Trader's Tips Stock Market Newsletter
Published October 03, 2010 ...by oextradingresources.com
Looking back, the market reversed at the edge in the summer, still keeping long term trend indicators like MACD in bullish mode. And also with first Fib. support holding, as shown on the OEX Monthly chart below. The ongoing market recovery from that Fib. level has come on low Volume readings, suggesting a bear market advance only, which has now met trendline resistance.
Any break of the April high (554.79) would delay the Primary degree wave 2 top further. As mentioned in previous issues, it would take a break of the October 2007 high to fully negate this wave 2 scenario from the March 2009 low, as a wave 2 can retrace 100% of wave 1 (Oct. 2007 - March 2009 decline) and still be a valid count, according to the Elliott Wave Principle.
So with this in mind, there is not much change in the bigger market picture. As long as the April high stays intact, a Primary degree wave 3 Impulse structure underway from that high still can't be ruled out. Any break of the July Pivot low (459.29) would give stronger evidence of this and could be a good entry or re-entry point, if stopped out by the current move to the upside. See the short term section below for the current preferred lower degree wave count.
Like in the OEX, the S&P 500 index has to deal with trendline resistance in October, (closing basis) which often is a natural resumption point for the overall dominant trend, if found strong enough.
The VIX closed for the month at 23.70, between two converging trend lines. Stronger support is at the 16 - 17 level and for resistance, around 40.
"Smart Money" (Commercial Futures Traders) is positioned on the Short side. As of 09/28, the COT Report Chart (Commitment of Traders) shows they are net Short with - 24,271 contracts. Chart courtesy of timingcharts.com
QQQQ - Nasdaq 100 Index Tracking Stock
Like the S&Ps, the tech market as reflected by the QQQQ monthly chart below, is also at an interesting point, closing up against trendline resistance in September. Any break of it, (closing basis) would indicate a further advance towards the 2007 high thereafter. Any clear monthly close below trendline support on the other hand, would be bearish for the tech market in the month(s) thereafter.
The OEX formed a weekly reversal candlestick up against trendline and key Fib. resistance, with Cycle10 at the same time reaching levels where it normally would make a bearish reversal. So a resumption of the overall bearish trend is not ruled out from this area. More evidence is given with a reversal in the Cycle10 and a break of the weekly low of the price bar which caused this Cycle10 reversal. So this would be a more conservative Short entry strategy.
The OEX is currently struggling with trendline resistance coming in from June and with RSI 25 at the same time found near its overbought territory. So as long as the OEX hovers below this resistance, its vulnerable to fall back for support, i.e. first Fib. support in the 503 area.
The price structure from the July low is currently best interpreted as a soon ending a-b-c zig-zag wave 2 of Intermediate degree. So in case this wave pattern is ending sometime next week, the short term downside magnitude thereafter, would of course be greater.
This wave 2 is a part of a possible larger degree Primary wave 3 Impulse developing from the April high. As mentioned in the long term section above, any break of the April high would delay the start of this huge wave 3 further and is fully excluded as a valid count by a break of the October 2007 high.
VIX - Volatility daily is currently stuck between several trendlines. It would either take an upside or downside breakout from these converging trendlines, to get more clues from this indicator as to where the market is heading. I.e. an upside breakout would put pressure on the stock market, with increased fear among investors.
In the summer issue i mentioned a possible price test of the 20 EMA part of the 5 - 20 EMA strategy chart below. The 5 EMA has made several crossovers since then. The next bearish crossover will be interesting to follow, because of the possible termination of the earlier revised Intermediate wave 2 pattern.
FYI, more frequent chart and comment updates than this email newsletter can offer, are available at the website http://oextradingresources.com/trend-trading.html
DGL - Dynamic Gann Levels
The OEX ran into L2 DGL resistance in the second half of September and has oscillated higher along it since then. Since RSI 25 has reached mildly overbought levels, any break of the 09/23 pivot low (508.48) next week, would signal further weakness towards the black L1 support and possibly L2 or lower, if this DGL fails to hold on a daily closing basis.
