Updates on GOLD and the Dollar 8/5/14
The US Dollar has had a powerful relative rally from late June into early August. This has put pressure on GOLD. See the US Dollar chart below: (More notes under the chart)
So this has led partially to the fall-off in Gold from 1346 to 1281 recent dip lows. Interesting that at $1281 we have a perfect 61% fibonacci retracement of the prior $106 rally from 1240-1346. We would like to see 1281 area hold for a new rally, and right now the US dollar is overbought as well. The counter balancing issue though is the Commitment of Traders report is showing the smart money commercial traders with very large short (Hedged) positions in GOLD… that is creating uncertainty for traders as well.
Otherwise, on a longer term basis the Stage one base continues over 13 months to build possible power for a big rally this fall. The next level of support comes in around $1263…. keep a close eye on that as key to hold…. 1281 is the 61% support
Its been a few weeks since any write up on the SP 500. We had an obvious dip to 1815, which was below the 1840 support lines at the time. We then bounced, and early last week re-tested the 1815 line. More importantly though is to drill down into other sectors to understand the current rally.
The NASDAQ had retraced just over a 23% Fibonacci level of its last major leg up and was down to the 200 day moving average lines. After a re-test and pierce of the lows last week, it rallied off those oversold levels. In addition, last week we had the % of NASDAQ stocks trading below the 50 day moving averages at about 19%, an over 12 month low and lower than prior corrections.
The Biotech sector retraced a Fibonacci 38% of its entire 2 year plus rally and was super oversold and hated. We advised BIB 2x Long ETF at our ATP service around 67 looking for at least 12% bounce there. The reason is the retracement was over 20% in terms of losses from the highs, the top was parabolic though, and the bounce we thought would be swift off the 38% line. So far all of that has been right.
So what we had was really the Small caps, Tech, and Biotech the former leaders all correcting very hard to 200 day lines or 23 or 38% fib lines. The Large caps held up relatively well as there was rotation, hence the SP 500 didn’t really collapse into a Primary wave 4 which was possible.
So what now? We are in an 8 week consolidation for the large cap index SP 500, resistance at 1884. The next level is 1950 we think if that breaks. We felt all along that a true Primary wave 3 would get as high as 2200 on the SP 500, but that’s all a matter of degree of waves and where we are counting from. So a rally further from here would not be a shock per se, but clearly this current wave pattern from the 1267 area is long in the tooth.
For now, below is a weekly SP 500 chart, and you’ll want to keep your eye on the 30 week MA line… which is a common spot for growth stocks to test at some point before moving back up or breaking down…. no choice but for now to remain bullish that we are still in Primary wave 3 up of this 5 Primary wave bull cycle from March 2009
The SP 500 has rallied from 1267 to 1848 major 3 highs from Major 2 lows.
We had 1822-29 as MOST likely pivot highs for Major wave 3.
Now, we note that it’s common during this Major wave 3 pattern to have 13 trading day cycles of correction or consolidation, followed often by up legs.
We just completed a 13 trading day cycle in the SP 500 in a range bound area of trade.
Therefore, we are about to likely see a big move up or down within 1-2 trading days if we are right. Given that the market is extended and earnings season is just around the corner, we should see a sharp move here next week.
Since we are extended past the idea 1829 projection, we are on guard for market reversal and correction of 7-10%.
In the interim, over at the Active Trading Partners service we continue to out perform the stock market by a wide margin since April 1st
2013 by riding the trend and entering and exiting positions using our modeling techiques. At last count, 87% vs 18% for the SP 500 since April 2013 on an adjusted portfolio basis.
This also means we are keeping our eyes open for headwinds. If
we can get past 1848 near term, then another extension in this Major 3 is upon us. 1823 is now KEY support on the downside.
Your two numbers to watch are 1849 and 1823…. the break of either will help us with our updated projections intermediately
My Stock market trend analysis is likely different from what you think is about to unfold. Keep an open mind as this is just showing you both sides of the coin from a technical stand point. Remember, the market likes to trend in the direction which causes the most investor pain.
Since the stock market bottom in 2009 equities has been rising which is great, but this train could be setting up to do the unthinkable. What do I mean? Well, let’s take a look at the two possible outcomes.
The Bear Market Trend & Investor Negative Credit
The S&P500 has been forming a large broadening formation over the last 13 years. The recent run to new highs and record amounts of money being borrowed to buy stocks on margin has me skeptical about prices continuing higher.
Take a look at the chart below which I found on the ZeroHedge website last week. This chart shows the SP500 index relative to positive and negative investor credit balances. As you can see we are starting to reach some extreme leverage again on the stock market. I do feel we are close to a strong correction or possible bear market, but we must remember that a correction may be all we get. It does not take much for this type of borrowed money to be washed clean and removed. A simple 2-6 week correction will do this and then stocks will be free to continue higher.
