The weekly trend chart gives some mixed readings but the important 13 - 34 EMA part is still barely in bearish mode, despite the S&P 500 price advance from the Fall 2011 low.

The daily NYSE Summation index shows a firm positive trend underway from the Dec. 2011 low but is likely tracing out a bearish divergence these days. I'm using a 3 day EMA on it, to better see the true trend in prices. Any divergences observed in this indicator, (like now) often warns about tops/bottoms forming and possibly a stronger move in the opposite direction thereafter.

On the weekly chart, the OEX has met some trendline resistance challenges it needs to overcome first, if it decides to go for a test of the May 2011 high, mid term. With the weekly Cycle10 now well into sell territory and showing divergence weakness compared to higher highs in prices, one of these trendlines could cause a reversal or at least lead to a pull-back in prices. So the market is at an interesting juncture. If it falls below trendline support in the coming weeks, the odds of an Intermediate degree wave (2) top in place, would increase.

Using weekly closing prices only, also here the market has to overcome strong trendline resistance (585 area) first, to open up for even higher prices thereafter, towards the May 2011 high.

To zoom into the finer wave structure of the market, a look at the daily chart shows a series of a-b-c wave patterns developing from the Oct. 2011 low, an overall w-x-y pattern which may terminate the Intermediate degree wave (2) soon. The 01/17 GA mentioned above is one ideal candidate to produce a top, in case the positive trend continues or a consolidation into the GA occurs.

But daily Cycle10 has already started a new downside pressure phase, so only time can tell for sure if this will take the form of a pull-back only, towards lower wedge line support, before heading higher again. Or that the market its going for a wedge breakout. Any daily close below the lower wedge line, would increase the chances of an already completed wave (2) at that point.

Volatility (fear level)
The short term VIX daily shows a possible Falling Wedge formation. An upside breakout is looked for, given the bottoming RSI 25 these days. If it breaks to the upside sooner or later, once again a Volatility explosion could be the outcome, in line with what is expected from the upcoming Intermediate degree wave (3) impulse to the downside.

Dynamic Gann Levels - DGL
Prices are currently near a larger L2 DGL which has caused a significant short term top in the past and it could do it again. A mild bearish divergence is observed in RSI 25 versus the slightly new highs in prices. RSI 25 at more or less current levels in the recent past, shows several top formations.

Murrey Math Lines
The MM chart shows a momentum bearish divergence, with the market at the same time struggling to get out of the 3/8 - 5/8th MML range, a well known fact in this theory. Once inside (entry difficult) it is also difficult to get out of this range

In retrospect, the major 4/8th MML was partly the cause of the wave (1) bottom in Oct. 2011, as seen on this longer term MM chart.

Individual Stocks
The popular Google stock has once again met major Triangle line resistance and is at the same time tracing out a bearish RSI 25 divergence vs. the larger 2009 top in prices. A mid/long term decline is in the cards for this stock.

Waiting for a clear breakdown in the 20Y T-Bond etf TLT weekly as the RSI 25 bearish divergence indicate weakness coming soon.

The Neural Net system is still Long on the OEX weekly and turned Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week.

Below is also a S&P 500 Neural Net peek into the 3 first months of 2012, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

Good luck trading in 2012!





As long as the market trades below the October high, a wave 2 from the November low can't be ruled out, which may completed over a week ago. Any move above trendline resistance would indicate some strength coming and the wave c alternate count would get more attention at that point.

The NYSE Summation Index is in a downtrend at this point. But daily Cycle10 is bottoming out and 2-RSI is pushing higher from oversold levels. So at least a test of trendline resistance (567 area) is not out of the question next week.

A look at the weekly chart shows that the odds are greater that the market is heading lower (after a brief test of trendline resistance?) as the Close came near the Low for the week and Cycle10 is still in a downside pressure phase, with more room left before getting oversold, mid term. A break of the previous week's low would be a stronger signal there is more to come to the downside.

The weekly closing prices chart seems to be helpful in locating likely future turning points, using trendlines drawn through the peaks and bottoms of these closing prices. Now its heading lower, after once again failing to break through trendline resistance. The same goes for the RSI 25 indicator.

Another technical sign which doesn't bode well for the stock market but could be good for the USD, was GLD's (Gold etf) breakout from a several years long standing bullish price channel this week. With the tide apparently changing in this market, chances are that other markets like i.e. Stocks, Oil, Commodities, Real Estate will experience pressure too, since these markets tend to move more or less in tandem.

The 20Y T-Bond etf TLT weekly is going for its third test of trendline resistance next week. It has oscillated higher within two converging trendlines and since its getting close to the Apex, a breakout should occur soon. I.e. a downside breakout would indicate higher yields ahead.

The Neural Net system is still Long on the OEX weekly and turned Short on GLD (Gold etf) and Short on SLV (Silver etf) after this trading week.

