Saturday, 28 April 2012

Weekend update'2 - Monthly Index Cycles

Those weekly cycles sure didn't look good for the bears, lets now take a look at those bigger and even more important monthly cycles.

IWM (representing the rus'2000 small cap)

IWM is down 0.5% this April, but we are now well outside of the bearish danger zone. This months action is kinda reminiscent of last November/December - early losses, all quickly recouped. From a cycle perspective, the MACD is right back on track, with 4 months of increasing bullish momentum. There is nothing bearish here. Only a break under the 10MA - just a touch under 76, would make me bearish on this index. Bulls only need 1.6pts higher (around 2/3%) to fully confirm the resumption of the post October bullish trend.


The tech' is only -0.7% across the month. Interestingly, it is scraping near the top of the bollinger bands, and further increases will certainly be more difficult than those first few months since last October. General price momentum continues to increase, there is NOTHING bearish here either.


Disturbingly, the Industrials are actually net-positive, just 0.12%, but considering all the problems out there, this is pretty extraordinary.. Near term 'comfortable' upside would be to around 13500. Bears really need to see a break below the 10MA around the 12300 level to have any hope of a broader trend change. Right now, 900pts to the downside looks an awful long way away.


The NYSE comp' - as noted many times, never did surpass the summer 2011 highs, not even close. With just one trading day left of April, this index has lost 0.7%. All the standard indicators remain bullish. There is now no longer any sign of a trend change to the downside. Bulls will need to see a break above 8327 to confirm a resumption of the primary upward trend. Upper target would be around 8850 - around 9% higher.


Looking at the SP' chart, I'm arguably inclined to see this April's action much like March'2011. Does this suggest May 2012 is April'2011..and so forth? Regardless, the upper bol' first target would indeed be a new high of 1435/40 within weeks..if not days. Only a monthly close under the 10MA of 1289 would get me bearish. Even then, just like for April, how we close May will be paramount. Clearly, there is nothing bearish about the SP'500, the post October low trend line still points toward 1550, although bulls will really have to ramp this market up in May if we are to get back on schedule for a re-test of the all time highs.


The Transports are following the lead of the Dow, and are actually even a touch stronger, up almost 0.3% in April. However, the Transports remain absolutely stuck in a narrow range for the past 4 months. As noted in the weekly update, the direction in which the Transports breaks will probably be a decisive sign/warning to all traders in the weeks and months ahead. Arguably, it is the most important index to watch this summer.


So we have the Dow and the Transports already a touch positive for April - pretty incredible. The other 4 are all down, roughly 0.5% or so. In the scheme of things, we can say April will close largely flat.

Bulls should be happy with a flat April, and are now just 1-2% away from breaking new highs on each of the main indexes..which if it occurs, would probably lead to at least a further 5-10% in the early summer.

Bears have got to be pretty devastated with April, not least the past 4 trading days. Despite a truck load of lousy econ-data, a downgrade of Spain, and other world issues, the markets still recovered and closed confidently on Friday.

Whether long or short, the stop-levels are clear

A break over Sp'1422..the 'big money' bears have to abandon all hope, at least for another 2-3 months.
Only with a break back under last weeks lows - Sp'1358, could the bears justifiably get confident of much lower levels in the near term.

April was a difficult month to trade, I'm guessing May won't be any easier.

Goodnight from a rainy London

Weekend update'1 - Weekly Index Cycles

This weekend I will post two main updates, covering the weekly and monthly index cycles. As we now have just one trading day left of April, the monthly chart will likely not change much, so we can start to look ahead into May and across summer 2012.

*I will cover the regular '10 world indexes' next weekend, once we have moved into May. we go....(all charts are 2 year, weekly candles)

IWM (representing Rus'2000 small cap)

We have a bullish engulfing candle, and a close above the 10MA. From a MACD cycle perspective, there is no clear turn back upward yet. I suppose the bears could argue we are just back testing the broken October trend. Only with a break under 78 can the bears regain any degree of confidence, bulls just need a further small move up...a close next week of 84 would be very significant.

NASDAQ Composite

Tech' remains in the post October low channel, and like the Rus'2000, we have a bullish engulfing candle, and a close over the 10MA. MACD cycle is still positive, there is nothing bearish here. First target will be a break over 3128, a mere 59pts away <2%.  That is well within range, and is highly viable within the first few days of next week.


Almost a 200pt gain on the week for the Dow, which is pretty amazing considering Mondays action. However, we are now right back to that problem level of 13300. A break above..and bulls have free air until 13500. However, a fail here..and the oft' touted 'waterfall fail' could occur - first target would be 12200 (a clear 1000pts lower). Bulls will understandably want to get above this level as quickly as possible next week. A mere +73pts gap Monday morning would do it.

Technical indicators are threatening to turn outright bullish again, and if we break above 13300 early next week, the Dow will go + cycle on the MACD, and that will probably be a sign that SP'1422 will be taken out, and a further move at least 2-5% higher within May.

NYSE Comp'

The 'master index' as I like to call it, we've a bullish engulfing candle, and a close over the 10MA, there is nothing bearish here either. I guess bears could again argue this index is also setting up to back test the broken October channel. MACD cycle is still positive, but there is still a hint of weakness in this very broad index.


A bullish engulfing candle, a close over the 10MA, and a MACD cycle that is still +cycle. SP'500 is now a mere 19pts away from breaking new highs. Only a close under the recent low of 1357 would justify any renewed hope/confidence in bear-land. Bulls arguably merely have to hold current levels in the coming week.


What has been the weakest index for many months, remains weak. Transports only gained 0.6% on the week, and the MACD cycle remains negative. There is certainly nothing bullish here..yet.

Its possible we could be in a bullish pennant (although the monthly cycle would argue against this). The direction in which the transports breaks in May will be a critical signal in my view. The range is exceptionally tight, so traders - whether bullish or bearish, can go heavy long or short, with good tight stops.

Only a break above 5400 would clarify the new trend as bullish. Bears will need to see a break below the hugely psychological 5000 level to claim the start of something majorly bearish.


Of the 6 indexes covered, only the Transports is moderately bearish. The other 5 all have strong bullish engulfing candles - such candles that are often reliable indicators of a major trend change to the upside.

Bulls need very little next week, even a flat week to consolidate current gains would probably be enough, and that would set up a bullish May - where we have the Facebook IPO hysteria still to come.

Bears..are in real trouble. A bullish engulfing candle is going to be REALLY difficult to break back below next week. 

The Monthly Cycle update will posted late Saturday.