The wave 2 from the March low has turned into a more complex & rare corrective wave structure it seems. Any downside breakout from the weekly rising wedge pattern, (closing basis) would increase the odds of a completed wave 2. So this is the event waitied for, to get a better trade setup on the Short side. The wave 2 scenario would be a valid count until the Oct. 2007 high is broken. So this wave structure still has plenty of room to move to the upside, before reaching its negation point. A typical retracement for wave 2's in general, is the 50% - 61.8% retracement area.
The OEX broke the October high this week, on very thin volume. So with the earlier wave ii scenario now excluded from the list of valid wave counts, this has caused further delay for the wave y top and with it, the Primary degree wave 2 from the March low, is apparently still alive and kicking.
is making lower peaks, versus the now third higher high, since September. So something is brewing beneath the surface of this market...
There is also a tiny chance the price structure developing from the Oct. high, could take the form of an Expanded Flat pattern, which allows for a brief move beyond the Oct. high, in wave b, before a wave c should lead to price weakness.
The next Gann Angle
cycle convergence is due 11/19, +/- 1 day. If the market holds up or advances until that time window has been reached, this GA could very well mark the next short term top. A sharp sell-off into this GA, on the other hand, doesn't rule out a near term low around that time.
On the weekly chart,
wedge resistance is around 524 next week, in case the market decides to climb even higher.
The weekly support
is still intact it seems, no clear breakout from the wedge pattern yet.
On the daily chart, the OEX apparently found support on a trendline drawn from the Sept. low instead of the Aug. low, given this week's bounce. But this doesn't necessarily change the overall bearish structure from the Oct. high. As mentioned in the latest issue of Trader's Tips, a mental stop is kept right above this high. So it would take a move to this level, (510 area) before the wave count has to be revised.
Friday's trading session closed up against the key retracement (of the Oct. - Nov. decline) area and the strong 8/8th MML,
on very thin volume. So i suspect this could be a small degree wave ii (alt. count a of ii) coming to an end, if not already ended. If so, the wave iii should take prices below the weekly wedge support, sooner or later.
From a DGL
point of view, Friday closed up against the earlier broken L1, which now acts as resistance instead.
The OEX reached the suggested weekly upper Wedge line
target (on thin Volume) before pulling back at the end of the week. Daily Cycle10 made a bearish reversal Friday, so this just started downside cycle pressure phase, could lead to more price weakness next week.
Friday's reversal came within the 10/19 (+/- 1 trading day) Gann Angle
time window. With the short term trend clearly bullish into this GA, it could mark a short term top in the market.
A classic snap-back move towards an earlier broken trendline, was the outcome of this trading week. With daily Cycle10 about to reach levels where a bearish reversal is expected, a near term top is likely this coming week. With 5 postive trading days in a row, the normal breathing of the market also suggest a pullback coming.
With Stochastic also overbought on the Murrey Math chart, i think the strong 8/8th MML
will hold also this time, like it did at the last near term peak.
From a DGL
(Dynamic Gann Levels) point of view, the L2 (50%) could hold as well, with RSI 25 climbing above 60 again.
A look at the OEX weekly
shows that the falling trendline is broken but the market has yet to overcome the strong upper Wedge line. This could be the target (510 area) next week, before a pullback is coming. Any downside breakout (weekly closing basis) from this Rising Wedge pattern, would indicate a mid term top in place. Until then, the overall positive trend from the March low is viewed as intact.
After the just ended September trading month, a look at the OEX Monthly
chart shows that this market closed up against the L1 DGL and also the monthly trendline. So it looks vulnerable to fall back for support, from this stiff resistance area. The S&P 500 Monthly
is also updated, with RSI 25 and Volume readings.
The Dow Monthly
is oscillating higher within a slim Wedge looking pattern. Any breakout and monthly close below this pattern, would be stronger evidence of a top in place. Until then the positive trend from the March low is viewed as intact. As seen on the same chart, the Dow Transport closed up against trendline resistance.
