Market Turning Points | Andre Gratian | 2011-10-30

From Safehaven.com:

The title of this newsletter advises caution. There are several reasons for this. The SPX Point & Figure chart has several projections (taken from different levels) which target a top between 1310 and 1320. That, by itself, should be reason for caution. Especially when some indices which run counter to the market and have been in a corrective phase, such as TLT and the VIX appear to be very close to fulfilling their downside P&F potential.

Structural analysis also suggests that we are approaching a top. There is a strong probability that the rally from the early October low has progressed as an a-b-c structure. Although the “b” wave is hardly noticeable on a daily chart of the SPX, it is clearer on the hourly chart, especially on that of the Global Dow and other indices. If this is correct, the entire pattern from the low is evolving in the form of a zig-zag. On Friday, it looked as if we may have completed wave 3 of the second five-wave pattern. That only leaves two short waves (4 and 5) to finish the move before we have a serious retracement. Some EW analysts see this pattern as minor wave 2 of a bear market rally, with wave 3 starting as early as next week.

That seems to fit in with what some serious cycle analysts such as Erik Hadik are saying. And there is also a warning from Raymond Merriman, the well-known financial astrologer, that the Jupiterian influence which he believes was the reason behind the rally should soon begin to wane. It does not hurt to have some reputed analysts who specialize in other market methodologies support your point of view! Hence the warning: CAUTION, if you are a bull!

In today’s market climate, moves are very fast and do not stop until they have exhausted their potential projections. This is probably why the B wave retracement was so insignificant. We should therefore guard against “expecting” a sideways pattern, or a mild retracement, just because we’ve had all the strength, especially if the EW analysts are correct in anticipating the imminent end to minor wave 2. If we are about to start minor wave 3, you can’t look for a shallow, partial retracement of wave 2. The odds rather favor a potential retracement of the entire rally – as incredible as this may seem at this time.

Continued

October has killed another bear | Cliff Droke

From Safehaven.com:

October has a tendency to be a “bear killer.” That is, in years when the stock market has been in decline heading into October, the month of October more often than not reverses the decline, at least temporarily. In the years that I’ve been writing a financial newsletter this was true in the following Octobers: 1998, 1999, 2001, 2002 and 2005.

Since the rationale behind the May-September mini-bear market was the economic situation in Europe, let’s start with some currency considerations. Since the ongoing rally has been primarily currency driven, it stands to reason that any continued weakness in the dollar and strength in the euro will benefit equities. The previous 20% decline in some major market indices from May to September was largely the psychological result of investor liquidation of stocks over fears relating to the deterioration in the Greek debt situation.

Continued

Market Turning Points | Andre Gratian | 2011-10-23

From Safehaven.com:

The pause in the uptrend was much briefer than I had expected and it is possible that we’ve already completed the A-B portion of the anticipated A-B-C bear market rally.

By overcoming the previous early September high of 1330 (not just once but twice) with a higher close this week, we can assume that the intermediate trend of the SPX is still healthy. The index has also poked its head above its 200-DMA and closed about 5 points above on Friday. There is no sign that we have slowed our upside momentum. In fact we may be starting to accelerate upward once again, though it is just a little too soon to tell.

Another sign of market health is the much improved performance of the weekly breadth indicator.

It had a little difficulty getting off the ground, but is now coming on strong. However, a warning that we could soon get a near-term pull-back comes from my daily A/D indicator which is showing some negative divergence.

The QQQ, which had been relatively stronger than the SPX throughout the whole correction from the 1371 level has started to lag since Apple’s earnings have come out but, It probably does not mean anything just now.

The leading indicator is lagging on a weekly basis, but is keeping up with the SPX on a daily and hourly basis suggesting that a serious reversal is not yet in sight. This is also reflected in the weekly chart indicators, as we will see later on.

Another index worth noting is the Global Dow (GDOW). At the top, you can hardly tell the difference between the chart patterns made by that index and the SPX, but if you look closely, you will see that it had some relative deceleration starting with the May 2010 high. Its relative weakness becomes far more flagrant when you compare the October lows. While the SPX remained well above its July 2010 low, (and is consequently still in a longer-term higher/high, higher/low pattern), the GDOW broke below its July 2010 low, and is thus no longer in a long-term uptrend. This would tend to substantiate the fact that — the current market strength not withstanding — we have started a bear market decline.

