6/18 PM Post: A daily chart of the momentum indicators show an inflection point that usually leads to a big move in either direction was charted today. There was an inside day with a down close today. One of Larry William's favorite trade is to buy the open and sell on the close when this set-up happens. The short term e-wave map of the SPX may be a very profitable guideline to follow tomorrow. If there is a 'c' wave decline in the morning, a good stopping point is 1098 where c=a and is also the 38.2% retracement of the rally from 6/16-6/17. If this count is followed, expect a DJI 150-200+ point move from the low. The lunar cycle low may have come on 6/16 and we are now seeing the 5%+ move out of it. A strong down close would not be good at this juncture. If Tuesdays lows are broken tomorrow (not expected) the decline should carry into Monday and could be quite strong. Technical indicators are almost dead neutral today and are not hinting at direction. That's where the elliott waves come in. I see the waves as very bullish. I've been looking for a low in this timeframe and a rally into July. If Wednesday's highs are convincingly broken, the third wave up is underway. The alternate count shows a rally to a fifth wave high then a drop into the close. The markets will show their hand on the open tomorrow. If they rally from the open, expect the alternate count to be the operative one. If the market drops at the open, the preferred count is the most likely roadmap. If the preferred count is followed, a very profitable return could be had on June calls. If the preferred count is followed tomorrow, July calls should be purchased for a 1-2 week position trade. At the minimum, I expect a DJI 500-600pt move up if the preferred count is the operative one. Mexico and Toronto stock exchanges are at one of those make it or break it points.
6/17 PM Post: What a day! Most of the daily technical indicators are not overbought. There is still room on the upside. The TRIN5 indicator is still closer to oversold despite today's rally. I think tomorrow will be a daytraders type day. I see an up opening (GLOBEX is up about 3.00 and the spoos closed at about a 3.30 premium to the cash). A gap up opening would complete the small 'c' or '1' wave. There should be a sell from this gap. Here's how you know. If the markets do not show follow through by about 1/2 hr after the open (the small traders--usually on the wrong side--make most of their decisions in the first and last 1/2 hour) then the markets will see a decline. If there is follow through, a day like today could be seen again. The short term charts look like a trading range will dominate tomorrow. SPXhourly, SPX10min. There is strong resistance between SPX 1115 and 1122. I would be extremely surprised to see SPX 1122 exceeded on this rally. The daily technical indicators show an up close should be expected. Whatever the markets do tomorrow, I expect at least an up close. The position of the TRIN5 hints this rally could last into Friday's close before a sharp decline. Keep this in the front of your mind. Do not chase this market with calls unless you are daytrading. A really good buying opportunity will come next week after the expected decline. Also, a short term trend change usually comes within 1 day of option expiration. If we are rallying into Friday's close, expect a peak on Monday and a decline into Wed-Thursday. The charts show a decline into Mon-Tuesday of next week. These are only projections. If the move extends up, the decline will be delayed. The Trannies aren't looking too good. Watch the Nasdaq the next two days. Usually this index turns before the DJI and SPX.
Yields as discussed over the last 6 weeks were projected to go to new lows. Lower yield are ahead. The stock markets are at a very important cross-road this week. Either the expected fifth wave rally got under way on Friday, or a potential crash pattern is setting up within the next 5-7 days. XAU is ready for a bounce this week.
Fixed Time Cycles
From two weeks ago: "The 10 week cycle is due to bottom the week of 5/31 +/-1 week. The 20 week cycle is due to bottom 6/7 +/-1 week. The 51 and 93 day cycles are due to bottom 6/8 and 6/4 respectively. The 10 day cycle is due to bottom on 6/10." Previous upturns in the 20 week cycle have been very good buying opportunities. If the cycle didn't bottom on Friday, the next best date would be about a week form now. Look for breadth to be 2.5:1 to confirm the upturn in the cycle. From a cyclical standpoint, the "all clear" signal to go long was given on 6/12 or at the worst case in one week. The 4 year and 8 year cycles are in hard down positions and are due to bottom this year.
Lunar Time Cycles
The next short term low is on 6/9 +/-2 days. I said last week an inversion was a 50-50 probability. It looks like this cycle became a low on 6/12 which was three days after the ideal low. A three degree lunar cycle high is scheduled to occur on July 12 +/-1 week. There is a two degree lunar cycle high on June 19 +/-2 days. An important top will occur in one of the above timeframes. The June 19 turn date is a high energy pivot date. A move of at least 5% should occur in seven days either before or after 6/19. The 5% move can be on both sides also. I usually place a "load the boat" trade around this lunar cycle since the moves are quite large (the direction has to be clear based on Elliott or I stand aside). Also the high energy pivot date on 6/19 can act as an inflection point to a trending market. I'm still looking for a high at this cycle date. Based on the technical outlook of the markets as discussed below, the best timeframe to look for a bull market high is at the July 12 lunar high.
