Trader's Tips Stock Market Newsletter
Published July 04, 2010 ...by oextradingresources.com Stock Market The market tide is once again changing direction it seems, after the March 2009 - April 2010 rebound reached its ending point near a key Fib. level. A look at longer term trend indicators like monthly MACD and the weekly based 13 - 34 EMA charts, shows that these are still in bullish mode despite the recent weakness, although barely so. It could take only one more strong monthly down close to turn the longer term picture bearish. But let's see if the market is able to stop at the edge in July. 
If so, the current preferred long term count suggest any recovery will be of temporary nature, before the Primary degree wave 3 Impulse structure from the April high is likely resuming. Following the Elliott Wave Principle wave 3's and C's are the sharpest ones. So a wave 3 of this degree could turn out to be a nasty one before reaching its termination point. Any move going beyond the April high would prove me wrong about this current view and delay a wave 2 top further. As mentioned in previous issues, this wave 2 count will stay valid as long as the Oct. 2007 high remains intact. See the short term section below for the lower (Intermediate) degree wave counts. The S&P 500 broke out from a Rising Wedge looking pattern in May and current (not oversold) RSI 25 readings indicate even more weakness ahead. Key Fib. support is in the 880 area. 
Volume Volume continues to be weak on market advances and gets stronger on declines, in line with the nature of bearish trends. Volatility The VIX found support in June, on the old bearish channel it broke out from in the Spring. With RSI 25 at mid readings, there is plenty of room left to the upside, before possibly seeing a contraction of investor fear and some improvement in stock prices as a result. 
"Smart Money" (Commercial Futures Traders) is positioned on the Long side. As of 06/29, the COT Report (Commitment of Traders) shows they are net LONG with 22,494 contracts. Chart courtesy of timingcharts.com QQQQ - Nasdaq 100 Index Tracking Stock The tech market, here represented by the QQQQ monthly chart, has clearly broken out from a sharp bullish channel or slightly wedge looking pattern. Key Fib. support (calculated from this advance) is at around the 35 level. 
Mid Term This OEX Weekly chart update, shows that important trendline support gave in to the bearish forces this week. A summer move to test this area from below, (now stiff resistance) is a likely event to look for, after finishing the current near term downside leg. If this occurs, it would be an excellent Short entry area, allowing for a low risk Stop, in case the market is able to close above it again. Such a snap-back move towards a broken trendline, is a typical scenario often observed in the markets. 
Short Term In a previous update i mentioned a 5-20 EMA strategy which could possibly work out in a wave 3 environment of this degree. The first chunk catched by it (May crossover) was on the profitable side, exiting at the June upside crossover. A few weeks ago it once again turned bearish and is still in bearish mode. A test of the 20 EMA is not ruled out this summer. 
As for the smaller wave count, the May - June corrective phase to the upside was most likely an a-b-c zig-zag wave two, as part of an ongoing five wave structured wave 1 impulse to the downside (Intermediate degree). With this in mind, any summer recovery could turn out to be brief (see weekly section above). NB. Web updates are available at http://oextradingresources.com/trend-trading.html 
DGL - Dynamic Gann Levels The OEX reached the key L3 DGL at the end of the week, with RSI 25 at the same time getting quite oversold. Gann Angles Important numbers used in this technique: 90, 135, 144, 180, 270 and 360, counted from important lows and highs in the past, using trading days or weeks only, not calender days. 07/07, +/- 1 day, is the next daily GA coming up, it marks 90 trading days from the Feb. secondary low, roughly 180 TD from the Oct. 2009 high and 270 TD from the June 2009 high. If the short term weakness continues into this GA time window, an upside reversal is the likely outcome. As for the weekly version of the GA, if the selling pressure from the April high continues into 07/30, +/- 1 week, a mid term reversal is looked for then. ( Chart ) Murrey Math Lines This updated Murrey Math Chart, shows prices getting close to the (green) 5/8th MML support. In this theory the 3/8th - 5/8th range is considered difficult to enter but once inside it, prices tend to oscillate there for some time. Individual Stocks The Google stock is currently under selling pressure and is probably going for a test of key Fib. support in the 400 area, before a reversal is likely. Chart 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 2010, dates in bold marks more important turning points:  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 06/29, 2010 the II Chart shows: 41.1 % Bulls 33.3 % Bears  Bullish Percent Index 07/02 - BPI Daily closed at 37 Friday. See the description for this sentiment indicator.  Forex - Currency Market EUR/USD rates fell well below the 1.26 target area given in the previous update. With the reversal candlestick formation in the June trading month, near major 4/8th MML support and also oversold long term momentum, odds are good this pair will climb higher this summer and likely into the fall as well. A move towards the 1.36 area is not out of the question. 
US Economic & Fundamental Condition 
Consumer Confidence As of 06/29 CC is at 52.9 - 9.8 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. 
Debt - Last updated, June 2010 Credit problems are widening into the municipal bond market, as the cost of insuring these bonds are sharply climbing relative to Treasuries (risk rapidly rising). --------------------------------------------------- April 2009 As pointed out in an earlier published article about the 60 year Kondratieff Cycle the purpose of the Winter part (from 2000 --- >) of that economic cycle, is to cleanse the economy of debt via payback, liquidation and usually bankruptcy. This process creates tremendous stresses to the economy and financial system. The next Spring should again bring growth and prosperity. As the below chart shows, for the first time in many decades, consumer debt has actually turned down, reflecting the ongoing cleansing process in this current Winter cycle. 
-------------------------------------------------------------------------------------- From the May 2008 Update - 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 
Yield The long term bearish channel from the 80's is still intact in the TYX index, after a test of it in the Spring. It closed below an important support line in June, which could open up for even lower yields in the coming month(s). USD Index After a 6 month advance, the USD index formed a reversal candlestick in June, up against a trendline drawn through the significant 2005 and 2009 highs. So a correction is due, a July close below minor trendline support would open up for more weakness thereafter. 
Real Estate The Dow Jones REITs Index climbed slightly above the suggested 750 target before reversing. The current weakness could take prices down for a test of trendline support in the 650 area. If it fails to hold (monthly closing basis) even lower prices are indicated for the Real Estate market. 
OIL XOI prices broke out from the Triangle to the downside in May. The ongoing decline could take prices down for a test of the important trendline support in the 750 area. RSI 25 momentum should be oversold at that point, so a reversal is looked for around that level. Gold Gold prices could break out from a long time Rising Wedge pattern formation any month now, because of being close to its Apex point. Rising wedges usually breaks to the downside, so let's see what happens in the July trading month. Any close below the lower wedge line, could lead to a sharp sell-off in Gold prices thereafter. An overbought RSI 25 reading also indicate a top is forming. Charts courtesy of stockcharts.com XAU - Gold & Silver Index The XAU is also getting closer to the Apex of a nearly symmetrical Triangle. The directional breakout from it, would set the tone for XAU prices thereafter. Sites & Resources worth checking out: Fibonacci Killer - 15 year expert trader Michael Lenee reveals masterpiece system. Happy 4th of July! -AM info@oextradingresources.com http://oextradingresources.com P.S. Please tell your friends about this Free Trader's Tips Newsletter. To Webmasters, Bloggers, Forums etc.: Feel free to use this newsletter link or it's content for your website, blog, newsletter, forum etc., as long as it's not used for SPAM and the content is not altered in any way, active links included. |
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