Continued

Market Turning Points | Andre Gratian | 2011-10-16

From Safehaven.com:

We’ve got ourselves a rocket-propelled uptrend! In nine daily trading sessions, the SPX has tacked on 149 points, or almost a 14% gain. You’d think that we had started a new bull market but, considering the major cycle lows that lie ahead, that’s highly unlikely, and we are probably only experiencing a very strong rally in a bear market. As anyone who has followed the stock market for a while knows, bear market rallies are supposed to be fast and furious by nature, and this one is taking place in an extremely volatile period, so perhaps we should not be so surprised at its velocity.

In spite of this, we can still make sense of where we are and what is likely to come next. The structure appears to consist of five waves from the 1075 low, with the index now completing its fifth wave. If this is correct, the entire move would be wave A of the upward correction, and we should be on the verge of starting wave B.

The Point & Figure charts seems to support this analysis. The base pattern — including a small extension — gave us a projection to 1171. This is where the rally paused after completing wave 1. Wave 2 formed a re-accumulation pattern which provided a count to 1221, with a possible extension to 1230-1233. Wave 3 stopped at 1220, giving way to a wave 4 correction. When that pattern was completed, we had another projection to 1223 with a possible extension to 1230-1233 (which matched the count across wave 2). Incidentally, there is also a potential base extension count to 1224 which is well defined and which could turn out to be important.

On Friday, the index closed on its high of the day at 1224, intimating that it may not be quite ready to pull back before attempting to meet a final target of 1230-1233. This could happen on Monday morning, and if it does, we should be ready for the beginning of the most serious retracement since the beginning of the move. If the market decides not to go beyond 1224, it will not invalidate the structure or the projection. However, if we go substantially beyond 1233, some adjustment to the analysis will have to be made.

Besides completing the structure and reaching the target, there are several other coincident technical aspects that argue for an important pause in the rally at this time.

– On its way down to 1075, the index made an extended consolidation of several weeks. The top of that consolidation was 1230.71, and any rally to that level should expect to meet with at least temporary resistance, especially since it corresponds with a short-term high in November 2010 and also matches the P&F projection!

– The move from the low of 1075 to 1231 represents a retracement of slightly over 50% of the entire decline from 1370.

– The 200-EDMA of the SPX is currently at 1234. After a move of that extent, it is not likely that the index can shoot through its 200-EDMA without some consolidation.

– As you can imagine, the daily indicators are severely overbought with the MSO at 100%, and the A/D oscillator is in an area from which it normally retraces.

– All the hourly indicators are showing negative divergence.

– The 17-week cycle is expected to make its low next week. The effect of this cycle on the stock market is not consistent, varying from a small ripple to a sizeable move. In this case, if the SPX does top on Monday, it could bring about a significant initial correction.

– Finally, on Friday, my leading indicator started to show some negative divergence to the SPX on an hourly basis. That is only the second time that it has happened from the beginning of the rally. The first was during the wave 2 consolidation.

Taken all together, these are good reasons to expect a pause in the rally.

Let’s look at charts!

Continued

Market Turning Points | Andre Gratian | 2011-10-09

From Safehaven.com:

Here is what I wrote in my last newsletter: “The SPX made a double-top at 1220 that created a pattern on the Point & Figure chart from which we can estimate the extent of the decline by taking a count across the 1195 line. We come up with two well-defined targets: One to 1080, and the other to 1040. These are closely correlated by Fibonacci projections. With the 3-yr cycle low about a week away, we could not ask for better conditions to predict the intermediate low.”

The SPX made its low on Tuesday 10/4 at 1074.77, and has not looked back since! It closed out the week at 1155.46 after reaching a high of 1171 on Friday.

On Thursday, I sent the following update to subscribers:

From: Andre Gratian Sent: Thursday, October 06, 2011 9:07 AM Subject: Market update

(I will let the two quotes above speak for themselves about the quality of the information that is dispensed to subscribers.)

What now? It looks as if, after the SPX reached its projection on Friday, the indices are beginning to form a short-term top. As of the close there was still no sell signal but plenty of warning in the indicators, as we will see when we look at the charts.

