Wednesday, October 23, 2013

The market direction script is working out but the only sore spot is the TD Sequentials showing price exhaustion across the board for the indices. The remaining question is do we have a minor pullback or something more sinister? Given the supporting market internals are good but overbought, it is more likely for the market to consolidate and that will continue to be the theme for now. 

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S&P 500 (SPX) SHORT TERM OUTLOOK: BULLISH

Will flip to neutral if SPX closes below 1744.52 today.Image

As long as the TD Buy Setup remains active, or if shorter duration timeframes do not cluster into potential price exhaustion points, best to allow the market to melt higher if it wants to.

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S&P 500 (SPX) SHORT/INTERMEDIATE TERM OUTLOOK: BULLISH

The markets are in day 1 of a potential reversal signal from the TD Sell Setup @9 and TD Sell Countdown @13 yesterday. If the market is consolidating, one clue is to look for is the SPX to close off the lows of the day. ImageImage

The chart above is Wayne Whaley’s 5 day breadth thrust which is somewhat similar to Martin Zweig’s breadth thrust except Whaley took breadth, volume, and price to identify SPX prices 6 months to 12 months from now. Just focusing on the 5 day breadth numbers, it is basically a 5 day advance/decline spread. But the information it gives is the high probability for breadth divergences to start building from here but it does not preclude prices to go higher. Those interested in his studies, you can get it here: http://www.mta.org/eweb/docs/pdfs/dowaward-2010.pdf

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S&P 500 (SPX) INTERMEDIATE/LONG TERM OUTLOOK: BULLISH

SPX has cleared the 1711.44 closing marker for a continuation of more gains. There will be further confirmation if the SPX closes above the 1737.48 risk level established by the August 5th weekly close. (last updated October 18th)

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S&P 500 (SPX) LONG TERM OUTLOOK: NEUTRAL

Market is extended and within’ the risk level parameters of the 9 and 13 TD Sequential clusters in April and May. (last updated September 30th)

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ETF OBSERVATION: SPDR S&P CHINA ETF

TD Sell Countdown is very close to a recording a 13 but the weekly is producing a bearish engulfing pattern while recording a weekly TD Sell Setup @9 six weeks ago. ImageImage

The big catalyst for today’s global losses stems from the PBoC’s decision not to inject liquidity into their markets. The primary problem is their own credit bubble and with banks lending at a record pace this year, it has not translated into stronger growth which is a quagmire. Though the GDP numbers are turning higher again on the headline number but the real reason of growth is from government infrastructure projects. Their problems are structural and how the government was able to localize potential large crises into small ones is a feat in itself. How China manages their growth model by becoming more dependent on the Chinese consumer for growth than government infrastructure will help in relieving their problems. Keep this on the radar. By the way, Jim Chanos, Andy Xie, and Stephen Roach are the high profile China market watchers but check out Patrick Chovanec as well. He provides unique insight from the pavement as he is an American living in Beijing. 

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