By: Andre Gratian
SPX STILL IN CORRECTION MODE
Precision timing for all time frames through a multi-dimensional approach to technical analysis: Cycles – Breadth – P&F and Fibonacci price projections and occasional Elliott Wave analysis
“By the Law of Periodical Repetition, everything which has happened once must happen again, and again, and again — and not capriciously, but at regular periods, and each thing in its own period, not another’s, and each obeying its own law… The same Nature which delights in periodical repetition in the sky is the Nature which orders the affairs of the earth. Let us not underrate the value of that hint.” ~ Mark Twain
Current Position of the Market
SPX: Very Long-term trend – The very-long-term cycles are down and, if they make their lows when expected (after this bull market is over) there will be another steep and prolonged decline into late 2014. It is probable, however, that the steep correction of 2007-2009 will have curtailed the full downward pressure potential of the 120-yr cycle.
SPX: Intermediate trend – The intermediate uptrend is still intact, but a short-term top is already in place.
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.
Daily market analysis of the short term trend is reserved for subscribers. If you would like to sign up for a FREE 4-week trial period of daily comments, please let me know at ajg@cybertrails.com”>
Market Overview
The SPX remains in an unconfirmed short-term decline. It will be confirmed when it trades lower than the recent 1357 low. Until it does, there is a possibility that the index is making a consolidation pattern in preparation for continuing its bullish uptrend.
I rate the odds of that possibility as very low. On the Point & Figure chart, the trading pattern which resulted in a high of 1422 is clearly a distribution phase which stands unresolved in spite of the drop to 1157. In order to fully unleash the potential that was built up during these 4 weeks of distribution, the SPX would have to drop to 1342 at a bare minimum, most likely to about 1300, and perhaps to as low as 1345. The stock market moves forward in a continual process of accumulation-uptrend, distribution-downtrend. Each period of accumulation and distribution stores energy which is released in the following move. This happens in all time frames and is one of the basic structural mechanisms by which the stock market progresses.
When the SPX dropped below 1393, it broke below a support level that has now become a strong resistance area, and which it has tried unsuccessfully to overcome for the past two weeks. During this time, the index has constructed what appears to be another phase of distribution which closely resembles the one formed at the higher level, and it looks nearly complete. If that’s the case, the decline which started from 1422 is about to resume. The next few days of trading should be decisive.
There is an important cycle bottoming at the end of the month which should play an important role in the near-term market action as it applies more and more downward pressure with each passing day. Since the beginning of the bull market in 2009, like clock-work it has brought about a significant decline in the stock market when making its low. It would be more logical to expect a recurrence of that pattern than to ignore it. Its last bottom came in early October of last year in conjunction with the 3-yr cycle, and it is again due at the end of April.
If the current market activity is being interpreted correctly as a corrective pattern which is almost complete, the resumption of the decline should occur during the coming week.
Chart analysis
We’ll start with the Daily Chart of the SPX. Let’s first look at the structure. From the 1159 low in November of last year, the index progressed to 1422 in what appears to be 5 waves before breaking its trend line in early April. This caused a decline to 1357 and to the bottom of the rising channel in which it is still confined. Until it comes out of that channel on the downside, the SPX is still in an uptrend.
Instead of rebounding smartly, as it did the last time that it touched its trend line before breaking it, the price activity for the past two weeks has consisted of crawling along the bottom channel line. This is not a strong pattern! This crawling action, more often than not, results in a break of the trend line which is acting as support, and in a continuation of the downtrend.
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