Finally a good comfortable finish to a week and I hope all of us benefited with some exposure from the run off of 1130 area. It is not easy to pull the trigger when so many things are against one, but I have had 1134-1140 and 1160-1170 pivotal areas for some time and they both have so far proved to be players
This is a weekly
Index is hitting resistance around 1220 and, with RSI around neutral, it may run into sellers and pause or pull back. This area has rejected the index twice so far and bulls MUST overcome and hold it -- there is no other way -- They MUST overcome and hold it. Further below, 1150 seems to have performed well this past two weeks and I am going to start using 1130-1150 as an area to hold on any severe drops
I continue to regard this as a potential bear phase below 1220. Above that, things shall turn neutral. The advance from August 8 low looks choppy and my very well be corrective. I can present a bullish count that does not violate any EW rules, and I will do that later in the report, but I still have my doubts because of violation of longer term technicals, breadth and structure. I will review each further down the report. But, if things start holding key levels, and volatility tapers down, and we see improvement in longer term breadth and structure, then I may start believing the bulls more. For now, I have had two good entries, one off the low of August 8 at 10 pm, as discussed with long-term support curves in this post of August 8
http://www.markettimepremium.com/2011/08/09/sp-5000-%E2%80%93-august-8-2011/
and one from the 1130 area as price was near the bottom of the 1130-1140 pivotal area from this BMO post of September 12
http://www.markettimepremium.com/2011/09/12/sp-500-%E2%80%93-september-12-2011-%E2%80%93-bmo/
I, of course have not held all of the entry position, but some portions are there just in case. With a good entry and a good run, while things are still not very certain, I tend to reduce and try to hedge the rest if I want to hold on to part of original position.
Along the way, other than the two good entries, there has been whipsaws, the nastiest being on the day of Jackson Hole, late August, but sticking with short-term trend change indications has ensured minimal loss on those whipsaws
So far, so good. In the post of September 7, I said
"Here’s where one has to really made a stand. If I believe that August low was intermediate cycle low and the latest drop was just a trading cycle low, or if I think that this is going to end up in a bull market, then August low is the low, and 1130-1140 is a secondary low and a stop may be placed below 1130. On the other hand, if I believe neither, then I need to perhaps use a closer stop or even take some partial profit. I may also need to go on the look out to see if I can switch to a short."
This is how one needs to approach the situation in the face of uncertainty. Picking a low (or high) is a dangerous endeavor. Odds are stacked against us from here to eternity, but the drop into August 8 low was severe and smelled of, at least a temporary washout, held my longer term support curves from March 2009, and I thought that with a bit of discipline, at least a good bounce may be eked out. I was not easy, it whipsawed and whiplashed violently, but here we are with both lows that I tried (1070 and 1130).
From here on, it becomes a matter of how willing and capitalized bulls are. I doubt it that there are many shorts left in the system to cream into gigantic rallies. Most must have covered into Friday's quadruple witching OpEx and also ahead of FOMC meet this week which comes after an announced coordinated central banker effort to stabilize the Euro situation. So, I really doubt that there are many shorts left and those who are there may have their stops much higher and have most likely strong conviction to not be pushed into a squeeze. If I am right, market is either run by bulls buying without the help of squeezed shorts, or it starts chopping around again.
One typical aspect of a bull is reduced volatility and smooth price progression. So far, we have not had much of that. A good squeeze with central bankers coming to help Europe has brought index to longer-term resistance. What it does from here is crucial.
We think that we will have a mid-term uptrend confirmation soo. We think that the move from August low was a run from an intermediate cycle low, as I mentioned in the September 7 post. It now has squeezed list of shorts and got teh attention of many. From here on, bulls must hold key support and try a smooth price advance otherwise, this all may turn choppy and ugly very fast when the current intermediate cycle run its course
One thing that helped me suspect the last push high of S&P was the weekly cycle momentum graph
The last push higher from March 18 could not even turn the weekly momentum cycle graph (red line). We, then had a tentative pause in June 2010 hut that did not go far and price and momentum both collapsed, both giving a left-translated look into August low. Now, momentum cycle seems to be wanting to turn again. Too early to say if it amount to anything good. It is important for price to hold key support to allow the momentum graph to turn and rise.
We'll keep an eye on this as things unfold
I started discussing the possibility of a low in USD way back in June 2010 in posts like this
http://www.markettimepremium.com/2011/06/12/sp-500-june-10-2011/
In that post, I said: “It so far seems like we have correctly picked on possibility of a cycle low. This is the weekly chart of UUP that used to identify a momentum cycle low and used that to argue for UUP moving into a price cycle low”
USD went into a consolidation phase, but has recently perked up as I have been mentioning in recent posts
This is weekly momentum cycle of UUP now
Price has broken above a multi-week consolidation and momentum cycle (red graph) has turned and reached neutral (the black horizontal line). Dollar has been an important player in the run of all sorts of risk assets. If it really is about to rise for weeks if not months, then risk assets, including equities, may have a hard time going up fast and smooth. They may turn and resume decline, or get into a wide choppy range.
We'll keep an eye on this as well as things unfold
This is a daily USD
It has had a base and a good push. It must hold above support of it MAs and make a new high to become more interesting
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