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.
Cyclical Correction Underway
Market Overview
The correction from SPX 2400 is caused by intermediate cycles which will
not make their lows until late April, early May. The first phase took the
index down to 2323 for a seventy-seven-point loss. Last week, the next phase
was a rebound of forty-seven points to 2370 which may or may not be
complete. The level reached represents the lower portion of a target
zone which extends to 2474 and, in spite of three separate unsuccessful
attempts at exceeding 2370 and closing on its low of the day, SPX failed to
give a confirmed short-term sell signal. We'll have to wait until Monday for
a decision.
Of the three cycles, the one which just reversed is the most reliable, so
the others will have to prove themselves. However, structure appears to point
to more correction ahead. In spite of last week's rally, the daily indicators
are still in a sell mode, and the weekly indicators have turned down but are
only correcting and have not given a sell signal at the weekly time frame.
When this correction began, I indicated that I did not expect a major
decline. Last week's rally has already shown that it will be in the
form of an intermediate consolidation/correction. Nevertheless, we should
expect new lows to be made before it is over. And, with the final low not
scheduled for a few more weeks, we could enter a volatile period over the
immediate future.
Daily chart
As I discussed in the past issue, although the current uptrend started a
little over a year ago at 1810, this corrective action is only for the rally
which started at 2084, and is contained in the brown channel which has a
dashed line for the lower channel line. The larger (blue) channel delineates
the action from 1810. After this correction is over, we should make a new
high to complete the larger structure, and then challenge the bottom line of
the blue channel. This will bring a much more severe corretion than the
one we are currently experiencing, but it is too soon to consider a potential
bull market top.
The first (a-b-c) phase of the correction ended on the blue (55-d) moving
average which coincides with the lower channel line. 2325 had been the projection
derived from the distribution which formed before we broke the trend
line. The 2323 low was right in the ball park.
Instead of an immediate break through the bottom of the brown price
channel, phase two could, after a short retracement, extend to a new
correction high before we start on phase three. In any case, if the entire
correction is a larger a-b-c pattern, phase three should break below both the
dashed trend line and the blue 55-d MA and make a new correction low at a
level which will be determined by the amount of distribution prior to the
reversal.
A look at the oscillators makes it clear that the daily trend is still
down. Until we have a significant break above the downtrend lines of
the top oscillator sustained by strong upside momentum, we are still in a
downtrend. Last week's rally was extensive enough to reverse both lower
oscillators. All three will be expected to turn lower as the next correction
get underway, but perhaps not before they first develop some negative
divergence.
Hourly chart
The consolidation/correction remains confined to a broad, but shallow
channel, indicating that it should not be all that severe for the rest of its
duration (with the end expected to still be several weeks away). And if we
are forming another a-b-c second phase, we will most likely penetrate the top
of the channel with the minor c-wave before starting on the major C-wave
decline.
I may have drawn a secondary channel prematurely since a minor top of the
move from 2323 has not been confirmed. As mentioned above, the projection
target was 2370-2374, and although the lower level stopped the index on four
separate occasions, there is no certainty that we won't try for 2374 before
minor a-wave is over. Prices have been gyrating along the red (233hr) MA for
the past week, and the close on Friday was right on it, as well as on an
internal trend line from which additional support could be derived. Trading
below that level is required to confirm the start of minor b-wave.
Neither has the top oscillator nor the lower one (A/Ds) gone negative,
which is essential for a sell signal to be given. The SRSI is the only one
which has clearly entered a downtrend and, since it is always an early bird,
the others could follow on Monday to give us the small b-wave of the second
phase.
An overview of some important indexes (Weekly charts)
The top tier is the strongest by far and shows no sign of long-term
deceleration.
TRAN (bottom left) continues to be the weakest index and is the only one
which has given a mild weekly sell signal. It deserves continued monitoring
because of its historical pattern of giving warning long before long-term
reversals occur. The total group gives no indication that the long-term is in
imminent serious jeopardy.
UUP (dollar ETF)
UUP is getting back into an uptrend, possibly after completing a long-term
wave 4 consolidation. If so, after a short consolidation, it should continue its
uptrend, and eventually make a new high which is expected to be a long-term
top followed by a significant correction.
GDX (Gold Miners ETF)
GDX continues to move in a sideways pattern which should eventually
resolve itself into some additional downward correction over the next few
weeks. The index may remain under pressure until UUP has made its final high,
or is close to it.
Note: GDX is now updated for subscribers throughout the day, along
with SPX.
USO (U.S. Oil Fund)
USO found support on its bottom channel line and had a good bounce. Its
action should continue to mimic that of the overall market as it extends its
short-term base in preparation for another attempt at moving above the recent
tops. Note how positive divergence in the top indicator continues to warn of
a trend reversal.
Summary:
The correction from 2400 is expected to continue in a relatively shallow
manner until the intermediate cycles have all made their lows. This could
still take several more weeks.