Comp. broke through trendline resistance in September and also barely closed above the 50% retracement level. However, the tech market is soon facing resistance (2275 area) from another important trendline, coming in from the 2000 and 2007 peaks, with monthly Cycle10 at the same time reaching levels of past bearish reversals.
On the OEX Weekly
chart, prices failed to overcome the earlier discussed trendline convergence and have made a retreat in recent weeks, towards trendline support in the 474 area. Cycle10 is still in a downside cycle pressure phase, so a test of this support is likely soon. It must hold (weekly closing basis) to keep the overall bullish wave 2 trend from the March low intact.
OEX Daily prices (chart above) met too strong resistance from the old broken Wedge pattern, after making a slightly higher high, a few days after leaving the (09/18, +/- 1 day) Gann Angle
time window. The just broken trendline should now act as a resistance area instead, as a near term snap-back move higher is probable, given the bottoming Cycle10 in this time frame.
The next upcoming Gann Angle convergence is 10/19, (+/- 1 day) which marks 90 trading days from the June high and roughly 180 TD from the January secondary high. The 90 and 180 numbers used isolated, are often strong enough to cause near term market reversals.
From a Murrey Math
point of view, the September high was nearly a perfect hit to the 8/8th MML,
which is considered the strongest MML in this theory.
The same for the long term 4/8th MML
with it's exact hit in Sept., before the market headed lower. This major MML has also proved it's strength in the past, leading to significant market reversals.
On the daily chart above, prices have followed Wedge resistance higher. The OEX closed for the last 3 days in a row, up against the resistance zone where these two Wedge lines crossed. With Cycle10 now just started on a downside cycle pressure phase, odds are good the market is heading lower next week.
Also, the OEX is now within the +/- 1 day time window of the 09/18 Gann Angle.
With the short term trend clearly bullish into this GA, a reversal in the opposite direction is looked for these days.
The market has come close to the long term 4/8th MML
(scroll down to see it) which has proved it's strength in the past, leading to significant market reversals.
On the weekly chart,
RSI 25 is soon giving an overbought reading. If a trendline is drawn through the weekly highs formed since 2007, we can see that this trendline is still intact after this week's close, which came exactly up against the crossing point of this larger trendline and a minor one, produced by the weekly highs this year. So this should be stiff resistance, which may result in a market reversal. Any weekly close above it, could open up for even higher prices.
The upper Wedge resistance and 50% retracement area is still intact on the OEX weekly
chart, after this week's snap-back move higher. Daily prices have followed Wedge resistance higher and broke the August high Friday. Daily Cycle10 has entered it's sell area (above 70).
On the Murrey Math
chart, the OEX is once again testing the weak 7/8th MML (yellow) but failed to overcome it, with overbought momentum now reversing, so another pullback seems likely next week.
Odds are good the market is forming a top of minimum short term degree, in my opinion. Technically, there are several reasons for this view. In the OEX, A Rising Wedge looking pattern could be in it's last stages and these patterns usually breaks to the downside and often sharply.
This week a Hammer looking reversal candlestick ( OEX weekly
) formed up against the upper wedge line, which also happens to be the 50% retracement level, of the May 08 - March 09 decline. In addition, this is roughly the 38.2% Fib. level, calculated from the Oct. 07 high to the same low in March.
Weekly Cycle10 has at the same time reached levels where it normally would make a bearish reversal and RSI 25 is tracing out a bearish divergence on the daily chart, with a peaking Cycle10 now reversing also in this time frame. Weakness towards the lower wedge line is probable next week and even a breakout from this pattern is not ruled out.
A bearish setup is also observed in the tech market, here represented by the QQQQ Weekly
chart. A Doji reversal candlestick up against a strong trendline convergence resistance, with an already reversed Cycle10, indicates trouble ahead for this market too. On the daily chart, see the clear RSI 25 bearish divergence at overbought levels, versus the new high in prices. These bearish divergences are often good warnings about what is coming.
