%) line, could open for more weakness thereafter, towards L3, (62.5%) the key DGL the markets wants to reach most of the time, in any time frame, before making a reversal. But in this case, the market could very well start a wave 2 advance from the L2 zone. Only time will tell for sure.

Another less likely wave scenario, is that a wave b as part of an a-b-c Expanded Flat wave 4 pattern (one degree higher) is now working its way lower. Anyway, both scenarios should result in a positive market reversal once completed. The only difference would be in the upside magnitude, depending of which wave scenario turns out to be the correct one.

Any wave 5 completion and with it, Primary 1, would most likely result in a positive monthly MACD crossover at some point, when the expected wave 2 pattern to the upside takes over. So this is what i'll look for this coming Spring, a confirmation of a Primary 1 bottom in place, with evidence becoming stronger by seeing a positive monthly MACD MA crossover. I'll try keep you updated about it.

A more aggressive, risky approach but likely earlier entry into the Primary wave 2 zig-zag pattern, could be to act on the next reversal in the now bottoming weekly Cycle10 when the high of the weekly bar which caused the Cycle10 reversal is broken.

Or simply act on the next monthly MACD reversal, (red, fast line) without waiting for its MA crossover, could also be one way to go for an earlier market entry, in my opinion. But again, the risk of a whiplash is bigger with these strategies.

A recent (02/24) COT Report (Commitment of Traders) shows that Commercial Future Traders (Smart Money) are still net Short the market with - 66,862 contracts but readings have improved in favor of the Bulls, compared to the Nov. - Dec. 08 extremes and in the face of a new S&P 500 low, which reflect the Bears are losing steam. Given the final wave 5 possibility this is not unexpected. Chart courtesy of timingcharts.com

QQQQ - Nasdaq 100 Index Tracking Stock
Contrary to the SP markets, QQQQ Monthly still trades above the Nov. 08 and 2002 lows and shows an oversold RSI 25 condition, long term. Any advance beyond the Jan. & Feb. highs, would confirm the tech market tide has turned positive, although ideally we should see a wave 5 test of the Nov. 08 low first, to fulfill the need to see a full five wave impulse structure also in this market, like in the SPs.


Mid & Short Term

As mentioned earlier in this update, the OEX Weekly Cycle10 is bottoming out, while the QQQQ Weekly version has some more room to the downside. QQQQ broke out from the wave 4 triangle pattern this week, so a test of the Nov. 08 low, in wave 5, could be the next likely event for this Nasdaq 100 index tracking stock.

OEX weekly chart



Below are updated daily charts, for a better view into what is going on in these markets.


OEX daily chart



QQQQ daily has just broken out from a minor wedge looking pattern, with no significant support in sight before the Nov. 08 low (25.05) is reached.


qqqq daily chart



Gann Angles
The next daily (short term) GA convergence is found on 04/03, 2009, +/- 1 day. It marks 90 trading days since the Nov. 2008 low, roughly 180 TD since the July 08 low and roughly 270 TD since the March 08 low. A powerful GA, worth keeping an eye on for a possible trend change.

Here is also a chart update of the earlier discussed GA Weekly convergence.

Murrey Math Lines
Short term, after a brief bounce towards the strong 8/8th MML resistance area, the OEX has resumed its overall bearish trend from the January high. Despite the bullish Stochastic divergence vs. the new OEX low, the close at its low Friday, suggests there could be some more to come to the downside, early next week.

As for an update on the longer term MM chart, the market closed below the major 3/8th MML support area, after the February trading month.

Individual Stocks
After a 3 month advance in the Google stock, it formed a monthly pin bar (reversal type) up against trendline resistance, after the Feb. trading month. So a pullback towards trendline support could be in store for this stock, signaled by a break of the pin bar low. In fact, we should see a breakout (either bullish or bearish) from this Symmetrical looking Triangle pattern within a month or two, because its so close to the Apex of this triangle (where the two trendlines meet).