Monthly Bearish Trend Outlook
Below you can see the simple logical move that should occur next for stocks based on the average bull market lasts four years (it has been four years) and the fact the negative credit is so high again.
Also, poor earnings continue to be released for many individual names across all sectors of the market. While corporate profits may be holding up or growing in some of the big name stocks, revenues are not. This means the big guys are simply laying off workers and cutting costs still.
Overall the stock market is entering its strongest period of the year. So things could get choppy here with strong up and down days until Jan. After that stocks could start to top out and eventually confirm a down trend. Keep in mind, major market tops are a process. They take 6-12 months to form so do not think this is a simple short trade. The market will be choppy until a confirmed down trend is in place.
Monthly BULLISH Trend Outlook
This scenario is the least likely one floating around market participant’s minds. It just does not seem possible with the global issues trying to be resolved. With the Federal Reserve continuing to print tens of billions of dollars each month inflating the stocks market this bullish scenario has some legs to stand on and makes for the perfect “Wall of Worry” for stocks to climb.
The US dollar is likely to continue falling in the long run, but I do not think it will collapse. Instead, it will likely grind lower and trade almost in a sideways pattern for years to come.
Major Stock Market Trend Conclusion:
In summary, I remain bullish with the trend, but once price and the technical indicators confirm a down trend I will happily jump ships and take advantage of lower prices.
Remember, this is big picture stuff using Monthly and quarterly charts. So these plays will take some time to unfold and within these larger moves are many shorter term opportunities that we will be trading regardless of which direction the market is trending. As active traders and investors we will profit either way.
Traders and investors all around the world is having trouble climbing over the wall of worry/fear with the US stock market, and rightly so. There is a lot of things taking place and unfolding that carry a high level of uncertainty. Let’s face it, who wants to invest money into the market when it’s hard to come by (high unemployment, banks are still extremely tight with their money, companies are nowhere near wanting to hiring new staff).
The hard pill to swallow is the fact that the stock market loves to rise when uncertainty is high. It’s almost doing it just to drive investor’s nuts who sold out near market bottom or recent correction. You must overcome the urge to short the market when the economy looks so bearish in the years ahead, and continue to trade with the trend.
Short Term Investing – Weekly Volatility Index Chart
Below you can see the fear index. The chart is self-explanatory showing where it should move next. But if you are not familiar with the VIX then here is definition by investopedia:
“The first VIX, introduced by the CBOE in 1993, was a weighted measure of the implied volatility of eight S&P 100 at-the-money put and call options. Ten years later, it expanded to use options based on a broader index, the S&P 500, which allows for a more accurate view of investors’ expectations on future market volatility. VIX values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.”
Weekly Investing Chart of the SP500 Index
After reviewing the VIX chart above which points to stocks nearing a level of selling pressure, then review the chart below we come to a conclusion that a minor pullback of 2-5% is likely to take place in the next week ortwo.
The divergence in the Relative Strength Index is a bearish sign for the broad market. While I feel a pullback is do and needed for the market to regroup, it is important to review the seasonality chart and know that we are entering one the strongest times of the year for stocks.
SP500 Seasonality Chart
Again, using the data from the previous two charts along with this graph clearly shows that a pullback in the stocks is likely going to be bought back up by the brave investors willing to override their fear and go with the trend. For more interesting charts check out my stock chartlists: https://stockcharts.com/public/1992897
The Wall Of Worry Conclusion:
In short, expect the stock market to correct in the next week or two. But once we get a correction of two percent or more, be prepared for buyers to step back in and buy things up into year end.
Last week on October 8th the financial market experienced a broad based sell off. Every sector was down with utilities being the only exception.
The individual leadership stocks, which are typically small to mid-cap companies (IWM – Russell 2K) that have a strong history and outlook of earnings growth, were hit hard as well.
Whenever the broad market experiences a price correction, one of the most important factors I analyze is how well leading stocks hold up and show relative strength to the broad market.
So, where does this leave us going forward?
When stocks that have been leading the market higher and only pausing during market corrections in the S&P500, Dow, and NASDAQ, it’s a positive sign. This tells us investors and big money continues to flow into the risk on assets (stocks).
Conversely, when these leading stocks/sectors begin succumbing to the selling pressure of the broad market, it quickly grabs my attention and tells us it’s time to be aware that a major top may be forming.
It looks as though the broad market rally is just barely hanging on. If the leading stocks and sectors begin breaking below their 50-day moving averages, my proprietary SP500 Market Timing & Trading System will shift to sell mode and things could get ugly for those who do not know how to trade a bear market.
This chart has two important things I would like to point out. First is the fact that the RSI has being overbought twice in the past three years with the most recent one taking place a few months ago. The last time this took place the SP500 had a very strong correction.
The second insight the RSI is providing us with is the diverging price and relative strength as shown with the purple lines on the chart below. This is telling us that the power/momentum behind the market is slowing.
