S&P500 short-term: Retest of 1126 & U-turn ahead

Last post called for consolidation ahead. Since then we made a new high around 1126spx, followed by sideways consolidation. Yesterday, we broke out of, what looked like a not-so-purrfect 4th wave triangle since the 1086 low. The 5-min chart:

This implies that there will be a re-test of the 1126 level, and a successful break will see strong resistance in the 1030 area(target of the 4th wave triangle, and remember triangles usually precede wave termination). Here's the 30-min chart:

Scenarios

1. If we count the rise from 1045 as a 5-wave impulse: we've already reached the 5th wave target, based on 1=5, An a-b-c reversal down may be next.
2. If we count the rise from 1045 as a complex W-X-Y correction, with W ending at 1112 high, and X at the 1086 low: we're in the Y wave with a target of around 1153 (a test of the Jan highs) based on W=Y, followed by a reversal.
3. Target of the Inverse Head & Shoulders, described in the last post also points to a retest of the Jan highs.

Reason for Caution

Significant overhead resistance, negative divergences on the hourly RSIs, plus daily chart nearing overbought are all excuses for a sharp move down. Although we may generally head higher in the short-term, i would be very cautious with long positions once we reach 1130 area.  The easy money has been made, and we're close to the ozone layer. I would instead be looking for short opportunities as we struggle higher. Support is around the orange rising trendline.

Wave relationships above are ideal, and they can, and DO often truncate. Watch the price action and trendlines as always.

All the best!

S&P500 short-term: Expecting Consolidation

Hello folks! My last World Markets Update post during the weekend called for a short-term bullish breakout in asian and us markets - right on target!

For the SPX,  we broke out of a major downtrendline around 1105, and hit an impulse high of 1123. Expecting consolidation ahead, and remaining short-term bullish unless, we break below 1090. For today, we may grind up at the open a bit, before moving lower towards 1107.

Minor support 1110. Good trendline support at 1107, followed by 1090 area.

Inverse Head & Shoulders ?

Notice the upsloping inverse H&S setting up with neckline where the 'B' label is, and the head at C. There was a small breakout, but whether it holds or not remains to be seen. An eventual breakout above would be short-term bullish with a target around 1150 - a retest of the highs!

It is not impossible, especially if the move down from 1150 was an A-B-C (the most obvious count).

All the best!

News moves Markets... Right?

While we're waiting for a good trade setup, here's a free article, copied wholesale from Elliott Wave International, that you'll find very interesting. Involves one of my favourite topics - Does news move markets? Example: Greece default, and troubles in US and europe should be sending stocks & euro crashing right, but hey are they? I'd appreciate your views on this after you finish reading. Thanks! I'll be posting an SPX update later today.
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What Does NOT Move Markets? Examining 8 Claims of Market Efficiency

March 2, 2010
By Susan Walker

If everyone says that shocks from outside the financial system -- so-called exogenous shocks -- can affect it for better or worse, they must be right.

It just sounds so darned logical, right? Economists believe this trope to be true, mainly because they believe that investors are rational thinkers who re-evaluate their positions after every new bit of relevant information turns up.

Beginning to sound slightly impossible? Well, yes.

It turns out that logic is exactly what's missing from this it-feels-so-right idea of rational reaction to exogenous shocks. Read an excerpt from Robert Prechter's February 2010 Elliott Wave Theorist to see how Prechter deals with this widely held belief.

Find out what really moves markets -- download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn't. You might be surprised to discover it's not the Fed or "surprise" news events. Learn more, and download your free ebook here.

* * * * *

Excerpted from Prechter's February 2010 Elliott Wave Theorist, published Feb. 19, 2010

The Efficient Market Hypothesis (EMH) argues that as new information enters the marketplace, investors revalue stocks accordingly. … In such a world, the market would fluctuate narrowly around equilibrium as minor bits of news about individual companies mostly canceled each other out. Then important events, which would affect the valuation of the market as a whole, would serve as “shocks” causing investors to adjust prices to a new level, reflecting that new information. One would see these reactions in real time, and investigators of market history would face no difficulties in identifying precisely what new information caused the change in prices. …

This is a simple idea and simple to test. But almost no one ever bothers to test it. According to the mindset of conventional economists, no one needs to test it; it just feels right; it must be right. It’s the only model anyone can think of. But socionomists [those who use the Wave Principle to make social predictions] have tested this idea multiple ways. And the result is not pretty for the theories that rely upon it.

The tests that we will examine are not rigorous or statistical. Our time and resources are limited. But in refuting a theory, extreme rigor is unnecessary. If someone says, “All leaves are green,” all one need do is show him a red one to refute the claim. I hope when we are done with our brief survey, you will see that the ubiquitous claim we challenge is more akin to economists saying “All leaves are made of iron.” We will be unable to find a single example from nature that fits.

* * *

In his February 2010 Elliott Wave Theorist, Prechter then goes on to show charts that examine each of these claims that encompass both economic and political events:

Claim #1: “Interest rates drive stock prices.”
Claim #2: “Rising oil prices are bearish for stocks.”
Claim #3: “An expanding trade deficit is bad for a nation’s economy and therefore bearish for stock prices.”
Claim #4: “Earnings drive stock prices.”
Claim #5: “GDP drives stock prices.”
Claim #6: “Wars are bullish/bearish for stock prices.”
Claim #7: “Peace is bullish for stocks.”
Claim #8: “Terrorist attacks would cause the stock market to drop.”

To protect your personal finances, it's important to think independently from the crowd, particularly when the crowd buys into what economists say.

Find out what really moves markets -- download the free 118-page Independent Investor eBook. The Independent Investor eBook shows you exactly what moves markets and what doesn't. You might be surprised to discover it's not the Fed or "surprise" news events. Learn more, and download your free ebook here.


Susan C. Walker writes for Elliott Wave International, a market forecasting and technical analysis company.

World Markets Update: S&P500, Shanghai, Hang Seng, Sensex, Straits Times, Euro

Overall Outlook

Medium Term: Bearish
Short Term: Cautiously Bullish

In my humble opinion, for most markets, we've seen the highs for the medium term (except maybe Shanghai):

Believe this week is crucial for short-term direction.

S&P 500

SPX broke above bull flag, and is faltering at the downtrendline. Expecting a downwards consolidation towards 1097(staying above the blue line) on Monday, followed by an upwards breakout & grind towards the 1120 region. Around 1126, i may consider getting seriously short this market. A break below 1097, and this might be something else.

Shanghai Composite

The medium-term triangle scenario working out so far, as outlined in an earlier post. Currently, serious resistance at 3050. A break above will target 3250. A break below 2950 might change the picture. Support at 2700.

Hang Seng

As posted earlier, possible cup & handle, or in the immediate future an inverse Head & Shoulders leading towards 22000. A break above 20700 will confirm. A break below 19800 most likely invalidates. Support at 19400.

Bombay Sensex

Probably the earliest clue as to what may be coming - there was an attempted breakout above 16500 on Fri, but closed below it. If there's follow thru, expecting a rise towards 17400 followed by termination and reversal.

Straits Times

Possible break towards 2880 followed by reversal.

Euro/Usd

Although not a currency expert, expecting a reversal in the Euro, based on RSI divergence (green line)

Summary

Asian markets may offer clues as to what may be coming. Once again, correlations only last as long as they last! Highlighted above are mostly short-term bullish scenarios, if they dont materialise this week, things can get ugly.

We can speculate, but only the market is right. Watch the price action & trendlines - place your stops.

All the best!