In last week’s Market Wrap I provided a chart for the S&P500 and XJO showing the 3 standard deviation boundaries around the current price action. At the time the price action for the XJO was approaching the 3rd standard deviation and with the expectation that the market would open higher I thought that this boundary would be breached. On this basis I suspected that we would form a top in the index in the coming week.
The following link will take you to a post of mine posted on the “Fixed and Dynamic Time Cycle Analysis” thread of the Incredible Charts forum yesterday (post 4750) where I spend some time explaining that these boundaries can move significantly as further market price action unfolds.
We can see from the updated chart below that the boundaries were pushed up during the last week allowing the index some more leeway on the upside.
The 33 trading day Conti cycle which suggested a market top on the 5th April came and went and we made a new high of 4941.6 on Friday. As readers would be aware, Conti cycles have an order of accuracy of +/- 3 trading days so we are right on the border of that period. It remains to be seen whether that Conti cycle comes to fruition.
On Monday the 4th April I posted the following chart suggesting some potential Fibonacci turning points on the Non Elliott Wave Watching thread of the Incredible Charts forum (post 4735 at the following link: http://forum.incrediblecharts.com/messages/427230/2874838.html )
We can see from the following chart that these levels were tested and respected (causing a short term pull back), and then exceeded. I have shown these charts to evidence the power of these Fibonacci levels as potential turning points.
The important point to make from the above charts is that a technical analyst can suggest potential turning point levels but in the end the market will do what it wants to do and proceed to the next potential turning point levels. A similar situation occurs in the ‘time element’ of technical analysis. Once a price or time element is exceeded, we need to move to the next potential price/time turning point.
This emphasizes the point that technical analysis can only point out ‘higher than normal’ probability price/time turning points but cannot guarantee that they will actually occur at those levels or times. Such is life.
Having said all of the above, from a pattern perspective we still await a significant pull back in the market prior to a final rally into the May/June period.
A week ago the S&P500 closed at 1328.89. In its last trading session it closed at 1328.17 representing a drop of 0.05%. So basically the market has gone nowhere in the last week. During that week the market went to 1339.46 on one occasion and 1339.38 on another so we can see that the 1339 level is a key level for the index.
In past Market Wraps I have shown negative divergence on the short term charts but this divergence never did show up on the daily chart. This situation however has finally started to change. As can be seen from the following daily chart, for the first time since the rally started on the 16th March, the LOI has started to roll over.
We can see that the UBB is currently located at the 1354.52 level however the important point to note is that weakness is finally starting to show up in this time frame.
We can also see from the following 45 minute intraday chart, this is also the first time since the 16th March that the price action has actually fallen out of the ascending channel. This is the first danger sign that has shown up so far.
The index last night back tested the lower boundary of the ascending channel after bouncing off the 1325 support level. The bulls need to hold that support level for the rally to remain in play.
We can see from the weekly planetary chart that Saturn is providing the overhead resistance for this index.
Note that the Neptune line at 1320 is currently providing support and should that fail the Neptune line at 1290 becomes the new support with Saturn at 1274 being the next major support line.
Should the S&P500 happen to successfully breach the 1336 Saturn line then the North T Node line at 1350 becomes the new overhead resistance.
The negative lead from Wall Street currently has the ASX200 futures contract suggesting an 11 point drop on Monday’s open for the Australian market. The ADRs on the NYSE had BHP up 2.3%, RIO up 2.09% and WBC up 0.94% however these prices reflect the strong day our market experienced on Friday rather than what may occur on Monday morning.
We can see from the following 40 minute intraday chart for the XJO that our index has been in a very strong trend within an ascending trend channel since the 17th March. The anticipated 11 point drop on Monday’s open would still have the index well within the channel and above the MBB currently located at 4918.8.
The following 99 minute intraday chart of the XJO continues to show divergence between price and momentum.
Note, however, that the unlike the S&P500, the XJO daily chart is still not showing any real weakness. It will require a hefty negative day on Monday to change this.
Keep in mind though that on previous tops the UBB has been well above the price action when the prices started to drop.
The weekly planetary lines however really show what’s occurring “under the bonnet”. We can see that the solid Saturn line was the overhead resistance last week and it is dropping thus causing this overhead resistance to drop to 4933 after having been slightly higher than this level last week.
We can see from the chart that Neptune is providing support at 4799 should the market start to slide. On the other hand if we get further upward movement, Saturn will once again come into play at around the 4967 level.
Note the Neptune line at 5104. At this stage, it would be a real stretch for the XJO to reach prior to some sort of significant retrace.
Randall has in the past pointed out in his Astrology and Stock Markets thread (http://forum.incrediblecharts.com/messages/427230/2618643.html ) that there are a number of megaphone patterns in play in this index.
It is quite possible that the final leg of a megaphone pattern is in play at this point in time. The following chart shows this particular scenario. Should this pattern play out, then the 5104 level would be a logical level at which the pattern would end.
Note that the chart is labeled in order to show the various legs of this megaphone pattern. This labeling does not reflect Elliott Wave labeling in any way.
Gold continues to shine due to the falling US dollar and the diminishing faith in fiat currencies.
We can see from the weekly chart below that with the exception of a retracement between March and October 2008, the POG has been in a huge rally taking the price from around $417 in July 2005 to the current price at $1474!!
Not a bad return for anyone having the stuff hidden under their bed during that time. How long can it keep going? Well I suspect at least as long as Bernanke keeps printing money and possibly longer.
Unfortunately for the Australian investor who may be attempting to take advantage of this rise in the POG via the ETF GOLD stock, they are being hampered by the rising dollar which no doubt is also rising to a significant degree because of the falling US dollar.
We can see from the following chart of ETF GOLD taken over a smaller time frame that this stock’s rise has not been anywhere near as spectacular as that of the POG.
As we have seen during the last week, it is very difficult determining where the S&P500 and XJO will top out their current rallies. The S&P500 is finally showing some weakness in the daily chart after having shown divergences in the shorter time frames for some time. Have we seen the top at 1339 or will it have a go at the 1350 level? I suspect that we will find out this week. Our lunar studies suggest that historically, the coming lunar phase is amongst the most negative so next week could very well show the weakness that we have been expecting.
Strangely, the XJO last week was actually stronger than the SPX having actually gained 1.6% whilst the SPX went nowhere. As a consequence of this, our index is still not showing the weakness that the SPX has finally started showing in the daily chart. It will be interesting to see if the XJO does an ‘about face’ this week.