Saturday, November 13, 2004
Market Update: Charting a Course Upwards
dated 13 Nov 2004
Since making a bottom on Oct 25, the S&P has rallied for 14 days without even so much as a downturn of its daily chart. For 14 consecutive days, the S&P has made higher lows on its daily chart. I do not have the statistics with me, but according to research, the S&P has only achieved this only three or four times in the past 30 years.
By displaying bullish behaviour on a downturn of its monthly chart in October, pivoting off the corner numbers 1089/1090 which are opposition (or 180 degrees) the date in March 2004 when S&P hit an intraday high of 1163, staging a major reversal on Oct 26 which is itself square 1163, then leaving a Su Ping Buy Signal on its weekly chart, and finally giving 4 Real Accumulation Days within a span of two weeks (resulting in those two weeks being themselves Real Accumulation Weeks), the S&P demonstrated convincingly that the line of least resistance was up.
Going into Nov 7, a key date as it is square the previous weekly closing high of 1157, the S&P persisted in displaying bullish behaviour, thus confirming the uptrend. Next week will again be crucial as it would be 768 calendar days from the bear market low scored in October 2002 --- a period in which the S&P scored an intraday low of 768. On the quarterly chart, the S&P has left the first "Plus-One Minus-Two" pattern ever since beginning the cyclical bull rally in March 2003. Hence the behaviour of the S&P over the next few weeks will be critical. If the S&P can hold on to its gain and defend key support levels successfully, then the "Plus-One Minus-Two" pattern suggests a target of S&P 1400.
Sounds incredible? Not really so. The S&P has carved out a multi-year inverse head-and-shoulders pattern that projects roughly to the same price. The S&P broke through the neckline during the previous week.
dated 13 Nov 2004
Since making a bottom on Oct 25, the S&P has rallied for 14 days without even so much as a downturn of its daily chart. For 14 consecutive days, the S&P has made higher lows on its daily chart. I do not have the statistics with me, but according to research, the S&P has only achieved this only three or four times in the past 30 years.
By displaying bullish behaviour on a downturn of its monthly chart in October, pivoting off the corner numbers 1089/1090 which are opposition (or 180 degrees) the date in March 2004 when S&P hit an intraday high of 1163, staging a major reversal on Oct 26 which is itself square 1163, then leaving a Su Ping Buy Signal on its weekly chart, and finally giving 4 Real Accumulation Days within a span of two weeks (resulting in those two weeks being themselves Real Accumulation Weeks), the S&P demonstrated convincingly that the line of least resistance was up.
Going into Nov 7, a key date as it is square the previous weekly closing high of 1157, the S&P persisted in displaying bullish behaviour, thus confirming the uptrend. Next week will again be crucial as it would be 768 calendar days from the bear market low scored in October 2002 --- a period in which the S&P scored an intraday low of 768. On the quarterly chart, the S&P has left the first "Plus-One Minus-Two" pattern ever since beginning the cyclical bull rally in March 2003. Hence the behaviour of the S&P over the next few weeks will be critical. If the S&P can hold on to its gain and defend key support levels successfully, then the "Plus-One Minus-Two" pattern suggests a target of S&P 1400.
Sounds incredible? Not really so. The S&P has carved out a multi-year inverse head-and-shoulders pattern that projects roughly to the same price. The S&P broke through the neckline during the previous week.
Friday, November 12, 2004
Market Update: S&P may turn weekly chart down next week
dated 12 Nov 2004, 1.30am
The S&P bottomed on Oct 25 --- a date which is significant as it is opposition (that is, 180 degrees) from this year's intraday high of 1163. Going past Nov 7 (for charting purposes, we use Nov 8, since Nov 7 is Sunday), we see the S&P stalling. The date Nov 7 squares the previous weekly closing high of S&P 1157. The S&P has encountered stiff resistance at 1160 previously this year. This is not surprising as 1160 is around the 50% retracement of the all time high of the S&P scored in 2000 and the bear market bottom scored in October 2002. The S&P has been trading above 1160 the previous 3 days --- will 1160 now become support?
