Current position of the market
SPX: Very Long-term trend – The very-long-term cycles are in their down phases, and if they make their lows when expected (after this bull market is over), there will be another steep decline into late 2014. However, the severe correction of 2007-2009 may have curtailed the full downward pressure potential of the 40-yr and 120-yr cycles.
Intermediate trend – SPX May be in the process of forming an important intermediate top. Confirmation is needed.
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 discusses the course of longer market trends.
DECISION TIME
Market Overview
The last newsletter was entitled “A TIME FOR CAUTION”. That warning has already been vindicated by the 25-point pull-back which took place last week. However, some follow-through will be needed to confirm that an intermediate top is in place. The Dow Industrials may already have done so, but the other indices are fighting going over the edge. NASDAQ has the strongest price pattern, but its breadth is just as bad as that of the NYSE. Since breadth tends to lead price and the DOW tends to lead other indices, it would not take much more to secure the needed confirmation.
Structure: If minor wave 5 is, in fact, complete, its pattern was unorthodox. Tony Caldaro points out that it is clearer in the DOW where it took the form of an ending diagonal triangle. If it is, it is only one of a whole string of completions: minute v, minor 4, intermediate V and major 3, and this should be followed by a very decent correction.
Breadth: As we will see later on, in turning down from a much lower level than its previous top, the NYSI has created a very strong negative divergence pattern which should give even the most ardent bulls a cause for concern.
P&F and Fibonacci projections: Should we start down from the current level, the standard EW projection after any wave 5 completion is the level of the 4th wave of lesser degree. That would mean a retracement perhaps as low as 1560. Of course, I will provide my subscribers with a much more specific – and accurate – projection once we have a confirmed reversal.
Support/resistance zones: SPX has broke minor support when it traded below 1701. The more important level of 1585 has already been tested twice with the second bounce weaker than the first. If that level is broken, only one remains at 1676. The DOW has already broken all three comparable levels.
Sentiment: the SentimenTrader long term indicator has ticked down from slightly elevated to a neutral 50. We’ll examine the VIX chart a little later on.