So with the entry into the September trading month, which historically also tend to be a weak month, i'm bearish on the broad market.
After the July trading month, the evidence of a completed Primary degree Elliott Wave 1 Impulse structure (Oct. 2007 - March 2009 decline) is getting stronger
, by the broader market now crossing its monthly MACD moving averages and i.e. the Dow 30 Monthly
closed above trendline resistance and near its high for the month, which often is a bullish sign for the next trading month. So as earlier written about in the Trader's Tips newsletter, a Primary degree wave 2
is most likely underway to the upside, from the March low.
In the OEX, the last time a MACD MA crossover occurred was in Nov. 2007, issuing a sell signal at that point, as this monthly chart
shows. So they don't come around often these long term MACD signals but when they do, its worth listening to what the market is trying to say, because using the chart history as proof, these signals often portend a change in the market tide.
However, both SP markets closed up against its first Fibonacci resistance, (38.2%) calculated from the Oct. 2007 - March 2009 decline, while the Nasdaq Comp has already reached its 50% retracement area.
So a temporary pullback on its way higher, is not ruled out. Short & Medium term, this QQQQ Weekly
setup looks interesting in this regard, forming a weekly Hammer reversal candlestick up against two meeting trendlines, making this a tough resistance area to overcome on the first attempt.
As for the Nasdaq Comp Monthly
chart, Cycle10 has soon reached levels where bearish market reversals have been observed in the past and with the tech market at the same time about to test larger trendlines. So the next monthly Cycle10 reversal would be an alert of a pullback coming in the longer term time frame, especially if/when the low of the monthly bar which is causing this upcoming Cycle10 reversal is broken.
The market pulled back this week, after it met strong weekly trendline
resistance last week. Any weekly close below trendline support could open up for more weakness towards first Fib. support in the 400 area.
Near term, the OEX found support mid week on the 3/8th Murrey Math
line (green) with Stochastic at the same time reaching oversold territory and reacted to the upside as a result.
The OEX pushed higher this week, through minor trendline resistance produced by the recent weeks of consolidation and getting closer to the key L3 DGL.
From a Murrey Math
point of view, it reached the strong 4/8th MML this week, with Stochastic deteriorating in the face of higher highs in the OEX.
This and the fact that the market also has reached a weekly trendline
drawn through important 2008 highs, makes odds good for a pullback scenario next week, at least of near term degree.
Any weekly close above this weekly trendline, would open up for even higher prices mid term, possibly into
The OEX clearly closed above weekly trendline
resistance this week and also closed near it's high for the week, which suggest more to come to the upside next week, at least on an intra-week basis. The daily RSI 25
has climbed above 60, in addition to a weekly Cycle10 at levels where it would normally make a bearish reversal, so a top could be near though.
Near term, this market is facing resistance from the 4/8th Murrey Math
line, which is strong in this theory. If overcome, other likely targets before a peak could be forming, are the key L3 DGL
(Dynamic Gann Level) at around 450 - 460 or the first 38.2% Fib. resistance (480 area) on the weekly chart.
On the monthly chart,
the April trading month closed above the resistance line coming in from the 2002 major low. However, MACD has yet to come out of it's bearish mode, indicating the overall long term trend is still considered bearish.
The OEX daily oscillates higher within a Rising Wedge pattern, so any downside breakout from it would indicate weakness ahead, possibly taking prices down to the 50% or 61.8% retracement area, in case the first Fib. support (38.2%) fails to hold.
A look at the Murrey Math
shows a triple bearish Stochastic divergence developing, versus the new OEX highs but with the red 2/8th MML still intact (closing basis). Such divergences are often a warning about a stronger sell-off coming, which fits with the Rising Wedge pattern, which often leads to a sharp move lower, once completed.
