Market Turning Points | Andre Gratian | 2011-12-18
Last week, the headline was: “A LITTLE MORE CONSOLIDATION?”, which turned out to be correct with the SPX losing another 45 points before finding support.
What now? Last week’s prediction was predicated on cycles bottoming early next week. These cycles exerted steady pressure during the beginning of the week, but by Thursday, the SPX was starting to resist the downtrend, and this was the case on Friday as well. One reason for this action was the fact that the P&F chart had given a phase count to 1212. On Thursday, the SPX found support just below the projection target at 1210, re-tested it, and held above that level for the rest of the week.
Although this may suggest that a correction low has been made, what is more likely is that the total distribution phase count to about 1205 will be met, with the possibility of a further decline to 1195. Since cycles are due to bottom early next week, this makes more sense than forming a base above 1210.
Should this take place, the market would then be in a position to extend the wave “C” rally which started at 1159. It may have only a limited time window to do so. According to Raymond Merriman, the renown financial astrologer, astrological signs will become unfavorable to the stock market by the end of the month. Since the SPX will have to travel 90 to 100 points just to get to the former 1292 high, if he is right, it will be a challenge to do so in such a short amount of time.
On the other hand, astrology aside, the technical picture of the SPX looks favorable. As you will see on the chart, the index may be in the process of making a significant inverted Head & Shoulders pattern which would be confirmed if it can rise above 1267. Next week, if the base pattern is complete and the SPX has reversed, we can gauge by the size of the base how far the rally can travel. Previous projections have suggested about 1314, and even higher. That will be confirmed (or not) by the base pattern which is currently under construction. At this point, it looks as if the SPX will have to hold off reversing until about the middle of next week so that the accumulation pattern can be extended enough to confirm the former projections.