Last week I expressed concern about the wave pattern forming on the XJO. I suggested that if it was an impulse wave forming for the decline from the top of the 17th February then it had some potentially very bearish consequences. Fortunately the index only formed a 3 wave pattern for the decline hence avoiding those bearish consequences and at the same time increasing the chances that our medium term bullish stance is correct.
There is a strong possibility that we may have seen the low for the recent decline and that any future medium term lows will be higher than the low of the 17th March. Our view at present is that the current corrective pattern could possibly form a Triangle pattern (refer to the chart below). It does remain to be seen whether wave B is complete. There may still be a bit to go however that descending overhead resistance line could cause problems for the index early next week.
Note that I have suggested an alternate scenario where the final rally may also commence after an ABC move rather than our preferred ABCDE move.
Note also that I mentioned in last week’s Market Wrap that our Lunar studies suggested that it would have been surprising if the indices were much further down in the past week than at the close of the previous week and that indeed higher prices were expected in the coming weeks. In fact the strength in the last week’s price action on both markets was even even greater than expected. Next week would normally have been a strong week but it is possible that this market strength came a little earlier than normal.
Friday’s close on the S&P500 was 2.9% higher than the close on the previous Friday. Not a bad result for the bulls. In the last trading session the S&P500 closed up at 1313.8 (+0.32%) after peaking at 1319.18.
The 60 minute chart below provides an insight into the price action since around the 16th February. Note that in spite of the rosy picture provided by the rising prices (refer blue ascending channel) we have a clear divergence between the price action and the LOI and the LOI has just given a ‘sell’ signal. These indicate that the current levels may find some stiff opposition in the very near future.
The following daily chart for the S&P500 provides further insight for the medium term. Note that the index has been trading in a strong ascending blue channel. The price action has just broken through the MBB but is just a little short of the half way mark in the blue channel.
I have pointed out 2 similar declines in the index during the time period observed in the chart. The first occurred in August 2010 at which time the index fell 89.5 points in 14 trading days. This time the decline has been 95.02 points in 17 trading days. The nature of the falls classifies them as falls of the same level in Elliott Wave terms.
Note now that the since the recent bottom was reached the market has rallied in a 7 day move and recovered 73.8% of the decline. In the August 2010 scenario, 7 days following the bottom saw the index having recovered 71.1% of the decline. So once again the rallies were of a similar level.
Projecting a line down from the 7th day in each rally, we can see that even though the rallies were similar in price, the momentum this time is not as great as that which occurred in August 2010. To me this indicates a weakness in the underlying energy of the current move relative to the previous one.
The LOI indicator in the daily chart has given a ‘buy’ signal thus indicating that in the medium term the index may move higher in price however the ‘sell’ signal in the 60 minute chart indicates that in the short term we may see some market weakness.
We can see from the planetary chart below that the index is currently playing between two Neptune lines (1290 and 1319). Currently the lower boundary of the daily blue ascending channel is located at around the 1270 level. If the market starts showing a bit of weakness early next week we may test that lower boundary or the 1290 Neptune line as support.
Any further weakness would see a retest of the Saturn planetary line at 1275.
In spite of a positive lead from Wall Street the ASX200 futures contract is currently suggesting a market open of 9 points down on Monday. The ADRs on the NYSE had BHP down 1.26%, RIO down 0.47% and WBC up 1.56%.
The following chart is a 15 minute chart of the XJO price action as of close of business yesterday. We can see that the index has rallied within a clear red ascending channel. The price action for the last few days has increased in momentum within the short term ascending blue channel.
The index late on Friday managed to arrest a decline and bounced off the lower boundary of the blue ascending channel and has made it to just above the MBB. If the ASX200 futures contract is correct, the index will fall back below that MBB and possibly break through the lower boundary of the ascending blue channel.
There is a small pocket of previous support at 4724~4732 but these levels will have to hold for the bulls to prevent a retest of the lower boundary of the medium term ascending red channel at around the 4720 level.
The following Conti chart for the XJO provides details of the short term cycles that have been in play in recent times. Note that the 14 day cycle high on the 25th March came in right on target. It remains to be seen if the 11 day cycle low on the 1st April will come in on time.
The following 60 minute chart for the XJO shows that there is a clash between a longer term descending red trend line and a short term ascending blue channel. The anticipated weak opening on Monday morning suggests that the red trend line will have a negative effect on the index in the short term but how long that lasts is still to be determined.
The LOI is on a clear buy at present and it will be interesting to see what that indicator suggests once the price action starts to fall on Monday’s open. If the Conti cycle chart above is correct then we may get a retest of the lower boundary of the ascending blue channel early in the week.
The daily chart for the XJO at present gives quite a positive picture for the index. The LOI is on a ‘buy’ signal and has positive divergence to the price action. The price action has also gone above the MBB with the UBB currently sitting at 4907.2.
The following planetary chart shows the price action for the XJO in mid air in terms of the planetary lines we normally look at. Randall will cover other planetary lines affecting the XJO in his thread at the following link.
So gathering all the information together for the US and Australian markets for the short and medium term we have the following:
Medium Term Outlook
Both the S&P500 and XJO give us a bullish outlook in the medium term (say until May/June) as both indices are travelling in ascending bull channels and the LOI’s are on a buy signal.
Short Term Outlook
The S&P500 60 minute chart is giving us negative divergence between price action and the LOI and the LOI has just given a ‘sell’ signal. Should the S&P500 fall in the short term it will impact the price action of the XJO.
The XJO in the short term is contending with a weak market open on Monday and is hampered by an overhead descending trend line that has been in play since the top on the 17th February. It is difficult to determine how long any price action may remain negative but the Conti chart is suggesting that we may form a bottom on the 1st April.
I also note that historically there is a reasonable probability of higher prices during this part of the Lunar cycle.
I have not covered it in this Market Wrap but my other cycle analysis work suggests that the current rally should not peak until early April.
So we can see that there are many opposing parameters in play at present which can move both markets in either direction. Looking at the Possible XJO Medium Term EW Count we can see that a reasonably significant decline (Wave C) in the XJO is due in the near future. Will it start next week?
As mentioned earlier my other cycle analysis work suggests that wave B will peak in early April so the Conti cycle date of the 5th April is a distinct possibility. For this to be true then the short term weakness suggested in both indices should be completed in a few days and this should be followed by a rally into the 5th April.
If on the other hand the Wave C commences next week then the weakness would have to reveal itself in the daily charts. At this point in time this has not happened. Until it does, I’ll go with the early April interim high view.