TIME FOR CAUTION - Market Turning Points

October 30, 2011
Market Turning Points
By Andre Gratian

TIME FOR CAUTION

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, there will be another steep and prolonged decline (which appears to have already started) into 2014.

SPX: Intermediate trend – The intermediate trend which started at 1075 as a bear market rally may be about to end shortly. Time for caution!

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 [email protected]

Market Overview

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.

Chart analysis

Let’s look at the Daily Chart of the SPX. This spectacular rally has been so strong that it did not even have much of a correction since its inception in early October. It has gone right thru the 50-DMA, the former short-term highs, the 200-DMA, and has even penetrated substantially into the thick overhead layer of resistance which starts at 1258. It’s more than overdue for a correction, and this is what the P&F projection, as well as the structure, is calling for.

This weekly newsletter regularly analyzes the SPX, the Dollar, Gold, oil, and other important indices, as well as breadth and sentiment indicators. To read the current newsletter in its entirety, please go to:

www.marketurningpoints.com

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