Trader's Tips Stock Market Newsletter

Published September 30, 2007 ...by oextradingresources.com
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Stock Market

As suggested in the previous update, the August Hammer candlestick established at channel support, pinpointed a market reversal and the September OEX trading month ended in positive territory and closed near the July high. Also, given the close near it's Sept. high, it bodes well for some further advance in October, at least intra-month. So a test of the July high at 720,26 is in the cards and possibly a test of the upper channel line around 750 thereafter, if the market is able to break through this high. Because of the Sept. up close, monthly MACD bounced off it's moving average as a result, keeping the bullish mode from Jan. 2006 clearly intact.

From a tech market point of view, ( here represented by the QQQQ Monthly ) for the first time in many years, RSI 25 is about to enter it's overbought territory. The dip below the 40 level in 2002 alerted about a significant bottom forming. In the same way, any move above the 60 level would be a warning about a larger top coming. For new subscribers, my RSI 25 & Market Timing article goes in details why this special RSI setting weeds out some false signals, so when this version enters it's overbought/oversold territory much more attention is given, regardless of the time frame. This Article & Report can be downloaded here (.zip), if you missed it when signing up for this newsletter.


monthly chart


There are other technical signs that the broad market may face mid & longer term weakness soon (see Volume section below). But to not end up in fighting the trend, i'll look for a monthly MACD crossover signal, which would be more convincing evidence that a corrective phase has started. This makes it possible to catch a major part of the bullish trend from Jan. 2006, after the OEX ended the several year long consolidation phase, which also resulted in the Oct. 2005 whipsaw signal in MACD, although just barely so. This is an excellent indicator to use, also in divergence related trading, in my view. Especially with the 5 signal time periods setting, which is used in these chart updates.

Back to the technical reasons why the broad market may face mid & longer term weakness soon:

  • I often use the Advanced Get software for clues and also confirmation of own Elliott Wave interpretations. The current output of AG, using monthly prices, shows a larger Impulse structure from 2002 could be near it's termination point. In fact, this current advance from the August low, could be the last wave v of 5 from 2006, thus completing the whole structure from 2002. For a free, comprehensive Elliott Wave course, sign up to the no cost Club EWI and get instant access to it.

    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. Like in this case, where the odds of an ending impulse structure are good, i would look for a three wave a-b-c zig-zag pattern taking prices down to either the 50% or 61.8% Fibonacci retracement level, of the advance from 2002. Let's say this Impulse ended at the current level, the 50% retracement zone would then be down at roughly 556 for the OEX. The 50% level is a typical ending point for an a-b-c corrective wave.

  • AG's Cycles indicator has just started a downside pressure phase, going into 2008. As seen on the chart, the favorable Cycles phase helped lifting the market in the 2006 - 2007 period.

  • Volume Analysis
    Market weakness is also indicated by the S&P 500 longer term Volume SBV Oscillator below. When it dips below the 20% level like now, it could mean longer term selling pressure coming. But again, i prefer riding the current bullish trend from 2006, until monthly MACD tells me to get out of the Long side, by the next bearish MA crossover signal. That's my key for a more clear Short entry decision.

    volume chart
    Chart courtesy of marketvolume.com



    Short & Mid Term
    An updated near term wave count for OEX daily prices, indicates there could be some more room to the upside, before a full five wave structure from the August low may come to an end. So at least a test of the July high (720.26) is not out of the question. And at that point further evaluation of a potential July - October Double Top pattern will be done.

    In addition to the current preferred wave count, several other underlying technical factors gives support to such a Double Top scenario:

  • Sentiment readings about to reach extreme levels. See section below.
  • The inside Hammer candlestick observed in the OEX Weekly Chart, up against trendline resistance.
  • A topping weekly Cycle10 (same chart).
  • Weekly OEX & RSI 25 just entered overbought territory and a bearish RSI 25 divergence vs. OEX prices.
  • A key L3 DGL (Dynamic Gann Level) reached and daily Cycle10 at the same time, well into it's sell territory.
  • A bullish trend went into the latest daily 09/24 Gann Angle cycle convergence. See also new GA projection.
  • A bullish trend went into the latest (09/21) weekly (mid term) version of Gann Angle.



    As for the QQQQ Stock (tech market), a short term top may already be in place, given the Cycle10 reversal.

    COT Report
    A recent S&P 500 COT Chart (Commitment of Traders) as of 09/25, shows that commercial future traders are net Long, with 68,221 contracts. Chart courtesy of freecotcharts.com

    As for the popular Google stock, i ran a wave calculation through the GA program and also here, a wave 5 is most likely underway, with Cycles soon topping.

    More chart updates:
    Breadth



    Cycles & Neural Nets

    WCA Model
    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 update (July, 2007) hypothetical track record showed a 1945% compounded profit since Jan. 2000. Initial capital $20,000 - as of July 12, 2007: $409,013 ( Profit Graph )


    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:

  • 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 current output to Nov. 2007. 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 09/25, the II Chart shows:

    55.6% Bulls
    25.6% Bears



    Chart courtesy of market-harmonics.com


    Bullish Percent Index
    The BPI quickly recovered from the oversold readings in mid August and is now instead in overbought territory, currently struggling with strong trendline resistance.


    Chart courtesy of stockcharts.com



    Forex
    Longer term, the EUR/USD pair is still apparently working on a wave 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.

    One of the reasons for this bearish mid & longer term view, is the situation in the USD Index with RSI 25 about to enter oversold territory and at the same time also tracing out a bullish divergence vs. the new monthly low in this index. The USD is also soon testing important trendline support, a line drawn through the 1998 and 2004 lows. The outlook for a stronger Dollar against the Euro, could mean weakness ahead for the EUR/USD pair, once the wave 5 has ended.

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    US Economic & Fundamental Condition

    Consumer Confidence
    As of 09/25, CC is at 99.8, - 5.8
    So it fell through important trendline support, which could open up for more weakness. 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 is climbing higher after testing trendline support in Sept. So a continued oscillation between these two convereging trendlines is possible, until a breakout occurs.

    USD
    See the comment in the Forex section above.

    Real Estate
    The Real Estate market as reflected by the Dow Jones REIT index, has been through a snap-back move towards trendline resistance and the earlier broken 50 MA. So a resumption of the overall bearish trend from the early 2007 high, is not ruled out.

    OIL
    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
    Monthly Gold finally broke out of a Triangle looking pattern, to the upside. The close near it's high for the month should bode well for Gold prices in the coming month too.

    A Gift...
    This Free Report (.pdf) fully shows the PivotCandle System, using a certain candlestick pattern, combined with Pivot Points. ( Right Click, Save As... )



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

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