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Sunday, March 7, 2010

Week-end outlook

The daily chart of the SPX is the most telling about the overbought conditions we are in. The RSI has now reached levels that were only achieved twice in the last year after breaking through trendline resistance, and the MACD is up against its own trendline resistance all happening while we have seen the volume decline starting from the bottom of this current rally, something that has not happened in the whole rally that started early last year. Although this rally could extend, it is doing so on shaky grounds built in the absence of volume and when that happens, a sell-off could be very brisk if volume were to increase during it.
This next wave down will be very important to the longer term outlook. A correction where we only retrace 38-62% in a overlapping series of waves, without a serious increase in volume and breadth would be longer term bullish, and signal a correction of the current rally from the lows of 1044, with higher highs most likely.
On the other hand, if we see this next sell-off happen without overlapping waves on increasing volume and breadth, and the sell-off is quick, time wise, then we would be looking longer term bearish , first with a challenge of the 1044 lows and if 1044 does not hold, then the long term trend becomes down as we made a lower low.

8 comments:

  1. Col, this is a great post brother! I love your volume trend analysis of now compared to July. That is great, and very telling!!

    This next wave down will be very important to the longer term outlook. A correction where we only retrace 38-62% in a overlapping series of waves, without a serious increase in volume and breadth would be longer term bullish, and signal a correction of the current rally from the lows of 1144, with higher highs most likely.

    Exactly! Like you and I are observing (see my new post http://marketthoughtsandanalysis.blogspot.com/2010/03/examination-of-large-technical.html) unless we get an impulsive sell off soon, like early next week soon, and not just impulsive but no way to doubt it "bulls shitting a brick" down, then chances are this is not P2 but something a bit more corrective. (I lay out my reasons for why this is not a new secular bull market fundamentally and technically in my post).

    Thanks man!

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  2. Good Pickup on the Volume. A "major" wave can only last so long. We must be very near the top..

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  3. Every villege has a chief. Michael, you are our chief!!!

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  4. A small point Mike but you need to replace a 1 with a zero in your figures referencing the recent SPX low. Let's not give the bulls any more credit than they deserve.

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  5. Sorry to remain bullish, but I see this as the first part of a rising ED which should peak above 1200 and possibly reach 1400 (with the Dow reaching 12,200). This wave 'A' should reach 1150 area by March 11th and then enter wave 'B' which will want to decline in a three and overlap the price action at 1110. Hong Kong and China should both decline 10% during the SPX's wave 'B' drop.

    Volume is usually low in a triangle (an ED is a triangle) and can be expected to decline further as the ED makes progress. Breadth should also decline, and the final wave 'E' rise (which will likely be an ED within an ED) will likely be just the largest stocks.

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  6. David,

    Can I see your chart that maps this out? I can see a case for the bullish and bearish case here.

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  7. Looking at your RSI and it really is grasping at straws because the pullbacks came a few days after it peaked and none were all that great.

    The most honest thing to say is look we closed at roughly .886 retrace, it either drops hard now or it is going to rally to higher and higher highs.

    If it tops 1150 how many bearish blogs will say "Sorry the count was wrong" Not many.

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