Next week will again be an important turning point, as it will be around 768 calendar days from the date in Oct 2002 when the S&P hit a bear market low of 768 on an intraday basis. It remains to be seen whether next week will usher in a pullback, find a low from a pullback, or see renewed upside momentum. Perhaps we will have all three. Either way, there is a good chance of the S&P turning its weekly chart down next week. This suggests a test of 1160. By giving three doji candlesticks on its daily chart at or around new swing highs, the S&P has left a Charlie Angel's Sell Signal. Within 7 days (remember 7 is the number of fear), will we see a decline?
Intermediate-term indicators are weak and it will only take a moderate decline to turn them down again. Short-term indicators are overbought, though this does not preclude higher prices near-term. However, a spike upwards here, coming at such an overbought reading and coming on such strongly bullish sentiment as shown by the put/call ratio and the low VIX levels, begs to be faded rather than chased.
Still, the big-picture setup is still intact. I expect to see higher prices going into early 2005 after a short-term pullback.
dated 12 Nov 2004, 1.30am
The S&P bottomed on Oct 25 --- a date which is significant as it is opposition (that is, 180 degrees) from this year's intraday high of 1163. Going past Nov 7 (for charting purposes, we use Nov 8, since Nov 7 is Sunday), we see the S&P stalling. The date Nov 7 squares the previous weekly closing high of S&P 1157. The S&P has encountered stiff resistance at 1160 previously this year. This is not surprising as 1160 is around the 50% retracement of the all time high of the S&P scored in 2000 and the bear market bottom scored in October 2002. The S&P has been trading above 1160 the previous 3 days --- will 1160 now become support?
Next week will again be an important turning point, as it will be around 768 calendar days from the date in Oct 2002 when the S&P hit a bear market low of 768 on an intraday basis. It remains to be seen whether next week will usher in a pullback, find a low from a pullback, or see renewed upside momentum. Perhaps we will have all three. Either way, there is a good chance of the S&P turning its weekly chart down next week. This suggests a test of 1160. By giving three doji candlesticks on its daily chart at or around new swing highs, the S&P has left a Charlie Angel's Sell Signal. Within 7 days (remember 7 is the number of fear), will we see a decline?
Intermediate-term indicators are weak and it will only take a moderate decline to turn them down again. Short-term indicators are overbought, though this does not preclude higher prices near-term. However, a spike upwards here, coming at such an overbought reading and coming on such strongly bullish sentiment as shown by the put/call ratio and the low VIX levels, begs to be faded rather than chased.
Still, the big-picture setup is still intact. I expect to see higher prices going into early 2005 after a short-term pullback.
Monday, November 08, 2004
Market Update: A Correction is due
dated 8 Nov 2004, 11.25pm
The S&P has rallied for 9 straight days without even so much as a downturn of its daily chart. A pullback is most certainly in order. I have been emphasizing the need to take trading profits off the table. Today is the last day to do so.
A downturn of the S&P daily chart, or the first "Plus-One Minus-Two" pattern (a high followed by two lower lows), or the first 1-2-3 pullback (3 red candlesticks each giving lower lows) will give us important clues as to the nature of this rally. So will the ability of the S&P to hold 1140, and more importantly, 1123, in the days ahead.
The NASDAQ has turned its quarterly chart up on trade above 2045.53. As such it would not be surprising to see a correction now upon such a siginificant event as an upturn of a quarterly chart.
Intermediate-term indicators turned and headed up when the two-week rally began. Now however, they are stalling. Why is that so? This is because they rallied off a weak base to begin with. Two weeks ago, they had not had sufficient time to reach a deeper oversold level. Instead they got neutral and then turned back up. The epic rally has caused them to head back into overbought zone and has made them begin to falter again.
The shorter-term indicators are now maximum overbought --- a condition that can last at most till Tuesday. With both short-term and intermediate-term indicators poised to turn down anytime now, this does not bode well for the market. In addition, sentiment as measured by the 10-day moving average of the CBOE put/call ratio as well as the Investor's Intelligence weekly survey both point to a high level of bullishness. The 10-day put/call in particular has stopped falling and is poised to cut upwards anytime now. This suggests that it is very late in the rally.
