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Technical Analysis Of The Markets

Expert Market Analyst & Founder of Market Turning Points
July 31, 2016

Current Position of the Market

SPX Long-Term Trend: The long-term trend is at an all-time high.

SPX Intermediate-Trend:  The uptrend from 1810 has continued to a new high.

 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.

CONSOLIDATION/CORRECTION CONTINUES

Market Overview

After reaching its 2175 projection in the middle of July, SPX has traded in a narrow fifteen-point range.  On Friday it moved above it by a couple of points but fell back into the range by the close without giving a clear reversal signal, so we will have to wait until Monday to find out if it was simply a head fake, or the beginning of a new uptrend.

The market (or traders) love to fool participants and, if we do not have the beginning of a break-out to the upside, a move in the opposite direction which would trade below the low of the range (2160) for a couple of days and suddenly reverse with a real beak-out on the upside would not be surprising.  Whichever form the start of the new uptrend takes, we cannot keep going sideways forever, and since we’ve gone past 2135 and there is a clear projection to the mid-2200s, the favored scenario has to be that a break-out to the upside will eventually take place. 

Over the past two weeks, only the SPX has moved in a sideways pattern.  The DJIA has moved in a corrective downtrend while others, like IWM and QQQ actually moved in an uptrend during that time.  Quite a mixed picture which makes forecasting what will happen next week, difficult.  But with the jobs report due at the end of the week, something decisive could happen. 

The BPSPX (chart courtesy of StockChart.com) has described the same recent sideways pattern as SPX.

 

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

Daily Chart

Until the last couple of days, the consolidation pattern remained inside of the uptrend channel from 1992, but on Thursday, it started to trade outside of the lower channel line (dashed line).  Because Friday made a new high, a new trend line has been drawn.  If this is a break-out, there should be immediate acceleration out of the congestion pattern and through the blue dashed line which has been providing resistance, so far.  If it’s a false break-out – which may very well be the case because we fell back inside the consolidation pattern by the close – it could generate some selling, breaking the trend line and driving prices one more time to the bottom of the range and perhaps even a little beyond. 

The fact that the index has held up so well is an indication that there is no heavy liquidation taking place and, with the pattern which formed at 1810 projecting higher prices, the odds strongly favor an eventual resumption of the uptrend … and probably fairly soon.  The jobs report due Friday would be the logical catalyst to move SPX off the dime. 

Another reason to think this move may occur shortly is that the three oscillators are beginning to show signs of turning up.  This should alert us that something is about to happen.

 

Hourly Chart

Last week I pointed out that prices have shifted from the blue deceleration channel to the red corrective channel which delineates a very shallow decline.  As SPX neared its uptrend channel line from 1992 (this channel line was actually penetrated on the daily chart), prices began to find support, attracting enough buyers to push prices outside of the red channel.  But the move ran out of steam early on Friday, ending the day slightly under the channel line. 

As an early bird indicator, the SRSI was quick to give a buy signal, but by the end of the day it had already made a bearish cross, although retaining its uptrend.  It’s obvious that we need more information to decide what happens next.  Either we continue the upmove first thing Monday morning, or we open down and break out of the channel line, perhaps dropping as low as 2155 before reversing and starting a genuine uptrend.

 

Some Leading And Confirming Indexes (hourly)

This week, I am showing you the hourly charts to illustrate how mixed the various components of the market that are represented here have been over the past couple of weeks. Are we going up, down, or sideways?  Take your pick!  We’ll have to rally the troops before we get a unified assault on the recent high.    

UUP (Dollar ETF)

UUP attempted to push through some strong overhead resistance but could not make any substantial headway.  It has quickly dropped back to a level of good support where it should start to make another consolidation pattern before resuming the uptrend that started at 24.

GDX (Gold Miners ETF)

GDX had a brief correction in an uptrend and found support at a former peak.  Last week, it re-tested its recent high, exceeding it by a fraction.  Since this is also the area of a projection derived from its base formation, it is likely that it will form a topping pattern in this area, eventually creating enough distribution for its first important pull-back since the beginning of the uptrend which started at 12.40.

Note: GDX is now updated for subscribers throughout the day along with SPX, on Marketurningpoints.com.

USO (US Oil Trust)

USO has not only continued to weaken steadily over the past six weeks, but the decline is accelerating.  It has now broken below its lower channel line and is setting a much steeper trend.  This seems to confirm that the stated target of 8.50-9.00 will be reached before it can start to form a base. 

 

Summary

Early on Friday, SPX made a pretense at breaking out of its consolidation, but it did not follow through and had an indecisive close.  Furthermore, neither the DJIA nor the TRAN made any attempt to join it in starting a new uptrend.  Other indices did, but they also fell back by the end of the day.  The proof that this was an earnest effort should come on Monday morning with a strong opening.  If not, we can assume that the consolidation/correction will be ongoing.

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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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