As for the OEX weekly
Cycle10 has reached levels where it normally would make a bearish reversal. This week, the market closed above the upper triangle trendline drawn through the recent weekly highs but has apparently yet to overcome a trendline drawn through recent closing
highs, so there is still resistance strong enough to cause a reversal, also keeping in mind the situation on the daily chart.
Some important observations after this trading week:
formed a Hammer reversal candlestick up against the old Triangle, the same for the QQQQ stock.
So a pullback from this resistance area is likely for both these markets. Another technical point supporting this view, is that the OEX daily also failed to overcome the strong 8/8th MML on the Murrey Math
chart, with Stochastic at the same time leaving its overbought territory. In addition, RSI 25
has just met trendline resistance a few days ago and is making a retreat from it, with the OEX closing below the L1 DGL (Dynamic Gann Line) Friday.
Short term, Friday's Hammer looking candlestick up against first Fib. resistance zone (38.2%, of the Jan. - March decline) and Cycle10 reaching levels where it would normally make a bearish reversal, suggests a pullback is in the cards for early next week.
From a Murrey Math
point of view, Friday's close came up against the weak 7/8th MML (Murrey Math Line). In this theory, when the OEX fails to close above this weak resistance zone, a reversal can often be the outcome, a view supported by the quite overbought Stochastic, which is preparing for a reversal it seems.
A look at the DGL
(Dynamic Gann Level) and RSI 25 chart, shows that this resistance level roughly represents the L1 DGL, with RSI 25 facing trendline resistance Monday.
this week's positive OEX close resulted in a bullish Cycle10
reversal, in its buy territory. The weekly close near it's high bodes well for an even higher market in the next trading week(s), towards the earlier broken Descending Triangle at a minimum. This triangle now acts as strong resistance area (385) instead. This level is also where the 2002 low came, which should give additional resistance, now when its tested from below. Any clear weekly close above this resistance convergence, could open up for even more market strength thereafter.
The OEX market closed for the week below the important 2002 low support but closed right above the Nov. 2008 low. A breakout from the Descending Triangle is also observed on the same weekly chart
with Cycle10 still in a bearish cycle pressure phase but is currently around levels where it would normally make a bullish reversal.
On the daily chart, trendline support gave in to bearish forces this week and it will now instead act as a strong resistance area, around 395. Given the break of the Nov. 2008 low this week, (Friday's low) a wave 5 underway can't be ruled out. An Expanded Flat a-b-c wave four pattern developing from the Nov. 2008 low, is also a likely scenario, now being in the b part of it.
Overall, the dip below 40 in RSI 25,
the reversal in the daily Cycle10 and the situation on the corrected Murrey Math
chart, where a Hammer candlestick formed on a weak MML and the major 8/8th Time Line, makes odds good for a near term positive reversal, early next week. This view is also supported by Friday's oversold Stochastic reversal.
The reversal at trendline support, improves the odds of a sideways, wave 4 developing from the Nov. 2008 low. Now being in the c part of either a simple zigzag or a more complex a-b-c-d-e pattern. Anyway, the OEX will probably go for a test of upper trendline resistance around 423, early next week.
Mid term, the low for the week came at Triangle support, which is also the trendline coming in from the 2002 low. As seen on the weekly chart,
the close near it's high bodes well for even higher prices next week, towards Triangle resistance at 432.
As seen on the daily chart, the OEX market could be in the b part of a sideways Triangle wave 4 possibly developing from the Nov. 2008 low. Any break of this low would reduce the odds of this scenario being correct and at that point instead move a Flat pattern or even the final wave 5 (one degree higher) to the top of the list of likely next events for the market.
On the weekly chart,
the Hammer (reversal) candlestick formed at Triangle support, indicates a move towards the upper Triangle line, next week.
The OEX hit the larger 8/8th Time Line on the Murrey Math
chart Friday. Often near term reversals occur on these time lines.
