Current Position Of The Markets

SPX: Long-term trend - Bull Market

Intermediate trend – SPX may have started an intermediate correction

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.

DOW MAKES IT SEVEN

Market Overview

The DJIA index has recorded seven consecutive down days in a row!  That’s after a two-day rally which was preceded by six consecutive down days in a row.  That’s undeniable bearish behavior.  On the chart below you can clearly see that, after its last break of the green uptrend line from the October low, the index began to move into the lower half of its intermediate (blue) channel and establish a downtrend which has already taken it to the edge of the lower channel line.  Also, besides making five daily closes below its 200-dma, it has (finally) decisively dropped below the red horizontal line which corresponds to the 2040 support line on SPX. 

Last week’s headline was “CRITICAL WEEK AHEAD”.  I think the bears won that battle!

After the NASDAQ, the SPX is the last of the major indices which has not yet established a bearish pattern.  I suspect that it won’t be for much longer!

Indicators Survey

Last week, the weekly MACD drew closer still to its zero line.  At its current rate of decline, another couple of weeks should put it at or below it.

The daily indicators all turned down at the end of the week.

If examined under magnifying lenses, the summation index (courtesy of MarketCharts.com) extended its miniscule rally at the beginning of last week and started to decline by the end.

On the 1X1 P&F chart, SPX has established another level of distribution which has potential counts to the low 2000s and possibly beyond.

A congestion level has formed on the 3X3 chart between 2040 and 2083 which represents important support.  By dropping down to 2068 last week, SPX has only begun to penetrate it. 

Chart Analysis

The Daily SPX (chart courtesy of QCharts.com as others below) shows that the index has arrived at an area of strong support which includes trend lines, a former congestion area, and its 200-dma.  This is the fourth time that the index has tested this level over the past six weeks.  Past tests benefited from a background of bullish news and events which coincided with holding support.  Instead, this time, Friday’s job report suggested that the Fed would raise rates next month.  While SPX held just above its previous low of 2064 on Friday, negatives other than the psychological specter of a September rate increase may become manifest to help it make that final push through the support level.

The cycles should continue to press down on prices for another month or two; so, if anything, the pressure should increase as we get closer and closer to their lows deemed to be around October.  Friday’s hold could continue for another day or two, and then another attempt at moving lower should start.  The indicators have all turned down over the past week and none of the oscillators has reached an oversold condition in preparation to turning up.  This should soon lead to another test of the 2040 level which is expected to hold once again, but only for a short period of time. 

The Hourly chart shows the index holding above its former low after breaking a trend line drawn across the last two lows.  By Friday, it had back-tested the broken trend line but, with the A/Ds showing some positive divergence and the other two oscillators beginning to turn up, it could easily continue its move above the trend line to relieve the oversold condition.  However, with the weekly and daily indicators in a downtrend, the bounce higher should be limited.  

A resumption of the decline and a drop below 2064 should quickly lead to another test of the 2040 level which is expected to hold temporarily before finally giving way to the lower counts. 

XBD -- IWM – SMH

The most significant feature of the following three charts of market leaders is that XBD is finally beginning to succumb to the developing weakness.  Many analysts believe that this is one of the key market indicators.  Although it had remained stronger than the other two shown here, it is evident that it is beginning to roll over after making a double top. 

All three of these indices have made P&F distribution tops which can send them several points lower over the near term. 

UUP (dollar ETF)

 UUP took advantage of the Friday jobs report to create a very bearish pattern.  This is known as a bearish engulfing candle which is one of the five most reliable candlestick patterns.  Should it live up to its reputation, the dollar should now start declining.  Whether this is only a near-term decline as part of its consolidation pattern or something more, is not knowable at this time but will become apparent as we move forward.  What is known is that a declining dollar tends to be bullish for the next two indices: gold and oil!

GLD (Gold Trust) 

You will notice that, about 2 weeks ago, GLD made a pattern which is bullish:  a bullish engulfing candle, the exact opposite of the pattern made by the dollar on Friday.  As a result, GLD had a slight up move followed by a sideways pattern, but it did not make a new low.  The indicators turned up at that time, but they did not provide much lift for prices; only support. 

Some observations:  GLD appears to have found support at the bottom of a (red) intermediate channel; GLD did manage to move out of a small (red) down-channel; at the end of the week the indicators were still trending up with no sign of reversing; GLD has moved above its pink MA, but it must overcome the blue MA as well; it also has to move out of a larger down-trending red channel.  After that there will be several longer channels and trend lines to overcome!  In other words, unless GLD has a really dynamic up move which slices through some of these trend lines right away, it may only have a move in line with its current count to about 109, at best. 

For the moment, GLD is only likely to produce a bounce in a downtrend which should be followed by another decline to the 100 level.

USO (US Oil Fund)

As expected, USO reached its minimum phase projection of 15.  If the USD starts to weaken, it may prevent it from reaching its full projection target of 13 – at least right away. 

Summary

More and more indices are beginning to reflect the underlying market weakness.  SPX is tilting on the edge and could join their ranks in the next couple of weeks.  The best time frame for the market to enter a full-blown correction is between now and October.  This is when the downward cyclic pressure should be the most intense. 

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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 of view which might be of interest to those who follow stock market cycles and technical analysis.