Trader's Tips Stock Market Newsletter
Published May 04, 2008 ...by oextradingresources.com
After the intra March secondary attempt to break through first Fibonacci (38.2% retracement, of the 2002 - 2007 advance) and major trendline support, the S&P 500 Monthly formed a reversal candlestick at the close for the month. This alerted about a possible market reversal in April, especially because this occurred near tremendous support. April's positive close brought prices above a trendline drawn through the monthly highs since Oct. 07.
So the mid term outlook into summer looks positive, after first going through some short term corrective pressure maybe, because the OEX weekly Cycle10 has reached a level, where it normally would make a bearish reversal. This at the same time OEX being just a few ticks from touching the 50% retracement (of the Oct. 07 - March 08 decline) at the high for the week.
The friend is in the trend, so it would take a monthly MACD MA crossover though to change the view on the current overall dominant bearish trend from Oct. 07. Using weekly closing prices only, the special 13 - 34 EMA combination mentioned in the previous update, is also still in a bearish mode.
The rest of this year's market developement will be interesting to follow, because sooner or later we should get an answer to whether we're now dealing with a wave 2 ( based on the Elliott Wave Principle ) from the March low, as part of a larger five wave C impulse structure to the downside from the Oct. 07 high. Or a new bullish phase, as part of a longer term positive trend from 2002.
The key would be to watch the Oct. 07 high, (734.51) because if it's overcome, a wave 2 would no longer be a valid wave count at that point. As Elliotticians knows, in this principle, wave two's can't retrace more than 100% of wave one, to remain intact.
Wave C's are usually sharp in nature and many will know the most brutal part of it is left, in the wave 3 impulse part to the downside, if we're really dealing with a larger wave C pattern. This scenario can't be ruled out, as long as a potential advance into summer, ends before the Oct. 07 high is reached. Wave two's typically terminates at either the 50% or the key 61.8% Fib. retracement level. But again, it's still valid until the 100% retracement level point.
The long term outlook into the next decade, covered in the Outlook 2008 Report is kept in the back of the head though, so a wave C of this serious magnitude could be a bit early to look for. But the technical setup for it, is right there in the market these days and can't be ignored yet. A break of the Sept. 07 high would be more in line with the outlook evidence, revealed in that report. Time will tell about the real outcome.
As for the tech market, here reflected by the QQQQ Monthly chart, shows that April's advance caused a positive reversal in a bottomed out Cycle10. So along with the SP's, the mid term outlook seems positive for this market as well. Resistance should be met, once the earlier broken trendline is tested from below. If reached in May, this point is at 51.35 and may cause a temporary pullback, on the path higher.
The 60-day SBV oscillator shows declining readings. The absence of buying volume accumulation should go in favor of the short term bears. It could be just a correction though, within the overall advance from the March low. Longer term, the 1.5-year SBV shows a declining oscillator on the S&P 500 and DJI, while the NASDAQ 100 is flat. Data source marketvolume.com
Mid & Short Term
Because of the short term advance into the upcoming 05/05 Gann Angle (+/- 1 day) this GA indicate a bearish reversal. It marks 90 trading days from the Dec. 07 secondary high and 180 TD's from the important Aug. 07 low. So it's a GA powerful enough to cause a reversal of minimum short term degree. In my view, a good Short entry point would be a few ticks below Friday's Hammer low, (650.09) with a stop loss placed a few ticks above it's high at 657.63.
Because of the recent advance, RSI 25 is close to climbing above the 60 level. So also from this angle, it indicates a top could be near if not already in place, because of Friday's Hammer candlestick, formed up against strong trendline resistance. So in this case it's possible that the RSI 25 is not able to move beyond 60, before heading lower. For market entry, a more conservative approach would be to wait for a weekly Cycle 10 reversal and enter when that weekly bar low has been broken. Here is a download link to a hopefully useful RSI 25 & Market Timing Report.
In the previous update i doubted that the strong 8/8th Murrey Math Line would give in to the bearish forces right away, before seeing a short term reaction up first. Well, although not an exact hit, (8/8th briefly violated, closing basis) the outcome was more or less true. For more Murrey Math related resources, visit my MM web page.