The market also reached key Fib. support this week, with several reversal type bars now forming at this support. With daily Cycle10 at the same time reversing in it's buy zone, odds are good for a move higher early next week, signaled by a break of the last reversal bar high at 405.64. A likely target could be the upper part of the triangle pattern seen on the weekly chart,
On this chart, the low for the week reached the 2002 Low support line. The market closed down but above this important support. Weekly Cycle10 turned bearish as a result of the weakness. Overall, a Descending Triangle looking pattern is developing, so i'm looking for a breakout either to the upside or downside, before the Apex of this triangle is reached (where the two trendlines meet). This breakout would be a indication as to where this market is heading thereafter.
The OEX failed to overcome triangle resistance and instead broke out from it to the downside. From a DGL (Dynamic Gann Level) point of view, the Hammer high earlier in the week came up against the L2 - L3
convergence. And using Murrey Math
the week's high formed up against the weak (yellow) 7/8th MML. On the weekly chart,
the market closed for the week at the earlier broken trendline. If it fails to hold, it could open up for more weakness.
Overall, the OEX is oscillating higher within a near term bullish channel. Any breakout (daily closing basis) from it, to the downside, would most likely confirm a top in place and signal weakness ahead, towards strong support (2002 low, 387 area).
An updated DGL chart, shows the OEX once again failed on it's third attempt to overcome the L2 DGL
resistance this week. The convergence of this minor L2 and a larger L3 DGL, makes 450 a strong resistance area for the next trading week.
As for the weekly chart,
an "Inside Week" (the range for the week came within the previous week's range, reflecting indecision among investors) + Cycle10 now in it's sell zone + another weekly Doji formed up against trendline resistance, makes the market vulnerable to a pullback, towards strong support (387 area).
Any weekly close above resistance, could instead turn the picture bullish.
The major 2002 low support is still intact after the November trading month (closing basis), monthly MACD
is still firmly in bearish mode. On the weekly chart,
one can see a bullish divergence forming in the RSI 25, compared to the 2 weeks ago, intra-week, new low move below trendline support, coming in from 2002.
Any break above trendline resistance, (weekly closing basis) would indicate further strength towards next trendline resistance, at around 500. Weekly Cycle10 has once again made a positive reversal in it's buy zone (below 40), after a whiplash reversal in early November.
Short term, the upside reactionary move from trendline support this week, has now reached daily trendline resistance and possibly breached it. On more positive close is needed to see a clear upside breakout. If overcome, the 38.2% Fibonacci resistance area, is the next likely target.
From a Murrey Math
point of view, the strong 8/8th MML (Murrey Math Line) should be met at 470.
These major 8/8th MML's often causes short term tops and bottoms. But in this case, Stochastic is already fairly overbought, so it may not reach this zone before a reversal.
The next Gann Angle
convergence (12/17, +/- 1 day)
marks 90 trading days from the August high, roughly 270 TD's from the November 2007 low and 360 TD's from the July 2007 high. So this GA could be powerful enough to cause a reversal of minimum short term degree. The directional trend going into this GA time window, would point to a reversal in the opposite direction.
The OEX pulled back from the 38.2% Fib. resistance area this week. Friday was a so called Inside Day where the trading range came within the previous day range, reflecting indecision among investors. The directional breakout from this indecision will be signaled by a break of either Thursday's high (455.49) or low (430.53). A break of the high would most likely lead to another test of first Fib. resistance, while a break of the low could mean a test of the 10/27 low (410.29) is coming. With weekly Cycle10
in the early stages of an upside pressure phase, odds favor an upside breakout.
Any clear daily close above this Falling Wedge looking pattern, would indicate a positive trend reversal or the c part of a wave four Triangle possibly developing. The same view is taken on the tech market, here represented by the QQQQ stock
. Weekly Cycle10
is bottoming out, with the major 2002 low support still intact.
The market has entered the +/- 1 week time window of the important weekly
10/24 Gann Angle
convergence. This GA marks roughly 360 trading weeks from the Jan. 2002 year high, 144 trading weeks from June 2006 low and 90 trading weeks from the Feb. 2007 peak. Because of the overall bearish trend going into this GA, a bullish trend reversal is looked for.
