Trader's Tips Stock Market Newsletter
Published November 04, 2007 ...by oextradingresources.com
The outcome of the October trading month was a Hammer looking candlestick up against trendline resistance, as seen on the OEX Monthly chart below. This pattern setup often means a reversal, so a pullback towards trendline support (700 area) at a minimum, is a likely scenario in November. Any monthly close below this important support would open up for more weakness therafter. If this occurs and MACD turns bearish by crossing it's MA, odds would be greater a Wave 5 from Oct. 2006 has ended.
As mentioned in the previous update, we will not fight the current bullish trend though and let the MACD with a special 5 signal time period setting show the way, which it has done well in the past, more often than not. On the same chart, a wave 5 completion and a Cycle rollover occurs at roughly the same time, with downside pressure going well into 2008. For a free, comprehensive Elliott Wave course, sign up to the no cost Club EWI and get instant access to it. As mentioned earlier, although it's not exactly the holy grail of market timing, it gives a good understanding of market behavior and an advance peek into what to expect from the market, when certain wave patterns have ended.
On the bigger picture, here represented by the Dow the AG software suggests even a larger degree wave 5 from 2002 could be near it's termination point, which is also supported by the first clear downtick in the EW Oscillator in a year and this indicator is usually good at filtering out minor price noice and tend to show the true trend.
Another sign of an overall toppy market state, can be found on the QQQQ Monthly chart, where RSI 25 has gone from oversold territory in 2002 to now actually entering it's overbought zone. And many knows by now that RSI 25 is better at finding true tops and bottoms than the standard settings of this indicator, which gives more false signals. Download my RSI 25 & Market Timing Article for a peek into the full system, in case you don't already have it.
It would take a reading above the 30% line, in the SBV oscillator, to signal longer term buying pressure again.
Chart courtesy of marketvolume.com
Short & Mid Term
A fresh example and proof of RSI 25's usefulness, is also seen in the OEX short term where RSI climbed above 60 in October, flashing a warning sign. The chart speaks for itself, as for the outcome thereafter.
Here is AG's current wave count output for OEX daily prices. And below is my personal current preferred count opinion. Given the early stages of a downside pressure phase in Cycle10, odds are good the L1 DGL (37.5% Dynamic Gann Level) will be tested next week, at around 682. At that point a wave iv scenario from the Oct. high is already excluded as a valid count, because of the August wave i overlap then. If L1 fails to hold, L2 (50%) is the next likely support zone, near term.
Let's see what the upcoming 11/22 Gann Angle cycle convergence will bring. As usual, it's given a +/- 1 day leeway and the short term directional trend at the point when prices enters this time window, would indicate a reversal in the opposite direction, in case the GA has an impact. These GA's doesn't always work out.
As for QQQQ Daily a Rising Wedge pattern is not ruled out here. If so, these patterns usually breaks to the downside. Any daily close below the lower wedge line, could open up for more weakness in this Nasdaq 100 index tracking stock. First Fibonacci support is at 51.
A recent S&P 500 COT Chart (Commitment of Traders) as of 10/30, shows that commercial future traders (Smart Money) are net Long, with 51,694 contracts. Chart courtesy of freecotcharts.com
To take a look at a popular individual stock, Google is trending sharply to the upside and is probably in a blow off phase, with Cycle10 now at an "overbought" extreme. A weekly close below this steep trendline, could be a good point to go Short this stock, if Cycle10 has already turned bearish at that point.
More chart updates:
Cycles & Neural Nets
From a WCA Zig Zag Diagram angle, a bearish turning date around Nov. 14 is given. The WCA Model (courtesy of wcamodel.com) is an original cyclical method for predicting the US Stock Market. Using the ZigZag Diagram technique, a recent (July, 2007) hypothetical track record (corrected) 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
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:
Artificial Intelligence (Neural Networks) is another helpful tool in finding potential tops and bottoms. Here is the current output to Dec. 2007. 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 10/31, the II Chart shows:
Bullish Percent Index
BPI failed to overcome strong trendline resistance met in early Oct and fell back as a result. With a reading of 64 as of 11/02, there is still more room to the downside before the OEX market is considered oversold.
In the previous update i suggested that ..."Longer term, the EUR/USD pair is still apparently working on a Wave 5 Impulse structure from the 2006 low, which could be near it's termination point. One possible target is the L1 DGL (Dynamic Gann Level) line on the daily chart."...
This L1 zone was reached 11/02 with Cycle10 about to reach levels where it would normally make a bearish reversal. So i'm taking a short term bearish stance on this pair. The mid & longer term also looks bearish to me, because of the EW situation and also the USD Index which closed at the next important trendline support this week, after unexpectedly falling through the 1995 & 2004 lows, earlier this Fall. Given the mildly oversold RSI 25 condition and it's bullish divergence vs. the new low in the USD, it's quite possible this crucial trendline will hold and cause a trend reversal. And because of it, a stronger dollar against the euro, could lead to weakness for the EUR/USD pair.
In October i came across a simple but promising piece of software, which generates Forex signals and one of the few out there which seems profitable over the longer term. Personally, i haven't had it long enough to actually confirm the positive longer term results from these signals but according to the track record on the site, it made 3100 pips in 2006 and over 2000 pips so far in 2007. Also, the many video testimonials on the site, are positive about it's profitability. So here is a chance to generate own Forex signals for the current one time, 50% discounted (Coupon) price of $89, instead of paying expensive monthly fees for signal services. It just takes a few minutes a day to generate signals. The software also comes with a Forex basics Ebook and i.e. a news trading system, as one of the bonuses. Test it out now at no risk, since there is a 100% money back guarantee.
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US Economic & Fundamental Condition
As of October, CC is at 95.6, - 3.9
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.
The TYX fell through trendline support this week and should lead to a test of the 2006 lows.
Covered in the Forex section above.
The Dow Jones REIT Index failed in an attempt to overcome the 50 EMA it fell through in Spring, a typical snap-back pattern often seen before the overall trend to the downside resumes.
The September analysis is still valid after the October trading month: ..."The XOI is still within a bullish price channel from 2006. Given the persistent bearish divergence vs. the new closing high in monthly OIL prices, a good trading opportunity could show up, when/if it breaks out of this channel to the downside, sooner or later. Personally, the mid & long term Short signal would be a clear monthly close below channel support.
Gold closed above trendline resistance in October, the close near it's high, indicates more to come to the upside in November, at least intra-month. RSI 25 is tracing out a bearish divergence though, which is a sign of weakening for the current bullish trend.
For new subscribers, if you don't already have it, this Free Report (.pdf) fully shows the PivotCandle System, using a certain candlestick pattern, combined with Pivot Points. ( Right Click, Save As... )
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