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Market Analysis - 6/12/2016

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In my most recent writing, I underscored the importance of listening to $SOX when striving to determine the direction of the underlying currents. Another valuable indicator is $BANK. In fact, Trust $BANK, don't fight $BANK is a little-known Wall Street wisdom. Chart 1 below depicts $BANK's monthly chart in which the index is shown to have registered its most recent recovery high, not ahead of the August 2015 crash as one would likely guess, but rather in December, several month following that crash. Clearly, the December 2015 high coincided with the endpoint of (red) wave B dating back to September 2008. Notice that this index registered its all-time-high as early as December 2006, some ten months ahead of the pre-crisis bull market top registered by the major market indices such as $SPX, $COMPQ, and $INDU. $BANK would then bottom in March 2009, leaving behind an A-B-C corrective pattern that ushered in the next bull market.

The chart also depicts a "W" bottom, which, harmonically speaking, can only resolve in three possible ways: Bat, Alternate Bat, or Crab. Notice that the PRZ of the weakest of the three, namely, the Bat, has yet to be reached (0.886 XA). But given the corrective nature (A-B-C) of the 2006-2009 decline, the pattern is highly likely to result in an Alternate Bat, with the Crab scenario a stretch. This is to say the bull market has much more to go   

Chart 1. Chart 1. $BANK topped in December 2015, two months ahead of the final leg of the multi-month correction.

Last Week and the One Ahead

The McLellan Oscillator ($NYMO) is depicted in chart 2 below. Last Thursday, [Net Advances - Net Declines] / [Net Advances + Net Declines] registered a negative reading of -241. In other words, the number of declining issues exceeded the number of advancing issues, Yet, the $SPX was still trading within a stone's throw of 2120, i.e., the high of the week. But we already knew, from charts 3 and 4, that harmonic chart patterns on both $SPX and $SOX had already reached their objectives, not to mention the TD Sequential Sell 9-13-9 registered on the daily chart of the $SPX on June 3rd


Chart 2. $NYMO went negative on Friday. Declining Issues exceeded Advancing Issues on the prior day, while $SPX was still flirting with the week's high. That's one of many notable divergences that predicted Friday's outcome.


Chart 3. $SPX reached the SHARK's PRZ before turning down.


Chart 4. $SOX too reached its SHARK's PRZ before turning down.

Chart 5 below depicts the support area immediately below Friday's low on ES M6 (S&P 500 June contract). Clearly, the overnight price action appears to be gunning for it. Charts 6 and 7 depict the same for $SPX and $SPY.  Particularly on $SPY, traders should watch the 208.86 level and be ready to pull the trigger from the long side. Chart 8 estimates the extent of the bounce based on the prospective bearish SHARK pattern. (Note: nothing in stone yet. Wait for real-time update)


Chart 5. ES M6 immediate support area.


Chart 6. $SPX immediate support area.


Chart 7. $SPY immediate support area. The 208.86 level is a high-probability bounce candidate.


Chart 8. Two potential bearish SHARK patterns are shown here. The 1.618 XA extension falls precisely at 208.86. The red SHARK has a PRZ of 211.05 to 211.26, while the blue one has a PRZ of 212.17 to 212.18.


Trade smartly,.

 Peter 


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