The big-picture is still intact, but the market seriously needs to work off its overbought condition before it can make meaningful strides higher.
Both the S&P and the NASDAQ have made two Real Accumulation Weeks in a row.
In history, when were the times the S&P had "piggyback" Real Accumulation Weeks? Well, it occurred in March 2000, just prior to the 3-week blow-off to the climatic top of the two-decade long secular bull market. The S&P subsequently went on to lose 50% of its value over the next two and a half years.
Before the March 2000 blow-off, the last time the S&P had piggyback RAWs was at an interim low in early 1999, prior to an epic one-year rally that marked the final phase of the secular bull run. They also occurred at the lows of 1997 during the times of the Asian financial crisis. They also occurred in January 1987, marking the start of a rally that lead straight into October 1987, when the mini-crash called Black Monday happened. Just three weeks before the big crash October 1987, there were yet again piggyback RAWs on the S&P.
So while piggyback RAWs can mark the start of an epic bull run, history shows that more often than not, such runs can end in disaster a few weeks to several months later on. As such, while I have asked traders to take profits off the table for the short-term, I am also advising investors to take a little of those gains off the table for the longer term.
dated 8 Nov 2004, 11.25pm
The S&P has rallied for 9 straight days without even so much as a downturn of its daily chart. A pullback is most certainly in order. I have been emphasizing the need to take trading profits off the table. Today is the last day to do so.
A downturn of the S&P daily chart, or the first "Plus-One Minus-Two" pattern (a high followed by two lower lows), or the first 1-2-3 pullback (3 red candlesticks each giving lower lows) will give us important clues as to the nature of this rally. So will the ability of the S&P to hold 1140, and more importantly, 1123, in the days ahead.
The NASDAQ has turned its quarterly chart up on trade above 2045.53. As such it would not be surprising to see a correction now upon such a siginificant event as an upturn of a quarterly chart.
Intermediate-term indicators turned and headed up when the two-week rally began. Now however, they are stalling. Why is that so? This is because they rallied off a weak base to begin with. Two weeks ago, they had not had sufficient time to reach a deeper oversold level. Instead they got neutral and then turned back up. The epic rally has caused them to head back into overbought zone and has made them begin to falter again.
The shorter-term indicators are now maximum overbought --- a condition that can last at most till Tuesday. With both short-term and intermediate-term indicators poised to turn down anytime now, this does not bode well for the market. In addition, sentiment as measured by the 10-day moving average of the CBOE put/call ratio as well as the Investor's Intelligence weekly survey both point to a high level of bullishness. The 10-day put/call in particular has stopped falling and is poised to cut upwards anytime now. This suggests that it is very late in the rally.
The big-picture is still intact, but the market seriously needs to work off its overbought condition before it can make meaningful strides higher.
Both the S&P and the NASDAQ have made two Real Accumulation Weeks in a row.
In history, when were the times the S&P had "piggyback" Real Accumulation Weeks? Well, it occurred in March 2000, just prior to the 3-week blow-off to the climatic top of the two-decade long secular bull market. The S&P subsequently went on to lose 50% of its value over the next two and a half years.
Before the March 2000 blow-off, the last time the S&P had piggyback RAWs was at an interim low in early 1999, prior to an epic one-year rally that marked the final phase of the secular bull run. They also occurred at the lows of 1997 during the times of the Asian financial crisis. They also occurred in January 1987, marking the start of a rally that lead straight into October 1987, when the mini-crash called Black Monday happened. Just three weeks before the big crash October 1987, there were yet again piggyback RAWs on the S&P.
So while piggyback RAWs can mark the start of an epic bull run, history shows that more often than not, such runs can end in disaster a few weeks to several months later on. As such, while I have asked traders to take profits off the table for the short-term, I am also advising investors to take a little of those gains off the table for the longer term.