The action of the market last week confirms the view that we have started a counter-trend rally in the bear market that started in May for the SPX, and July for the QQQ. I don’t have a specific target for the top of this move, but 1215 (a 50% retracement) and perhaps 1248 (.618 retracement) are good bets. I will try to be more precise after the Point & Figure pattern has progressed enough to warrant a projection.

Let’s look at charts!
Continued

Market Turning Points | Andre Gratian | 2011-10-01

From Safehaven.com:

The 3-yr cycle is ideally scheduled to make its low next week and it has brought unrelenting pressure on the market over the past few days. This is why rallies have failed to hold, and why selling is intensifying. We are getting closer and closer to the day of reckoning!

Here is what I wrote in my last newsletter: “The SPX made a double-top at 1220 that created a pattern on the Point & Figure chart from which we can estimate the extent of the decline by taking a count across the 1195 line. We come up with two well-defined targets: One to 1080, and the other to 1040. These are closely correlated by Fibonacci projections. With the 3-yr cycle low about a week away, we could not ask for better conditions to predict the intermediate low.”

In our dualistic world, there are two equal and opposite sides to every event: one positive, and one negative. In Asian philosophy, this is known as the yin-yang principle. The bad news about the current market condition is that if everything happens as it “should”, the SPX will experience another 80 to 100-point plunge into next week. The good news is that afterwards, it should start another intermediate rally which is likely to last into 2012.

Do not forget, however, that what has transpired in the market since May is most likely only a rehearsal for the next market which “should” take place over the next 3 years! Right now, we are only dealing with a 3-yr cycle. In (October ?) 2014, we will witness the bottoming of the 120-year cycle, a phenomenon that no living human has ever experienced. At this time, it is too early to predict exactly when this grand finale will start, and logic tells us that it will not be 40 times as bad as the 300-point decline from 1370 into next week’s suggested low of about 1060, but it should be bad enough. Current estimates are for the SPX to bottom between 700 and 800, but we will have plenty of time to refine this projection.

There is always the possibility that the market will fool us and that the SPX will hold above 1101. If next week fails to bring the significant weakness that is contemplated, bears be careful!

Continued

The Stock Market Smells Deflation

From Safehaven.com:

In previous commentaries we’ve talked about how the 6-year cycle is scheduled to peak around Oct. 1. That now appears to be all but certain following the last few trading sessions. Although the cycle has a 1-2 week standard deviation (plus or minus), it appears that it peaked on schedule last week and that the stock market has lost the last remaining cyclical support it had throughout most of September.

Continued

Whipsaw: The Song Remains The Same

From Safehaven.com:

Whipsaw is an ever-present challenge in the trading and investment arena. According to one of Jack Schwagers original Market Wizards Ed Seykota, the only way to avoid whipsaw losses is stop trading and investing. Disengagement may work for a time however; I do not believe that Seykota intended for people to interpret his quote as a serious solution.

Seykota, best known for his extremely successful trend-based strategies, concedes that each is subject to whipsaw drawdowns and losses. In addition to being one of the best-in-class trading systems developers, Seykota has musical talents and a rather keen sense of humor as well.

The video below is of Ed Seykota and his blue grass band performing “The Whip-Saw Song.” Embedded within the artistic levity are numerous pearls of wisdom. Do enjoy.

Watch video

Trouble ahead, trouble behind…

US Dollar Index | Monthly Bars

(Click on chart for larger view)

The chart speaks for itself, if you know how to read it: Significant upswing in the US Dollar index has probably started, based on a) the break of the downward trend channel line, b) the upsurge in momentum as measured by my proprietary technical indicators, and c) the oversold condition of the market.

However, the overall trend in the USD is still down. Also, technical analysis only provides the relative odds, and does not forecast the future with certainty. Nothing can do that. So believe what you see, and take to heart the fundamental principle of market analysis: Trends can and do reverse, but at any given moment, a trend is far more likely to continue than to reverse.

That being said, the history over the past decade or so is that whenever the USD rises on the scale of monthly price bars (by more than the usual meaningless fluctuations,) world markets and economies fall.

Prediction or cause? Information theory may hold the key

From PhysOrg.com:

“A perplexing philosophical issue in science is the question of anticipation, or prediction, versus causality,” Shawn Pethel tells PhysOrg.com. “Can you tell the difference between something predicting an event and something actually causing an event?”

Continued