Technical Analysis Of The Markets

November 13, 2016

SPX Long-Term Trend: The long-term trend is up but weakening.  Potential final phase of bull market.

SPX Intermediate-Term Trend:  SPX may be entering the final short-term phase of the uptrend which started at 1810.

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.

The Final Up-Phase?

Market Overview

The 20-wk cycle bottomed with even more fanfare than anticipated, but it was all in the ES which dropped the 5% limit to 2030 overnight when it became evident that Donald Trump would win the election.  By the time the SPX opened on Wednesday morning, the ES had made a near-complete recovery and the SPX dipped only 14 points to 2125 in the first hour, and closed at 2170.  The next day, it reached 2182, 11 points shy of its all-time high, before pulling back.  The DJIA fared even better!  After being down some 800 points overnight on Tuesday, it made a new all-time high of 18,873 on Thursday. 

After some consolidation, SPX may join the DOW at an all-time high with a move which could extend to 2240 or higher.  Let’s see if this occurs, and if that turns out to be the top of the bull market.  A failure to make a new high over the next week or so could change our current perspective. 

Analysis (This chart and others below, are courtesy of QCharts.com.)

Daily Chart

From its high of 2195, SPX slowly rolled over, dipped, recovered making a lower high, then made a lower low which breached its trend line from 1810.   However, it took another couple of weeks before it could make a decisive penetration and continue its decline.  It finally found good support when it reached a parallel to the blue trend line connecting its tops, which had been drawn from the Brexit low of 1992.  The two parallels have formed a perfect channel, even with a mid-point line which held the first dip from the top.  That channel will be very helpful in analyzing the rest of the move from 1810 which could turn out to be the end of the bull market from 2009. 

The rally from the channel low overcame the first two layers of support which had become resistance, but it was finally stopped at the junction of the red downtrend line connecting the tops, the greenish intermediate trend line from 1810 and the dashed blue mid-channel trend line. This may be enough resistance to keep the index from extending its rally right away, and it may consolidate for another day or two before challenging its former high of 2193. 

The oscillators gave a buy signal shortly after the index bounced from the channel low.  The ones tracking momentum are still strong, but the lower one (breadth) has already turned down.  In fact, over the past three days, the A/Ds have remained in a very shallow range above and below the zero line, completely disregarding the volatile price movement.  This makes the entire rally suspect, but it’s too soon to reach a definite conclusion.

There is a possibility that we are now in the fifth wave from the 1810 low and, perhaps, the fifth and final wave of the bull market as well.  If so, this should be reflected in both price and A/D performance as we make a final high.

 

Hourly Chart

The index started up in anticipation of a Clinton victory, but the overnight pull-back which went all the way down to 2030, does not show on the chart.  It’s a moot question whether the cycle low came on the 7th or on the 9th.  A perfect near-term channel which ran all the way up to the intermediate trend line was broken on the downside on Friday, and a correction -- which looks a little too shallow and may have a little longer and deeper to run -- is taking place before the next up-move.  If we do continue down to the vicinity of the 200MA, it will be interesting to see if enough upside momentum remains to get above the greenish trend line, and by how much.  During the analysis of the daily chart, I mentioned that the blue channel will be helpful to determine the extent of the next uptrend.  Overcoming the mid-channel line and the intermediate uptrend line will be a requirement if the next rally is to carry the index to a new high.,

Although a bounce from the 2150 low is already underway, I suspect that there could be more downside before we can start up again.  The momentum oscillators have not yet given a buy signal, and the A/Ds have done nothing but crawl around the zero line since Tuesday.   

 

An Overview Of Some Major Indexes (Weekly Charts)

I have revised this part of the letter to include only six indexes, in order to show more historical data for each.  They are, top:  DJIA, NYA, QQQ.  Bottom: TRAN, IWM, XBD.  Collectively, they should provide an objective perspective about how the general market is trending vs. focusing on a single index (SPX), as I do in the newsletter.

The presidential election results have produced a potentially radical change in many aspects of our society.  The initial reaction of each index may not be a lasting one and they will need a little time to digest the new “new normal”.  Which view will prevail?  The DJIA’s surge to a new high, or the QQQ’s (NASDAQ 100) cautious reaction. 

UUP (Dollar ETF)

UUP surged back to its top channel line, but it may have some difficulty going through right away and may need more consolidation first.

GDX (Gold Miners ETF)

GDX may be reaching for the final low of its correction – which could be as low as 19 (it is difficult to arrive at a clean P&F projection).  In any case, we probably need a little more time to complete the pattern; but a sharp rally can occur at any time which would signal the start a new intermediate uptrend.

 

Note: GDX is now updated for subscribers several times throughout the day (along with SPX) on Marketurningpoints.com.

USO (US Oil Fund)

USO continues its short-term correction as part of a longer-term base-building process.  Depending on what happens in the next couple of weeks, this may even require a re-test of the long-term low. 

 

Summary

Individual indexes have reacted differently to the election results.  It will take a little longer to arrive at a consensus view of what lies ahead. For now, the SPX may be ready to complete the final phase of the uptrend which started at 1810. 

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The above comments and those made in the daily updates and the Market Summary about the financial markets are based purely on what I consider to be sound technical analysis principles. They represent my own opinion and are not meant to be construed as trading or investment advice, but are offered as an analytical point f view which might be of interest to those who follow stock market cycles and technical analysis.

Andre Gratian

When Andre Gratian was a stock broker years ago, a friend introduced him to technical analysis of the market. Consequently, it is not an exaggeration to say that Andre fell in love with this approach! Ever since then, it has become an increasingly important part of his professional life. Gratian has studied the works of Wyckoff, Edwards & Magee, Edward J. Dewey (cycles) and many others. However, one of my most profitable undertaking has probably been to study Point & Figure charting, which he finds invaluable in analyzing stocks and indices. If he were restricted to one methodology, this is the one that he would choose. This well-rounded background has given him what he feels to be a special insight into the stock market, facilitating the recognition of meaningful patterns and the ‘turning points’ in all trends, whether they be short or long term.  Andre feels very comfortable discussing the stock market and passing on meaningful information to others. His subscribers include individuals and money managers throughout the world. Moreover, his Newsletters are currently published on several financial sites, here and abroad.

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