An update on the struggling GM stock, shows a brief move above the Nov. 2008 high, to the 6 area, before heading lower again. The selling pressure in 2009 came on decreasing volume and RSI 25 is at same levels as in Nov., despite a new low reading in the stock price this year. This is technically a positive sign, so if GM can manage to close above trendline resistance, it could mean some recovery for this stock. Charts courtesy of stockcharts.com

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 future larger tops and bottoms."...

Bradley dates indicating market turning points in 2009, dates in bold marks more important turning points:

  • June 03
  • June 26
  • July 14
  • September 14
  • October 22
  • November 11


    bradley

    Chart courtesy of amanita.at



    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. 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 02/24, 2009 the II Chart shows:

    28.6 % Bulls
    45.1 % Bears




    Charts courtesy of market-harmonics.com


    Bullish Percent Index
    02/27 - BPI Daily closed at 20 Friday, a condition indicating a market reversal soon. See the description for this sentiment indicator.


    Chart courtesy of stockcharts.com



    Forex - Currency Market
    The EUR/USD pair (monthly chart) formed a Doji like reversal candlestick at the 3/8th MML support, with Stochastic at the same time leaving it's oversold territory, still holding on to its bullish mode, a positive technical setup for the March trading month, with higher EUR/USD rates as a likely outcome.

    eur/usd monthly chart



    US Economic & Fundamental Condition

    A few facts about the economy:

  • Consumer Confidence is collapsing, (see update below).
  • Near 60% of S&P 500 companies cut or suspended dividends in 4th quarter 2008, the most in the 54 years long S&P 500 history.
  • With nearly all S&P 500 4th quarter earnings in, since 1935 this is the first quarter with negative earnings. Source: EWI

    Consumer Confidence
    02/24, currently at 25 - 12.4

    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



    Debt (Last updated, May 2008)
  • 2007 total debt per person was $175,154, up $13,065 from $162,125 in 2006. This compared to $29,722 in the late 50's, measured in inflation-adjusted 2007 dollars.

  • Last year's debt per family of four increased by $33,781, to $700,616. 2007 total debt of $53 Trillion was 11 times higher than the $5 Trillion debt in the late 50's.

    - 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

    debt



    Yield
    The TYX has climbed higher in recent months, after reaching channel support in Dec. 2008. It will probably go for a test of the earlier broken trendline, which should now give stiff resistance instead, at 4.13. A top formed up against this resistance zone is looked for.

    USD Index
    After a minor correction in Dec. 2008, the USD Index is about to reach new highs these days. If its able to break through the Nov. 2008 high, a further advance towards the next resistance area (93) is likely. Any clear monthly close above that zone, would be quite bullish for the buck.

    Real Estate
    Real Estate, as reflected by the Dow Jones REITs Index could once again test its 2002 lows, like it did in Nov. 2008. The February close near its low, gives support to this bearish stance. Any monthly close below this strong support area, could give even more weakness for this market.

    REITs



    OIL
    Because of a not yet oversold RSI 25 and the XOI close near its monthly low, this index could test trendline support in the 800 area. This and the Oct. 08 low is a crucial support area, which must hold (monthly closing basis) to avoid further weakness for this market, If it fails to hold, there is no significant support in sight, before the 2001 peak is tested from above.

    Gold
    Gold formed a monthly reversal candlestick near its March 2008 high, (likely marking the end of a wave b to the upside) with a bearish divergence at the same time observed in RSI 25. A wave c could force Gold rates back to trendline support, as a minimum downside potential. Charts courtesy of stockcharts.com

    XAU - Gold & Silver Index
    This market has reached the proposed target, given in the Outlook Report. An inverted Hammer candlestick formation up against the 50% retracement resistance, could mean weakness ahead for the XAU index, signaled by a break of the Hammer low. First support (113) is at the trendline coming in from the 2000 low.


    Best Regards,
    -AM
    info@oextradingresources.com
    http://oextradingresources.com

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