Long Term Wave Count:
Intermediate Term Wave Count
The action of Friday was encouraging. I said in my Friday post to begin scaling into July and August calls unless the markets close weak on Friday. Friday's volume was encouraging also with the heaviest NYSE volume on a Friday in 7 weeks. Guests on CNBC were bearishly biased on Friday. Most were looking for a capitulation low with heavy volume to signal a bottom. I disagree. A capitulation low would not fit with my analysis over the next 4 weeks. Usually when you see a capitulation, the move from that low usually gains over 20% in three months or more. This market doesn't have 3+ months before the next important top and I'm not looking for a 20%+ gain. The rally in the next month should be fairly narrow and gain only 10-15%. A test of DJI 10,000 and SPX 1200 could happen. One of the best clues to the future direction of the markets is the wave structure of the financials and brokerage firms. Merrill Lynch, MER, is showing a very bullish wave structure. This stock is showing a thrust up is coming soon that should last for about a month or so. Financial and brokerage stocks peak at the tail end of a bull market when the desire to own stocks is the greatest. Merrill is finishing a 4th wave triangle with a powerful 5th wave thrust coming. This stock says the markets should rally strongly in a final last gasp move before the matador kills this bull. A daily chart of the SPX is showing the decline in the last two months has been corrective. Remember the comparisons with the 1929 and 1987 markets. The inflection point usually lasted about two months. The decline in 1987 lasted 38 trading days, the decline in 1929 lasted 28 days and the current decline has lasted 36 trading days. The 1998 decline has lasted about the same amount of time as the previous inflection points.
The DGL lines as discussed is the previous commentaries have acted superbly. The decline on Friday held the purple 4 DGL again. If at any time the SPX closes below this line, a decline to the lower 1000's should happen quickly. The purple 4 DGL values this week are 1085.03 on Monday to 1088.23 on Friday. Weekly sentiment indicators also support a rally is just ahead. Large declines do not begin on extreme pessimism which is what these indicators are showing. AAII Bullish Advisors, AAII Bearish Advisors, Market Vane Bullish Advisors. Short term, the number of bullish advisors has dropped to the levels of previous market bottoms. Another indicator showing that a bottom is close is the New High minus New Low indicator. When the RSI has dropped below 30 since the last 4 year cycle low, usually an important low was at hand. The RSI has dropped below 30 and more importantly a bullish divergence has formed against the lower low in the number of highs-lows. I've mentioned the importance of breadth and the A-D line throughout the previous commentaries. Last week I said I was looking for a bullish divergence to set up on the 14 period RSI against new lows in the A-D line. This happened has forecast. Look to buy July and August calls on dips to hold into mid to late July. The OEX 2 day put/call ratio is showing E-week has an upside bias based on the bearishness of option traders going into it. The weekly put/call volume indicator is still on a sell trend. The sell stop for any longs is a close below the purple DGL values given above. VIX seems to be support a rally. Any rally above SPX 1126 and DJI 9105 is extremely bullish. On Friday the DJI touched the lower band. During this bull market a decline down to the bottom of the band has been a good buying opportunity. On the Friday post, I gave you a range to look for of 8660-8670 for a possible bottom and a level for a good swing trade. The low on the day was 8684. I've also mentioned in previous commentaries that I was looking for a bearish divergence to set up in the weekly RSI on the SPX. Looks like we may get one in the next several weeks. The weekly SPX bands are really pinching. A big move is coming during the next 2-6 weeks. The wave pattern shows the move should be up. The Russell 2000 and the other secondary indexes are hinting the coming rally shouldn't lead to new highs in these averages.
Other Markets of Interest
About a month ago I said the XAU is going to new lows this summer to about 55. That was when it was trading in the upper eighties. Traders who hold puts, should sell a portion. The easy money has been made. This index is showing a 4th wave rally should start this week. Fourth waves are complex, take a long time to finish, and are killers on option prices. TYX is in a 3rd of 5 right now. Lower lows are coming in yields in the next month or so. Long bond holders should be scaling out of the longer maturities and into short term maturities. When yields finally bottom this year, a decade long rise in interest rates is ahead of us. Short term maturities are one of the best vehicles (for conservative investors) to play the rise in interest rates. Looking at most of the stocks that make up the DOW-30, most seem to be in messy corrective phases. As I've said before, messy elliott patterns usually signify corrective action. A few stocks that caught my eye were DIS and DD. Both of these stocks are showing a rally coming with DD the better play of the two. Other stocks of interest are LU, YHOO and DELL.
Good Trading, Travis Jordan