Archive for August, 2011

Market Turning Points | Andre Gratian | 2011-08-28

Posted in education, technical analysis on 2011-08-28 by Strategesis


A decline started slowly from 1370 in the SPX, and accelerated sharply after a bearish Head & Shoulders pattern had been formed. Its downward target has already been fulfilled. The intensity of the decline and, especially, the amount of distribution which took place between 5/02 and 7/22, have all the markings of a beginning bear market, but this will remain unconfirmed until we break below 1011.

The best way to support a point of view is to see if you can find arguments against it. If you can’t, it is confirmed. If, however, you can, you have to re-examine your premise. I have already alluded to the fact that there are some technical and sentiment conditions which are not characteristic of a bear market. Now, something else is taking place that could eventually add to the ambiguity. Since the 1101 low, the SPX has created a sizeable Point & Figure formation which is fast approaching the dimension of the one created at the top. Should it be resolved on the upside (pure speculation at this time), it could, at a minimum, create a double-top before the bear market resumes.



Stock Fear Ceiling | Adam Hamilton

Posted in education, technical analysis on 2011-08-27 by Strategesis


Fear is the greatest buy signal ever seen in the stock markets. This overpowering emotion flares fast, driving excessive selling that rapidly hammers stock prices down to irrational oversold levels. These fear-driven lows are the ideal time for investors and speculators to buy low, necessary before selling high later. Provocatively stock fear has an effective ceiling, absolute levels that demand aggressive buying.


Market Turning Points | Andre Gratian | 2011-08-21

Posted in education, technical analysis on 2011-08-21 by Strategesis


ContinuedBetween 2/13/11 and 7/17/11, the SPX described a well-publicized Head & Shoulders pattern which carried a minimum downward projection of about 1165. That warned of a significant decline, but came far short of stating the full decline potential of that topping pattern. Using a standard count methodology for P&F charts, and taking it across the entire formation from right to left shoulder, we come up with a conservative projection down to about 789. A more liberal one would take the index down to 708. Whether or not these projections will be realized in full, or if the bear market concludes at some higher level, they warn us that a severe decline lies ahead and they are in full agreement with the cyclic configuration.

That’s the long-term prognosis, and it should take about three years to become a reality. But what about the short to intermediate term? That looks far more rosy. Again, based on a P&F projection supplemented with structure analysis, it looks as if the SPX is about to conclude its intermediate decline somewhere between 1086 and 1096. Perhaps as early as Monday, in conjunction with a 13-wk cycle low. What happens after that is a little murky because although the structure calls for a potential retracement of 50% of the decline to 1233, there are bottoming cycles that might get in the way of an immediate recovery. These will be discussed a little later on under “CYCLES’.

Turning Points | Andre Gratian | 2011-08-17

Posted in education, technical analysis on 2011-08-14 by Strategesis


During the first four days of last week, stock markets around the world underwent one of their most chaotic and volatile periods in history, but on Friday, an eerie calm prevailed as trading appeared to return to normal. Has the schizophrenic market behavior really normalized, or are we simply in the eye of the hurricane? This is what we are going to try and determine in this letter.

It appears that the bull run is over and that a bear market has started but, technically this won’t be confirmed until the SPX drops below 1010.91 and makes a lower intermediate term low. It can take its time doing this — and probably will.

Arguing that we are in a bear market is enhanced by a six-month period of distribution between the 1347 and the 1370 tops which, on the Point & Figure chart, yields a downside projection of 879, and even lower (789) if we include the left shoulder of the H&S formation.


Turning Points | Andre Gratian | 2011-08-07

Posted in education, technical analysis on 2011-08-07 by Strategesis


Among stock market analysts, the discussion now centers around whether the bull market has ended, or if this is just a severe intermediate correction. The truth of the matter is that, at best, one can make an educated guess (or just a plain guess), but only the market itself knows what comes next, and it is not quite ready to reveal its intentions.

The matter is really quite simple. In order to confirm that it is in a bear market, the SPX would have to make a lower low by dropping below the July 1, 2010 low of 1011 — even if it does not do it right away. It could have a rally that fails to make a new high, with the next decline breaking below 1011.

So, how close to a low are we in the current decline? From a structural standpoint, it is likely that Friday’s drop to 1168 was the end of the move which started at 1347, and that the rally which ensued is a prelude to the final down leg from 1356. This down leg has a Fibonacci projection to 1143, and a Point & Figure target (based on the amount of distribution that occurred between July 7 and July 26) between 1158 and 1123. The different levels are the result of taking two separate counts, one using a 3-point chart and the other a 1-point chart. Since the Fibonacci projection is right in the middle, we can assume with a reasonable degree of certainty that this area is where the decline will end. 1150 is another important projection which is derived from the H&S top. Although not infallible, these predictions are based on proven methods with a high degree of reliability, so we should include them in our overall analysis.

Considering the short term, whether we are in a bear market or not, another low is likely, and the down-grading of US debt-rating by Standard & Poor’s, on Friday, may speed up the arrival of the final leg of the correction. A requirement for wave 4 of the decline (assuming that wave 3 bottomed on Friday) was that it retrace at least .236 of the decline from 1347. By rallying from 1168 to 1214, it has satisfied a little more of that requirement. Granted, the amount of time taken by wave 4 appears to have been insufficient however, the P&F chart — which does not take time into consideration — plainly shows that a completed 4 may have been made. The pattern established after the 1168 low is distinctly larger than any other consolidation during the decline. If we start selling off on Monday morning and go below 1168, the structure completed on Friday has the potential to drive the SPX down to 1147, which is in line with the other projections discussed above.

These assumptions are based on the current market action to determine what it might do on Monday! Nothing wrong with assumptions, providing that we follow the motto of “assume and verify”. If Monday’s market behavior is not what is expected, it will be “back to the drawing board!”

With this analysis as the basis for our expectations, let’s now move to the charts to see if we can, at least, begin the verification process.