Trader's Tips Stock Market Newsletter


Published May 01, 2007 ...by OEX Trading Resources



NB. Windows XP users, click the bottom right corner of charts to better view compressed ones.

Stock Market

After the March Hammer (reversal) candlestick observed in the OEX Monthly chart, the market recovered in April and closed above both trendline resistance and key Fibonacci resistance. This fact and the close near it's high, could mean even higher prices for the May trading month, at least on an inter-month basis. A break of the April high at 686.8 would signal this.

A technical point flashing a warning signal though, is the OEX close up against the long term DGL (Dynamic Gann Level) line from 1994, i wrote about in the previous update and the Stock Market Outlook 2007 Report. This should be a tough resistance area to close above. In addition, the OEX BPI (see Sentiment section below) has at the same time reached an overbought extreme.

QQQQ Monthly also ran into strong resistance, closing up against a trendline coming in from 2003, with Stochastic barely reacting to the recent 2 month's advance and is still holding on to it's bearish mode.

Although the OEX has now clearly overcome the important 61.8% Fib. resistance, the Wave B scenario from 2002, as part of a major A-B-C market correction from 2000, is still a valid Elliott Wave count and cannot be negated yet. A wave B would usually end at the 50% or 61.8% retracement area, so the odds of a wave B is reduced though.

An alternate Wave count suggests a wave 3 from 2003 is peaking. Anyway, both scenarios should lead to market weakness, once the five wave impulse structure from 2005 is completed. Here is also an updated short term QQQQ Daily EW chart, an Advanced Get preferred count version.

A conservative approach, which would most likely confirm a top in place, would be the next MACD MA bearish crossover on the OEX Monthly chart. MACD has been in bullish mode since Jan. 2006.

Volume
Volume analysis still goes in favor of the Bulls, as this April Volume Chart shows the two large supportive volume spikes generated during the market decline in July and October 2002, have yet to be surpassed by a resistive Volume spike of a similar magnitude, that would indicate a long term trend reversal.

volume chart
Chart courtesy of marketvolume.com


OEX Mid & Short Term
RSI 25 climbed above 60 in April, so when the now overbought Cycle10 makes the next bearish reversal, odds are good the OEX is peaking, short & mid term. This is also suggested by the lower RSI peak compard to the one made in Oct. 2006, even though the OEX itself has climbed to new highs. For new subscribers, see the RSI 25 & Market Timing Article for reasons why more significant tops can be expected, when RSI 25 climbs above 60.

Any break of OEX daily trendline support would be another strong sell signal and should lead to weakness towards the L1 DGL as a minimum downside potential, near term.


Cycles

WCA Model
The WCA Model Proper as of 04/30. The WCA Model (courtesy of wcamodel.com) is an original cyclical method for predicting the US Stock Market. Using the ZigZag Diagram technique, an updated (March 05, 2007) hypothetical track record shows a 2247% compounded profit since Jan. 2000. ( Profit Graph )


monthly


The next calculated Gann Angle is coming up June 05 (+/- 1 day) and marks 270 trading days since the May 2006 high. It's a GA with less power, time will tell if it has enough of it to cause a trend reversal.

The COT Report (Commitment of Traders) as of 04/27, shows that commercial traders stayed flat and mildly net short, despite the recent advance in the S&P market.

As for the individual stock, Google is probably going to test an important trendline from 2006 within a few weeks. If it fails to hold, the downside Cycle10 phase could bring prices down for a test of the early 2007 low as well.

More chart updates:
TRIN Long Term
Breadth
OEX Weekly EW


Bradley Indicator
For new subscribers, a brief intro to the Bradley, excerpt from the 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 2007:
  • June 14
  • August 26
  • October 17
  • December 22

    bradley

    Chart courtesy of amanita.at




    Artificial Intelligence (Neural Networks) is another helpful tool in finding potential tops and bottoms. Here is the output to June 22, 2007. Inversions can also occur in neural network patterns, so it should be used in combination with other indicators.

    Volatility
    The VIX - volatility outlook is higher (more fear in the market) as momentum is reversing from "oversold" readings and the VIX has also established a rising trendline, which is still intact at this point.


    Sentiment

    Investors Intelligence
    As of 04/24, the II Chart shows 51.1% Bulls, 26.1% Bears.




    Chart courtesy of market-harmonics.com


    Bullish Percent
    04/30, OEX BPI (Bullish Percent Index) sentiment closed at 83, thus very overbought and a market reversal should be near. A 3% BPI decline would be a stronger sell signal.


    Chart courtesy of stockcharts.com



    Forex
    Weekly EUR/USD has reached and slightly breached the 2004 high level and is possibly forming a large Double Top pattern from that point in time. It has also reached a trendline drawn through the important 2006 highs, with Cycle10 at the same time entering a downside pressure phase. So the outlook is most likely bearish for this currency pair.

    See Forex TV online now...


    US Economic & Fundamental Condition


  • Gross Domestic Product grew 1.3 % last quarter.
  • April Consumer Sentiment (University of Michigan) 87.1, above forecasts.
  • Consumer Income was up 0.7% in March, ahead of expectations.
  • Construction Spending rose 0.2% in March, in line with forecasts.

    Consumer Confidence
    As of 04/24 CC is at 104, - 4.2
    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 down trendline from 2006 is still intact on the TYX Weekly chart and Cycle10 has just entered a new downside cycle phase, so a lower yield could be the outcome. A break of the pivot point at 4.80 would be a stronger signal.

    USD
    The Dollar closed at trendline support after the April trading month and is near it's 2004 low. With the Apex of two converging trendlines soon reached, a breakout is looked for and will most likely occur to the upside this coming summer, given the technical situation for the EUR/USD pair and RSI 25.

    Real Estate
    The Real Estate market is apparently going through a consolidation phase, as reflected by the weekly Dow Jones REIT index. Any break of the low made a few months ago, would indicate weakness towards the 50 EMA, where strong support has been found in the past. If it fails to hold, it would be a signal to get out of this market.

    OIL
    The XOI broke out from the Triangle to the upside and is in new high territory. The advance is not supported by RSI 25, which is still tracing out a bearish divergence, reflecting underlying weakness. The next resistance challenge (a stiff one) comes in from a trendline drawn through the highs since 2001, around the 1380 level.

    Gold
    Gold is still within a Triangle pattern. It will be interesting to see the directional breakout from it, which should occur within a few months, because prices would be near the Apex by then. XAU - Gold & Silver prices once again made a retreat from trendline resistance. Given the Cycle10 position, it will probably reach the 132 support zone before reversing.


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

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