Current Position of the Market
SPX Long-term trend: Uptrend continues.
SPX Intermediate trend: A minor reversal at 2300 has been followed
by a resumption of the uptrend targeting the 2400 area.
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.
Sentiment at 'Extreme Greed'
Market Overview
For the past few days, the Fear & Greed index has been
alternating between "Greed" and "Extreme Greed".
Normally, it is not long after this labeling of the market sentiment that a
trend reversal takes place. On Thursday and Friday, SPX tried to correct its
short-term trend, but the bulls wouldn't have it and, after a short dip, they
sent prices back up toward the high. Structurally, we are due for a short
down wave, and enough distribution has taken place at the 2360/2368 level for
the index to enter a correction of some 30 points -- if the bears can get
something started. Perhaps they will have better luck next week.
If they are successful, it should be only a short-term correction and not
an important top quite yet. There is a higher count to about 2400+ that could
complete the move which began at 2084, after which a more significant
retracement should take place. This would be the decline that was expected
(prematurely) to start from the 2300 level. A cycle analyst is pointing out
that we are fast approaching the equivalent of the 17-year cycle peak which
came on March 12, 2000. If he is right, we are near a significant market top.
We should soon know!
To say that the market is overbought would be an understatement; and
breadth, either viewed at the intermediate level with the New York Summation
Index, or at the daily level through the McClellan Oscillator, is showing
severe divergence, with the latter worsening every day.
Analysis
Daily chart
SPX is forming a channel within a larger channel. It is likely that it
will not reach the tops of either over the short term. For now, the index is
finding resistance at the mid-channel line of the steeper channel and, during
the last four days has remained in a tight trading range. Now, the most
likely action would be to pull back about 30 points before moving up to the
2400+ level to meet the next projection target. After that, a reversal would
take it out of the green channel with a decline that would probably last
until the low of the 20-wk cycle in the first week of April.
The lower trend line of the larger purple channel would, by then, be at
about half the distance of the entire rally from 2084, providing logical,
initial support for the correction (we should get a better fix on the
downside target after the top distribution pattern has been completed). However,
if we continued to decline below the channel line, it would be a warning that
something more than a normal correction is taking place.
We don't need the Fear and Greed index to tell us that we are near a
top. The indicators are also warning us of the same thing. SRSI has
been trading at its maximum reading for about two weeks, while the CCI has
slowly gone in the opposite direction of price, increasing in negative
divergence every day. But the A/D indicator (at the bottom) is the
weakest of the three, having gone negative about a week ago, and looking
ready to give a more convincing sell signal at any time.
This chart and others below, are courtesy of QCharts.com.
Hourly chart
From 2/8 SPX started a trend which has been interrupted by small
corrections until it broke its first minor trend line. After pushing higher,
on Thursday it broke the green trend line, dipped down a few points and
back-tested the trend line before dropping lower on Friday, finding support
on the dashed blue channel line from which it rallied once again until the
close. It now has the choice of moving through the channel line and
correcting approximately 30 points or, if the minor correction is already
complete, moving higher in a choppy uptrend to the 2400+ projection target.
The oscillators have not been able to make a synchronized move on the
downside, and the Money Flow indicator has just gone sideways. They did,
however, all turn back up on Friday at the close, which should suggest a move
higher near-term. A break below the dashed channel line with the
oscillators turning down in unison would give us a short-term sell signal.
An overview of some important indexes (Weekly charts)
The weekly momentum is still up in all the indexes below, with the TRAN
and IWM continuing to be the laggards. Since, as past market leaders, these
two are ostensibly warning us of an approaching top, they should be the first
to turn down when it has arrived.
UUP (dollar ETF)
UUP has retraced 50% of its decline and is most likely approaching the end
of its rally, but it could have another few days of distribution in this area
before turning down to do some additional consolidation. There are higher
projections for this index which will be invalidated only when it has
confirmed that it has entered a major downtrend.
GDX (Gold Miners ETF)
GDX is at odds with gold which just made a new recovery high, but it is
approaching what could be and important multi-cycle low that could extend its
uptrend after another dip of about one point.
Note: GDX is now updated for subscribers throughout the day, along
with SPX.
USO (U.S. Oil Fund)
USO is still stuck in a range, either ready to extend its 90-day consolidation
or preparing to re-test its low. We should soon know which it is; but with
the current market condition calling for a correction in the near future, a
move lower would seem to be the logical scenario.
Summary:
Renewed market momentum beyond the 2300 projection target has brought
about and extreme in bullish sentiment which normally calls for a correction.
IF, as a cycle analyst is forecasting, we are approaching the peak of the
17-year cycle (17 years from its former peak in March 2000) then the rally
from 1810 is coming to an end and should be followed by a substantial price
retracement. Many things do point to a correction. We'll soon know how
severe it will be after the distribution period has been completed.
