Friday, March 26, 2010

S&P500 short-term: Further upside?

 Last post, called for a near-term target of 1185 based on a not-so-goodlookin Inverse Head & Shoulders. Very choppy action since. Price hit a high of 1181, before reversing in dramatic fashion. However, i believe there could be further upside here, after a corrective period.

 Trendline break?

A break in the green trendline was noted at the close. This could mean corrective action ahead between 1180-1154 range. However, do note that this requires a follow up down move to confirm, as yesterday's fall was only a 3-waver. We're stll in the uptrend channel bound by the red lines. So, not the place to go aggressively short.

Further Upside possible

If prices turn up impulsively instead, this could have been a i-ii action of the 5 up, and there could be further upside towards 1220. Asian markets, turned up on supports, indicating further upside. Exactly as i indicated yesterday in this Shanghai update! Once again, Hang Seng 21900 & Shanghai 3150 are levels to watch.

All the best folks & have a nice weekend ahead!

Thursday, March 25, 2010

Shanghai Composite Short-Term: Following the plan

Little over a month ago, a medium-term bullish triangle scenario was identified (for targets see - World Markets Update). Progress has been slow, but that is the nature of a sideways symmetrical triangle! So far, price is following the plan diligently. Here's the medium-term picture:

We're currently in Wave D of the triangle with a short-term target around 3150, and if you remember every leg of a triangle is a 3-waver. The recent dip is the 'b' wave of the D. Note the declining volume, as uncertainty increases in the sideways motion - a feature of the Triangle.

As mentioned before, the projection lines drawn on the chart are compressed, and it may take longer for the whole scenario to unfold. The very short-term chart below explains how we might finish D:

Non-Asian readers - for the Chinese, red is good. Hence red candles go up!

In this chart, a small Inverse Head & Shoulders is in the making, with a target slightly above 3150. Note the general rise in red volume, and decline in green volume - augurs well for a subsequent rise. Prices should stabilise above 3000 for rest of this week, and head higher next.

Above medium-term triangle scenario will become unlikely with a sustained break below 2900. All the best folks!

Technical view
Short-Term: Neutral, Medium-Term: Bullish, Long-term: Bearish

Wednesday, March 24, 2010

S&P500 short-term: No time to waste!

Last post - S&P500: Sell in May, called for a sideways-downwards consolidation between 1144-1170 in a possible wave 4, followed by an eventual move up towards 1220. But the market thought it a waste of time, did a quick a-b-c down to 1153 level (retest of recent highs), and marched onwards and upwards towards better camping grounds.

Near-term target: 1185

In the last 3 days, we setup a not-so-purrfect Inverse Head & Shoulders on the 5-min chart, and yesterday's break above 1170, suggests a target of around 1185. In the very short-term expect some consolidation. Supports are at 1170, 1153.

Short-term target, based on W5 = W1

Bound by the green lines, SPX looks to be converging towards a top. A typical target of this 5th would be equal to length of W1. 1153+67= 1220. Looks familiar?! Check out the long-term chart on the previous post. Caution is warranted however, as the minimum requirement for a wave 5 has been met. And the next big move, when it happens, will be down. Also, yesterday's late push setup a negative Divergence on the hourly & daily RSIs.

The Count

Now, i know some EW folks reading this blog are yelling 'heresy', at my count (W1 looks nothing like a typical impulse). I agree, and share your concern. But, waves donot always unfold in ideal form, as markets are not perfect reflectors of collective mood. Hence the use of trendlines, fibo ratios and momentum indicators to supplement the readings. So, please bear with me on this. As an aside, check out the RUT hourly, and this count begins to look much better. ;)

All the best folks!

PS: Installed Disqus as the comments system, like the one on slopeofhope, where i hangout sometimes.

Sunday, March 21, 2010

S&P500 Long-Term Chart: Sell in May?

Hope everyone had a nice weekend! Most of the Elliott Wave world was expecting a 3-wave 'abc' upmove since the big bear market. But in the last month or so, with SPX exceeding 1150 and still strongly uptrending, we seem to be moving up in a 5th wave(many other US indices had done the same earlier). This persistent uptrend, has frustrated a lot of bears out there, and may continue to do so for a while. As i posted in one of the comments on this blog, this may be the year where we "sell in may and go away"! This would also allow Shanghai to keep up its recent correlation, and head up to 3200 in Wave D, while dragging Hang Seng along for the ride towards 22000.

Here, i would like to highlight potential areas of turn, if we indeed head higher. Meanwhile, do keep in mind that we're still in the overbought zone on the daily chart.

Resistance - 1220

This target is based on the parallel trend channel(red) resistance area from the 2000 high. Also, happens to coincide with the 61.8% fibonacci retrace of the entire decline.

Resistance - 1315

The first wave up from the lows was 290 points, third wave up was 280 points, so if the fifth wave up is 270-290 points, we would get 1315-1335 range. You will also notice from the chart that this area is a historical area of resistance for the index (black line).

I'll update this chart again, if we indeed go higher.

Short-Term: Why a crash is unlikely

First, the obvious strength in the face of overbought conditions. Secondly, price is nowhere near the uptrendline connecting the two lows(long-term chart) & well within the current uptrend channel(chart below), which makes any crash or plunge very unlikely. A correction has likely already started, but it has multiple supports (recent highs, channel support, uptrendlines, 200-day moving avg,etc). And lastly, sentiment readings do not indicate excessive bullishness.

We may continue to correct sideways (between 1170-1144) in the week ahead in very choppy action, in what could be a potential wave 4. Support is in the 1140 area. This may be followed by a spurt higher in a wave 5. However, a sharp and continuing break below the channel support line(red) would mean something else is at play here.

Not the best place to be entering the market, unless one is a daytrader. All the best for the week ahead!