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. The directional trend going into these GA cycle convergences, (i.e. the 90 and 180 numbers found on the same projection day or week) points to a reversal in the opposite direction. The daily based GA is used for short term trading, while the weekly version is for the mid to long term.
The August GA (updated via the website) apparently had some impact, marking a short term peak in the market. I have calculated a new daily GA which is due now (09/30, +/- 1 day). It marks 90 trading days from the May low and roughly 180 TD from the January high. The short term positive trend going into it, suggest a bearish OEX reversal this coming trading week, in case this weaker GA has some impact.
The next weekly GA is found in the week ending 11/12, +/- 1 week. It marks 90 trading weeks from the important March 2009 low, so the odds of seeing a more significant market reversal around that time would increase but of course not guaranteed. If a sell-off goes into that time frame, a bottom of minimum short term degree is looked for and vice versa. ( Chart )
Murrey Math Lines
The updated Murrey Math Chart currently shows a consolidation phase going on near the weak 1/8th MML (yellow) with Stochastic momentum at the same time tracing out a bearish divergence pattern, suggesting a short term top could be forming. The major 8/8th MML at 500 is a strong support level.
The Google stock found support on the 50% retracement level in the summer and the advance since then has brought prices up for a test of trendline resistance. If overcome, (weekly closing basis) a test of the January high could be the outcome. Chart courtesy of stockcharts.com
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:
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 09/28, 2010 the II Chart shows:
43.3 % Bulls
27.8 % Bears
Bullish Percent Index
10/01 - BPI Daily closed at 62. See the description for this sentiment indicator.
Forex - Currency Market
In September the EUR/USD pair reached the 1.36 target mentioned in the summer update and even more upside potential seems likely, before getting long term overbought. If the 6/8th MML is overcome on a monthly closing basis, the next likely target could be trendline resistance at around 1.45, before the next significant EUR/USD top could be in place.
US Economic & Fundamental Condition
As of 09/28 CC is at 48.5% - 4.7
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).
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
The lower TYX trend from the June 2009 high looks intact and still trading below the support line from 2003, which should now act as strong resistance instead, up at 3.69.
In the summer i wrote about a correction due for the buck and the current bearish trend is probably continuing until trendline support is reached around 76, let's see if its able to find support there. I.e. a reversal candlestick formed at this support, would increase the odds of a reversal from this area.
Trendline support was apparently strong enough to cause a summer reversal in the Dow Jones REITs Index and this market is now in a position to either make a bullish or bearish breakout from a triangle looking pattern, as its close to the Apex (the point where the two trendlines meet). A positive breakout would indicate a further advance towards the 2007 high. A downside breakout on the other hand, would open up for weakness in Real Estate prices, a resumption of the overall bearish trend which started in 2007. In this case, a minimum downside target would be first Fib. retracement support, of the advance from the 2009 low.
The XOI closed for the month up against trendline resistance. If not able to overcome it, a resumption of the trend towards 750 support could be the outcome. Any monthly close above this and Fib. resistance however, could turn out to be positive for the oil market in the month(s) thereafter.
Gold has yet to make a clear breakout from the Rising Wedge pattern discussed in the summer update. With RSI 25 about to climb above 70, any downside breakout from this pattern on a monthly closing basis, would most likely confirm a top in place. Any upside breakout from this pattern would prove me wrong about this special technical pattern and indicate even higher Gold prices ahead. The Neural Nets system has been Long on GLD (Gold etf) since early August and still is.
Charts courtesy of stockcharts.com
XAU - Gold & Silver Index
The Sept. positive breakout from the Triangle could lead to a test of the 2008 high in the XAU with RSI 25 likely getting overbought at that point but possibly making a lower peak than in 2007 & 2008, forming a bearish divergence. So a Double Top pattern is not ruled out in this market, which doesn't bode well for the XAU in the months thereafter.
Sites & Resources worth checking out:
Forex Morning Trade System - Its much like the other morning trade systems found out there but with a unique twist, including some common indicators with special settings. I've personally bought this system and recommend checking it out. Free videos and a newsletter is available on the website.
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