Ninety days, sixty days, ...
05-21-01
S&P 500—Cash Index
Last message was May 6th—My apologies for the lack of a report last week—I sprained my back and couldn’t get off my back for most of the week.
Last message I indicated there would be resistance "in time" on May 7th but I didn’t believe it could change the trend. The best "resistance in time" comes from May 21st and June 19th.
Let’s go through our normal daily review of the trading the past two weeks. S&P traders, you should have seen that rally setting up last week. Friday, May 4th, showed a wide range day up on light volume (the volume put doubt into the sustainability of the move). Monday, our date for a high, showed a marginal higher high, small range and light Monday volume. Tuesday, Wednesday, Thursday and Friday all had light volume, small ranges and moved down. So there was a two day rally up that terminated on May 7th, followed by 4 days down. The move up started at a price of 1232 and took two days-----the move down took four days to reach 1240----obviously, price is finding it more difficult to go down than up. And the setup of twice the time in less distance has now shown up twice in the past two months. The previous occurrence was three up into March 27th and 6 down into April 4th . This signaled the first higher low and, of course, the first indication of a change in the short term trend.
Monday (5/14) was a small range very light volume inside day. Tuesday went marginally higher and Wednesday showed a wide range up day on a volume spike, although not large enough to capitulate. When no sellers showed up after the Fed announcement, the traders rushed the market. The size of the range Wednesday would indicate a bit of an exhaustion, Thursday was marginally higher and Friday showed a lower low and lower high but closed strong within a small range day.
Pattern-The index has moved up out of a two week congestion. So even though there is a possible cycle high today, this would not be a pattern to step in front of or sell short. The fact that a new high today will come following a one day move down that was very small considering the large range on Wednesday. In other words, Friday could be a one day counter trend and if that is the case, then there is a fast move going on now and price will push though the resistance in time. I don’t believe that is the case, but it is still a possibility with the two weeks of congestion and the possible one day counter trend. This is a real challenge for technical analysts with the S&P 500 and the NASDAQ in bear trends and the Dow Industrials and the New York Composite (having given false breaks and never entered bear trends) are testing the zone of their topping patterns. This is quite unusual. I’ve have always considered the S&P 500 the best representation of the market.
Time-There is a strong probability the index could be running out a 90 day cycle from the low on March 22nd. As you know we can prove the validity of the cycle as price moves through time. This is true of any cycle that one believes is running though a market. Simply break the cycle into its geometric parts and look for vibrations to occur on the important geometric divisions. Using this current situation, 30 days from low (1/3rd division) was the 21st and the index responded with a 3 day counter trend move down (normal counter trend for this index). The next significant division is 50% or 45 days and that occurred on May 6th and the index responded with a 4 day counter trend down. Now price is going up into 60 days from low and should meet with resistance today. We also know that a 90 day cycle, in this market, can be a terminal cycle (end the trend). Most ends of trends terminate with exhaustion’s, so if this is a 90 day cycle low to high, we could anticipate the last third of the cycle to be very strong. This would need the NASDAQ to perform well over the next 30 days also.
So if price runs into a high point today. It becomes very important to qualify the multi day move down as a counter trend or the start of a trend. If it can be qualified as a counter trend-then the index should explode up over the next three weeks.
You need to also consider the major range down (447 points) in calendar days. The first eighth was last Thursday (high day) and 50% is 1305, that’s close. It also mean the "true trendline" will be within Monday’s range. But we need to see if a high does come in today and what kind of selling shows up early in the week.
Price-Resistance 1263-1305 1320 1378. Actually there is significant resistance between 1316 and 1325.
Wave Structure-Could be viewed as the start of a "5".
Volume-no signal.
Conclusion-Price is at resistance in time Monday (60 days from low) but the trading the last few weeks has some bullish probabilities. So our strategy is to let Monday pass, and see if a high point is hit. If so, then I’ll look to see if the selloff that follows can be qualified as a counter trend. If it is a counter trend, there will be few sellers and it will not last past three days and will likely be two days. It would also be bullish if it could stay on top of the price level of the last congestion.
I did not get position last week as I was on my back—but had I seen the 2X4 set. I would consider the position at some risk today and would exit 1/3rd on strength and move the protective stop on the balance to marginally below 1260 until I see the volume at the high.
This week or next we should have the new site up—so don’t be surprised when you see a home page.
Disclaimer: This message is for educational purposes only and does not constitute trading advice nor an invitation to buy or sell securities. The views are the personal views of the author. Before acting on any of the ideas expressed, the reader should seek professional advice to determine the suitability in view of his or her personal circumstances.
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