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G4 Weekly Market Wrap, 18th February 2011.

  • Written by Syndicated Publisher 318 Comments318 Comments Comments
    February 19, 2011

    Well, just goes to show that you have to follow the price action and not get any preconceived ideas. Wave “c” of the corrective move in the USD completed and then commenced another leg downward.  We have reached a price level that has provided strong support on previous occasions so it will be interesting to see what happens now. I suspect that the current “abc” corrective move may turn into a more complex corrective pattern and hence the USD may well not continue down strongly but rather continue to move in an up/down fashion for the time being.

    XJO Conti Cycles

    One of the methodologies that misled me in recent times was the XJO Conti cycles methodology. This recent period has actually taught me about a complexity in the Conti cycles that I had not noticed before. As mentioned previously Conti cycles tend to appear and then disappear just as quickly. They are a variable short term cycle that occurs in the market. Changing circumstances causes slight variations in these short term cycles.

    Quite often what can occur is that a cycle will appear which gives you a topping (or bottoming) cycle which is then followed by its opposite bottoming (or topping) cycle of the same period. For example in the chart below note that that there was a ‘blue’ topping cycle period of 64 days and its opposite red ‘bottoming’ cycle of 65 days (remember the +/- 3 day order of accuracy). You will note that there was a shorter term 27 day topping cycle and a 25 day bottoming cycle that was also in play for a short period of time.

    We then had a 34 day ‘topping’ cycle followed by a 30 day ‘bottoming’ cycle. I had incorrectly assumed that the following topping cycle would also be a 30 day cycle. What in fact occurred was that we had another topping cycle peaking after 36 days (not the anticipated 30 day cycle). Note that this was within the order of accuracy of the previous topping cycle of 34 days. Please note that I am assuming that we had a new XJO interim top on Thursday.

    This is the new complexity in the Conti cycle methodology that I had not noticed previously. What we had was two sequential ‘topping’ cycles that had a similar period with a ‘bottoming’ cycle between these topping cycles with a different period. What I am unsure about is whether the next bottoming cycle will be based on the 30 day or 34~36 day cycle. It will be interesting to see what transpires.

    Note also that the previous 64~65 day Conti cycle threw up a 70 day cycle this time. Future price action will show us whether this is a new cycle period or whether it only relates to the next topping cycle.

    Anyway, it was the Conti cycle methodology that caused me to suggest that the XJO could top out in the first two days of last week in my last market wrap in spite of this not being anticipated by looking purely at the price action.

    US MARKET

    In the meantime the S&P500 continues to power on relentlessly in its current rally. In its last trading session it had a peak of 1344.07 and closed at 1343.01. That move took out my next two overhead resistance levels of 1336.96 and 1339.02 and brought into play the ‘wave equality’ scenario target of 1360.38.

    We can see from the above daily chart of the S&P500 that this index is in a very strong ascending channel that started in September 2010 and has only experienced one retrace of any significance during this rally. We can see that the index experienced a relatively minor retracement during January and has been in a bit of an ascending contracting triangle since that time.

    The following 99 minute intraday chart of the S&P500 clearly shows us that the majority of retracements on an intraday basis tend to be less than 50% of the preceding rally. This is an indication of the strength of the current rally at this stage of the cycle.

    From a price action perspective there is just no sign of any weakness in the index at this point in time. We need to see the retracements becoming larger with respect to the preceding rallies before we can talk about any weakness creeping into the index.

    The following planetary chart for the S&P500 shows the near term overhead resistance of 1350 and 1362.31.

    AUSTRALIAN MARKET

    In spite of the US indices closing in positive territory, the ASX200 futures currently anticipates a market open on Monday of 12 points in the negative. The ADRs on the NYSE has BHP down 2.92%, RIO down 2.35% and WBC down 0.29% so we can see where a lot of the negativity is originating from.

    We can see from the following daily chart that the XJO is also rallying in an ascending channel but the pattern has been a lot more ragged than that of the S&P500 and certainly a lot less convincing.

    The following 15 minute intraday chart of the XJO gives us a context of the anticipated move on Monday’s open. We can see that the index has been operating very much in a sideways channel for around a week and it looks like the start of next week will see a continuance of this price action.

    It is difficult to see at this stage whether the current period is a one of distribution or consolidation.

    Whilst the price action doesn’t give us much of an insight into whether the sideways pattern is distribution or consolidation, the line oscillator (which is a momentum indicator) is clearly showing us that there is divergence taking place between the price action and the momentum oscillator. We can see what happened last time there was divergence. It should be noted however that whilst there is divergence, it is not as strong this time as it was last time so any decline may be somewhat limited.

    The following planetary chart shows us the influence that the current Saturn line had on the XJO’s progress upwards. We can see however that should the index manage gains in the coming week, the next Saturn line is located at 4968.

    Price of GOLD (POG)

    The following chart suggests some obvious interim price targets for the POG based on Fibonacci retracement ratios. It certainly has the appearance of a blow-off move at present.

    SUMMARY

    The shortened trading week due to the President’s holiday weekend in the US will leave the global indices on their own on Monday so local issues should rule the day. In the meantime the relentless rally on US indices currently remains the flavor of the day and hence higher prices can still eventuate. On an intraday level there is a hint of the beginnings of a short term down move but until it more clearly shows its intentions we have to stick with the prevailing trend.

    The XJO is definitely showing some short term weakness at this stage but whether it develops into something more sinister remains to be seen. Certainly early in the week we could be frustrated by aimless up and down moves. At this stage however no significant moves in either direction are expected based on the current price action.
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