Longer Term Investment Outlook

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This video contains charts and some further details regarding stocks and bonds specifically.  The outlook and advice is pretty simple.  Sell all bonds and move to cash.  Understand that after the 2008 stock market decline, big money has flowed to bonds and that is the class of assets that your investment adviser or financial planner will currently feel safe recommending and be able to show you that has positive returns over the last few years.  But as investors, we have to be savvy and see the risk or potential BEFORE it actually happens, and be willing to act with little to no confirmation from FACT that we have chosen correctly.  THIS IS ONE OF THOSE TIMES.

Additionally the smart money commercial stock futures traders took a big jump in selling this according to the CoT data, and I think we will see that they sold even more heavily through this past week's jobs/unemployment data.  My suggestion is again to sell stocks and move to cash.  The pattern and real money data are becoming increasingly clear that a major market movement is about to take place to the downside.  If you need some initial PROOF, then I suggest that a daily close below 1310 on the S&P 500 be your signal that this current bull market is over, and we will see a rapid price decline.

Again this is investment time frame advice.  So understand that while I think that we truly are very close to seeing a major market shift to the downside and unwinding of some of the "bubble" activity in stocks and bonds, it may be 2-4 years for things to really play before possibly re-investing in a major way.

For the Short-Term Trader

Now that the market is at a new rally high, the pattern suggests that the time frame for the next tradable daily swing high will be between Tuesday and Friday next week.  I personally would suggest waiting for some further bearish divergence to form on the 30 min or hourly charts within this still young move up since Thursday afternoon.

The pattern also suggests a possible MAJOR pattern completion about to occur and would imply immense downside.  This is the type of move that can make the whole year's trading worthwhile.  I will go over specifics in an upcoming video, but any close below 131.28 on SPY would suggest to me that the upward pattern since Oct 2011 is complete, and we should see a sharp move back below the Oct 2011 low probably in less than 4 weeks time.

I am not planning on waiting for that level to break to initiate a trade, but for investment or longer term speculation, that is a sensible option.

Rally Into Next Week?

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The market reaction since the FOMC announcement yesterday has been an initial modest sell off.  Often times initial reactions to news items are reversed, and given the technical set-up, we may be set for that here.  The move up last week was more powerful than the move down over the last 4 days.  The hourly technical charts are now more oversold than overbought, and price is holding above the 7-26-12 gap up which is chart support underneath current prices.

The chart above is a 30 min chart of SPY.  The MACD is oversold, but the first cross up has not been a great signal over the last month.  However, if a bullish divergence develops over the next couple days, that would be a nice short term long trade set-up.  At this point it looks like the advance since June is running out of steam, but even if the market pulls back a bit more, the pattern and price logic are suggestive that the market will make another tradeable move up on the hourly charts.

There is no indication that the recent range type trade is over yet, so using oscillators for trading signals should be productive in the near term.

Market Update - Pattern Analysis

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This chart contains a few things of interest.  This is the NYSE, though similar comments could apply for other indexes.

The green box is what I would consider an ideal projection for the end of the current wave up if the pattern up since the Oct 2011 low is an ABCDE pattern - a type of contracting triangle, but with a D wave that is larger than B.  This would imply a small upside potential from current levels of about 2%, with the time to complete being mid next week.

Secondarily, the ABC labels and the blue and pink lines project a harmonic pattern up from the June low.  One of the most common patterns is the ABC pattern where the price of C = the price of A.  The blue lines project that pattern which would be at 8060ish which is about 2% higher from here.

Now another common variation of a harmonic ABC pattern is for the "c" portion to be a smaller abc pattern itself.  So there is an abc within an ABC.  That is what the pink lines project.  The smaller abc would complete at 8000 which is about 1.5% above current levels.

So with these different forms of pattern analysis, we can arrive at a fairly tight resistance zone at the NYSE 8060 level.

This is also in conjunction with a technical picture showing daily time frame bearish divergence and weekly stochastics nearly bought.  So I am watching that level as a prime area for a downside reversal.  But a breakout with a large candlestick or gap through that zone would be a likely sign of a continuing uptrend.

Hourly chart indicators are overbought but without solid bearish divergence.  I think we may see some divergence develop before a possible pullback.  I am anticipating a short/inverse trade opportunity within the next week.

Trading Range Still in Effect

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The S&P 500 is forming a channeling pattern with a slight contracting bias over the last month.  There has been no confirmation at this point that the trend has shifted down for the intermediate term.  However, it would take a move above last week's highs by Monday afternoon to clearly keep the price logic in an upward trend.  Maybe the market will move significantly following next week's FOMC meeting.  Clearly both stocks and gold have basically traded tightly for a month and a half.

At this point I expect the market to drift sideways to higher into next week.  The overhead large gap down from last week has now been filled on SPY but not on QQQ or IWM.  It would take 1.5% or more gains to fill those gaps on those indexes.  If the downtrend is to continue, then we should expect the market to find resistance at that gap level after testing it.  After filling prior gaps, the trend often continues, so it is possible that the markets work back up to that gap, and then resume lower, but at this point there is no clear indication.  We now also have a large unfilled gap BELOW prices from yesterday's move.  In my opinion, any move below this week's low is likely a major failure for the stock index bulls, and would likely lead to substantial follow through selling.

Gold has reversed into a daily Parabolic SAR buy signal and has held above the upper boundary on the recently noted contracting triangle the last day or two.  So far the upside breakout is holding, so we may expect gold to continue to rally for a few weeks.  But, any move back into the triangle would be suspect for the bullish case in gold.

AAPL Earnings Gap Down

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Apple's uptrend is likely to be broken after a downside price reaction on earnings.  As the biggest stock in the market, an end to its uptrend will likely continue to pressure stocks in weeks or months to come.

Stock and Gold Update

7-23-12 Market Update

Price action so far off the recent swing high is suggestive that the rally since June 4th may be complete.  Flag patterns in the indexes are nearly confirmed projecting declines back to the Nov stock lows.  Earnings seasonal hits full swing this week.  Apple is hovering right at uptrend support and below the breakout point of a base it has already failed to breakout of at first attempt.  A negative earnings reaction on AAPL could trigger substantial follow up selling in stocks.

Gold is awaiting a breakout of a symmetrical triangle in the short term and a large descending triangle in the long term.  Likely breakout coming to the downside in my view.