Contrary to the daily (short term) based GA's, the weekly version tend to mark reversals of mid to long term degree. However, given the sharp sell-off since May this year, a consolidation with a slightly upside bias is another likely scenario for the market.
Short term, the OEX market is in an extremely oversold condition, indicated by RSI 25 readings at deeply oversold levels. The OEX reached trendline support at the end of the week and at the same time formed a reversal bar here. With Cycle10 also in the early stages of an upside pressure phase, odds are good a reaction to the upside is in the cards, near term, signaled by a break of the reversal bar high at 445.84.
This very oversold condition is also the case for the tech market, here represented by the QQQQ stock
After a sell-off ignited by the weakness in financial stocks, the OEX found support at a trendline drawn through important short term bottoms, with RSI 25 at the same time dipping below 40 and also tracing out a bullish divergence, warning about a bottom forming.
The sharp reversal thereafter could lead to a test of trendline resistance at 595. If overcome on a daily closing basis, a test of the 08/11 wave 2 high at 608.81, could be the next likely event for this market.
Any break above this high would force a revision of the wave 2 scenario, suggesting the recent low was actually wave 1 from the May high, coming to an end, thus leading to a delay of the wave 2 top. The overall larger degree wave 3 impulse count from the May high this year, would stay intact until this high (658.72) is broken. Until this occurs, the market is still vulnerable to severe weakness, because of the destructive nature of wave threes, when developing to the downside.
Another likely wave scenario suggests a normal A-B-C correction from the Oct. 2007 high is coming to an end, if not already ended at this week low. So this would be a more bullish alternate count but still a valid wave interpretation at this point. This count would be part of an ongoing Bull market from the 2002 low. With this in the back of the head, another important observation, on the weekly chart,
the sell-off low reached the key 61.8% Fib. retracement zone, of the 2002 - 2007 advance, increasing the odds of a bottom in place.
From a Murrey Math
point of view, the recent closing low came at the strong 4/8th MML support. Friday's close came exactly up against the weak 7/8th MML.
As for the QQQQ stock,
Friday's close came right below the 50% retracement level. If overcome, a test of trendline and key Fib. resistance (45.10 - 45.20 area) is looked for, early next week.
Friday's bullish reversal bar at key Fib. support, portend a move higher early next week, signaled by a break of Friday's high (574.68). Trendline resistance is around 597.
As for the QQQQ stock,
RSI 25 dipped below 40 with price at the same time forming a Doji reversal candlestick
at trendline support. So a move higher is also likely in the tech market, near term.
August 31, 2008
A broad market update is available through the latest issue of the Trader's Tips newsletter. If not already a subscriber, sign up below, it's free.
June 20, 2008
The OEX tested the suggested trendline before heading lower again and fell through key Fib. support. This increase the odds of the May high being correctly interpreted as a wave 2 or B corrective scenario.
More oscillations within this Falling Wedge looking pattern is not ruled out, until the market has reached the March low (583,64). But the key is to look for a clear, positive breakout from this wedge, (daily closing basis)
to get stronger evidence of a bottom in place.
Mid term, this updated weekly trend chart
) shows that the market has been through a classic snap-back move towards it's earlier broken MA's, before resuming it's overall bearish trend from the Oct. 2007 high.
Feel free to share this web page with your trading friends, as long as the content remains intact, with active links included. Copy and Paste URL:
Jan. 06, 2008
The Stock Market Outlook 2008 Report is available through the latest issue of the Free Trader's Tips Email Newsletter. Use the sign-up form below, if you're not already a subscriber ( Example Issue ) and want the current and future issues of this newsletter delivered to your inbox. Sign up now, it's free!
Earlier Market Updates, period Jan. 2006 - April 2007
Jan. 14, 2007
Stock Market Outlook 2007 Report