Daily Bullish Percent Index – Shows Negative Divergence
I always prefer to watch and analyze the NYSE as it’s the big board where all the HUGE money is flowing from traders and investors. The chart below clearly shows that less stocks are moving higher as seen with the purple bullish percent index line. With less stocks making new highs, yet the stock market continues to climb this is a warning sign that this bull market is slowly running out of steam.
Technology & Financial Sector Are Rising But For How Long?
Two very powerful sectors are holding up well but once they start to breakdown from these chart patterns things could get ugly real quick. Our 3x ETF trading newsletter becomes very active in bear markets as the upside potential is much larger.
The XLK technology sector looks to be forming a bearish rising wedge. If/once it starts to slide it will have a strong impact on the broad market.
Financial Sector XLF
The recent price action of scattered trading ranges looks to be similar to the top we saw in 2011. If this is the case then we have bearish head & shoulders pattern with a rising neckline forming. Once price breaks through the neck line we should expect sharp drop in price.
This sector is heavily weighted in the SP500 so if it start to drop, expect the SP500 to fall with it.
Major Market Top Lurking…
The chart below pointing out the next bear market likely to take place is a scary looking chart to most individuals. But if you know what you are doing, they can provide more profits in a shorter period of time than a four year bull market.
If this market is starting to stall out and is in the process of forming a top. Keep in mind that market tops are a process. They take typically 3-6 months to form before a true breakdown occurs and the bear market starts. And until then, price will be choppy and difficult to trade.
Cautious Trading Conclusion:
In short, this report shows you some major divergences in the financial market. Remember, you do not really trade off divergences, as they are not good at timing. They are simply a warning sign telling us that something large is brewing and that risk is higher than normal.
There are few ETFs I like on various sectors and commodities that show some oversized upside potential in the coming weeks/months. Depending on what takes place in Washington this week will move the market and likely trigger some sharp moves. Until then, sitting tight is the safe play.
The SP 500 has been on a tear since late 2012 with the SP 500 bottoming at 1266. The rally though we have been charting out as part of a “Primary wave 3″ uptrend for this Bull market cycle from March 2009, and we are likely entering a Major correction or what we would label “Major wave 4″. Since the 1266 lows, we have had Major Wave 1, 2, and now 3 completed at 1710. We are entering Major wave 4 which should correct 23-38% of the entirety of Major wave 3, which was 444 points.
This correction will be confirmed with any close below 1674 and nails in the coffin begin with any close below 1685 on the SP 500 index. Primary wave 1 of this super bull cycle ended at 1370, a 704 point rally. Primary wave 3 will likely be larger than Primary wave 1 and I am projecting a top between 1900-2000 on the SP 500 before it’s completed. The current correction is Major wave 4 of Primary wave 3, which has 5 Major waves required. With that said, our projections are for 1605 on the shallow side and 1540 on the deeper side for Major wave 4 of Primary wave 3.
Now it is possible that we may extend a bit higher yet in Major wave 3 to 1736-1772, but only if we hold the 1685 support lines which the market is basing around currently. In any event, at our Trading service we have been aggressively taking profits in the past two weeks on multiple positions while still holding a few open at this time.
Below is a chart showing our projected correction pivots of 1605 and 1540, subscribers will be updated on a regular basis. Join us with a 33% discount at www.markettrendforecast.com and also receive Precious Metals (GOLD) forecasts on a regular basis every week.
We have continued to correctly project the wave patterns for months now at TMTF for our subscribers in the SP 500 Index. Our latest views were to look for a minor wave 3 top at 1698 with a pullback minor wave 4. We hit that on the nose with a 23.6% fibonacci retracement of minor wave 3 as we hit 1676.
Since that point, we outlined a Wave 5 pattern that should take the SP 500 to 1736-1771. Several weeks ago we patterned out 1768-1771 as a perfect target for a Major wave 3 high.
This will be followed by a 125-200 point SP 500 correction if we are correct.
Below is our chart update outlining what we project ahead. A run to 1736-1771, followed by a 120-200 point correction for Major Wave 4 in the SP 500.
Wave 5 up has been in our forecast ever since we started correcting down below 1600, because wave 5 must follow wave 4, its in the Elliott Wave Bible.
Wave 5 can be difficult to forecast, but we have said at a minimum it will test the all time highs at 1687-1689 pivots, which would be a shallow wave 5 rally from 1560.
Today, we updated to our paying subscribers that we have 1768-1771 as the upper end of this rally and where the market likely would top out and begin a larger correction pattern, what we would call a “Major wave 4″.
For now though, as we have been posting publicly on Stocktwits and Twitter, we see this wave up continuing higher to 1687-89 for starters, and our subscribers will be updated daily as usual.
Below is our ROADMAP for the SP 500 for the intermediate term:
Join us for free reports here and there and or 33% off our daily report subscription (Covers SP 500 and GOLD) at www.markettrendforecast.com