The Nasdaq 100 index tracking stock QQQQ has oscillated higher within a bullish channel and is close to reaching it's key Fib. retracement level (61.8%) of the Oct. 07 - March 08 decline. Because an overlap of the Nov. 07 wave 1 low has now occurred, the earlier wave 4 scenario is excluded from the list of valid wave counts. So a wave a or 1 is instead moved to the forefront. See the bearish divergent Cycle10 reading vs. Friday's higher Hammer, near channel roof and Fib resistance, increasing the odds of a top forming.
A recent S&P 500 COT Chart (Commitment of Traders) shows that Commercial Future Traders (Smart Money) are net Long. Chart courtesy of buythebottom.com
The Google stock has recovered after making a low in March but has now met trendline resistance, with Cycle10 at the same time at levels normally indicating a top. So in my opinion, a good point to go Short this stock is right below the low of the weekly bar, causing the next Cycle10 bearish reversal. Strong support comes in at around 420.
More chart updates:
Cycles & Neural Nets
Cycle LT Model
The Zig Zag Diagram is bullish from 01/21 to 07/07. The Cycle LT Model (courtesy of cyclelt.com) is an original cyclical method for predicting the US Stock Market. Using the ZigZag Diagram technique, see his revised hypothetical profit test.
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:
Artificial Intelligence (Neural Networks) is another helpful tool in finding potential tops and bottoms. Here is a recent output with a market projection into June 20 (chart courtesy of chartsedge.com). Inversions can also occur in neural network patterns, so it should be used in combination with other indicators.
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 04/22, the II Chart showed:
Bullish Percent Index
BPI closed at 59, as of 04/30. See the description for this sentiment indicator.
The EUR/USD pair formed a monthly Hammer looking candlestick for April and closed exactly at the major 8/8th Murrey Math Line. This could be a reversal setup and a good mid term Shorting opportunity in the EUR/USD, especially because the 8/8th MML often causes more significat tops and bottoms and Stochastic is also now leaving it's overbought territory.
So the next lower (7/8th) MML at 1.4648 would be a minimum downside potential, in the coming months. Another possibility is that given the sharp advance from the 2005 low, a sideways, oscillating consolidation phase may start. But even in this case, it should come close to the next lower MML, before heading higher again, possibly to test the 8/8th MML once gain, later this year.
US Economic & Fundamental Condition
As of April 29, CC is at 62.3, - 3.6
still falling seriously and is about to test it's 2003 low, which should offer good support.
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.
- 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
The monthly TYX rate is gaining ground, after testing decade lows earlier this year. An important trendline coming in from the 80's, is up at around 5. If clearly broken on a monthly closing basis, it could open up for even higher rates, long term.
Because of the mid & long term bearish looking situation in the EUR/USD pair (see Forex section) and April's "Inside Month" in the USD Index (it traded within the previous month's range, reflecting indecision) there is still hope for the buck, in my view. A positive breakout from this indecision, signaled by a move above the March high, would signal some strength ahead for the USD. If so, the first challenge on the potential mid & long term route higher, would be stiff resistance produced by a trendline drawn through the many monthly highs since 2005. The March RSI 25 dip below 30 also gives support to this positive stance on the dollar.
After breaking out from the earlier discussed bearish channel, Dow Jones REIT Index Weekly has reached a trendline drawn through the important 2007 peaks and also the 50 MA. Until this resistance area is overcome, it's vulnerable to fall back for support, which comes in around 250.
The XOI has established a channel looking pattern. It would take a clear breakout from this channel, to indicate the market tide is turning. Channel roof resistance is around 1700.
After moving briefly beyond the $1000 area intra March, the April down close was the second in a row for Gold. A test of channel support in the 800 area is not out of the question. If it holds, another push higher from this zone is a possible scenario. Because of the overall long and steep advance from 2001, Gold could enter a broad, sideways consolidation phase later this year, before going well beyond the $1000 barrier, into the next decade. Charts courtesy of stockcharts.com
Gold & Silver Index XAU ran into strong trendline convergence resistance a few months ago and it's retreat from it, could bring this market down for a test of trendline support in the 140 area, depending on when it's reached. This view is supported by the ongoing Cycle10 downside pressure phase.
Download this 32 page Trading Secrets Ebook at no cost. Right Click, Save As...
Or if you instead want the .pdf file to load into your browser, just click on the link.
Earlier this year, by using data from the 5minutetrader.com stock picking track record, i calculated the Win/Loss & Return, for the period Sept. 07 to March 08 --> 340% Total Return, 46 Winners/11 Losers. Here is the detailed Result & Review page.
Please tell your friends about this Free Trader's Tips Newsletter.