Current Position of the Market
SPX Long-term trend: Uptrend continues.
SPX Intermediate trend: The correction from 2400 continues,
Analysis of the short-term trend is done on a daily-basis with the help
of hourly charts. It is an important adjunct to the analysis of daily and
weekly charts which discuss longer market trends.
Daily market analysis of the short term trend is reserved
for subscribers. If you would like to sign up for a FREE 4-week trial period
of daily comments, please let me know at anvi1962@cableone.net.
Is the bounce over?
Market Overview
As anticipated, the market was ready for a rally, and SPX obliged with a
32-point bounce which came in three distinct phases and were a display of
Fibonacci symetry. At first, the index retraced .382 of the decline from 2378
before pulling back. The second phase went to .50 before reversing, and
finally, the third phase slightly exceed a .618 retracement before ostensibly
putting an end to the bounce and tacking on another .618 retracement in the
opposite direction. But it did not stop there and the Fibonacci sequence
continued to rule the moves into the close.
The index ended the week without the indicators telling us clearly that it
was resuming the downtrend, and it is possible that of the 2361 high will be
re-tested and perhaps exceeded. A knee-jerk reaction to the French election
results may take place, so this is not the time to make a concrete near-term
forecast. We'll do that after Monday's opening. But I see no reason to expect
a radical change in the intermediate forecast which should still be governed
by the cycles bottoming in the next two or three weeks.
Analysis:
Daily chart
In the last letter, I mentioned that although the (dashed) lower channel
line from 2084 had been penetrated, it was by a minimal amount, and we can
see why the index did not continue lower. It found support at the juncture of
two parallels of the top line of the two long-term channels, one being the
bull market channel, and the other the channel formed by the price action
since the 1810 low. For the past week, SPX has traded in a tight minor
uptrend crawl against the lower channel line and will continue until those
two paralells are breached. It could come quickly on Monday if the market
reacts unfavorably to the French elections, or it could be delayed in case of
an opposite reaction.
Next week is also loaded with other potential stimuli for the market to
move in either direction, so we do not want to get too detailed in our
prognosis until the week is farther along. The oscillators are mixed with the
SRSI back in an uptrend unconfirmed by the other two; but the patterns could
change quickly if next week turns out to be volatile.
This chart and subsequent ones courtesy of QCharts.com
Hourly chart
The correction continues to be mild with the last minor downtrend finding
support around the main channel line from 2084, unable – at least at this
time – to move all the way down to the bottom of the corrective channel.
Instead, it seems to want to challenge the top channel line again.
Friday's close left the index in a neutral position, apparently waiting
for the results of the French election to make its next move. Even if it
should spike briefly out of the top trend line, this would not likely be the
beginning of anything significant, but perhaps another placement for the
B-wave, as discussed in the previous letter.
There is no good reason for the correction to stop here. The cycles which
have governed the correction are still scheduled to make their lows two or
three weeks from now, and we could get some action similar to the sudden
decline that completed wave A, marking the bottom of the 20-week cycle. The
top oscillator found support on the zero line and may bounce off it before
breaking through, especially since there was no divergence at the previous
top. So, could Fibonacci dominance continue to prevail and follow up with a
100% retracement to the 2378 top? (This is not a prognosis, by the way!)
An overview of some important indexes (Weekly charts)
All six indexes rallied last week, with the strong remaining strong, and
the weak remaining weak. QQQ was again outstanding by very nearly making a
new high. If you want to get a good perspective on the relative strength
between the top and bottom tier, look at the distance between the index price
and the (green) 34-dma.
Since nothing significant happened last week, we don't have to dwell on
this group for now.
UUP (dollar ETF)
Last week, UUP extended its correction but, by the end of the week it had
recovered and may be ready to challenge the pink MA which, if overcome, would
be an indication that the correction is over and that it is ready for another
joust with the downtrend line. Holding at this level and starting to move up
would be a positive, and breaking through the downtrend line would be a sign
that the quest for a new high continues. As stated earlier, the P&F chart
is projecting new highs.
GDX (Gold Miners ETF)
GDX has started to react to the downward pressure exerted by the cycle
lows which lie ahead. It prevented the advance from going past the half-way
mark of the bullish channel that had formed since the December low, and the
drop into the 25-28 low has already pulled it back .618 of the distance
achieved by the secondary rally within the channel. The pattern that it has made
over the last two days is a weak hold, and it's likely that a new near-term
low will be made into the 22-day cycle low due this week. After that, it will
have to deal with the bottoming action of the largest of the three
cycles: the 9/10-week cycle, which may not end until the middle of next
month.
Note: GDX is now updated for subscribers throughout the day, along
with SPX.
USO (U.S. Oil Fund)
USO was expected to find resistance at the junction of the two trend lines
and at the bottom of the congestion level, but the degree of retracement is a
bit of a surprise, suggesting that the index may be starting another bearish
corrective pattern. Need more time to asses.
Summary:
SPX ended the week in a near-term neutral position as it probably awaits
the result of the French election to decide on its next move. Whatever it
turns out to be, the intermediate correction is still in force, and lower
prices are expected before it ends.