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

The Market Outlook 2012 Report should be out in January.

Best Wishes for the Christmas holidays!

U.S. Unemployment unexpectedly fell to 8.6% in November and nonfarm payroll employment rose by 120,000, a positive surprise for the economy.

The stock market soared this week but the underlying technicals were weak, with poor breadth and lack of Volume power. I.e. the NYSE Summation Index even held on to its bearish mode and McClellan 21 EMA only showed a small reaction up, despite the strong price advance. So i suspect a lot of short covering was going on in the market.

This roughly 45 points move in the OEX for the week, resulted in 2-RSI entering its overbought zone and a test of minor trendline resistance in the OEX. Friday's trading session formed a reversal candlestick up against this resistance, so these factors suggest a pull-back starting early next week.

From a Dynamic Gann Level point of view, the peak for the week came up against the blue L3 DGL which also caused several pull-backs in October and November.

A look at Murrey Math shows the OEX was not able to close above the strong 4/8th MML after several attempts at the end of the week.

Using the Elliott Wave Principle its possible that a full five wave Impulse structure from the October high, already ended at this week's low. So as long as that high stays intact, a corrective phase developing as part of an overall bearish trend, still can't be ruled out, a stance which is supported by weak technical factors.

A look at the OEX Weekly chart shows that the downside cycle pressure phase in Cycle10 is still barely intact after this trading week. So since the countertrend advance has reached the weekly trendline resistance area, the overall bearish trend could resume soon.

However, any weekly close above trendline resistance and the October high, would prove me wrong about the ended Intermediate degree wave (2) scenario from the October low and probably lead to a delay of this wave (2) top.

With another trading month just ended, all the monthly charts have been updated. I.e. the OEX Monthly still reflect a long term bearish mode. The close for the month came up against trendline resistance.

The 20Y T-Bond etf TLT weekly experienced some selling pressure this week but recovered a bit and was able to close at trendline support. Any weekly close below this support, could lead to more weakness. Any move beyond the Doji high, on the other hand, would signal another test of trendline resistance.

The Neural Net system turned Long on the OEX weekly and is still Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week.

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

Most likely a minor wave iii forced prices lower this week, which has pushed i.e. Put/Call Ratio readings into oversold territory (above 1.20) short term. But this first leg down from the October high as part of what could be an Intermediate degree wave (3) underway, is not ending before a full five wave structure can be counted from that high. So the wave iv and v remains.

Since the key Fib. support was reached Friday and the very near term 2-RSI is at an oversold extreme, a reaction up is not ruled out early next week.

In Murrey Math theory, the (yellow) 7/8th MML is viewed as weak support/resistance, so if it holds, reversals from these MMLs can be sharp in nature. In this case, if it fails to hold, then the next likely target for this wave iii could be the strong 8/8th MML at 500. The next positive Stochastic crossover would increase the odds of a short term bottom in place. Whether this will occur from the 7/8th or 8/8th MML support zone, the next trading week will probably tell.

A look at the OEX Weekly chart shows a firm downside cycle pressure phase in Cycle10, which has yet to reach "oversold" territory, mid term. This and the OEX close at the low for the week, suggest more selling pressure coming, possibly after a brief upside market breather for a day or two.

Not unexpected, the market weakness this week pushed the buck higher and even closed above trendline resistance Friday. But it would take another up close to have a clear breakout. If so, it would open up for even more strength in the Dollar.

The 20Y T-Bond etf TLT weekly made another test of the larger trendline this week and formed a reversal candlestick up against this resistance. So this could mean the Bond market is heading lower in the coming week(s). Any weekly close below trendline support, would indicate more weakness thereafter.

The Neural Net system turned Short on the OEX weekly but is still Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week.

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

The OEX broke out from the earlier mentioned Inside Week to the downside, which resulted in a bearish reversal in the NYSE Summation Index trend. The OEX close near the low for the week, suggest more to come to the downside next week, signaled by a break of the low.

A look at the S&P 500 60 Minute Chart shows the market moves impulsively to the downside after a series of wave two's, which gives support to an ended wave (2) of Intermediate degree, at the October high. A weekly Stochastic crossover after this trading week, also increases the odds of a wave (2) peak already in place.

At the end of the week, the OEX found support on the earlier tested L2 DGL with the very near term related 2-RSI at the same time entering its oversold territory. From a Murrey Math point of view, this is the 3/8th MML support area. So a reaction to the upside is not ruled out early next week, before likely continuing on the overall bearish path lower.

The 20Y T-Bond etf TLT weekly broke out from the Inside Week to the upside and closed above trendline resistance and near the high for the week. So because of this, another test of the larger trendline is not out of the question, within a week or two.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week. Updated SLV NN chart

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

This choppy trading week produced another example of how useful the NYSE Summation Index can be in figuring out the true trend, as despite the pullbacks seen in the past few weeks, it has yet to break its 3 EMA.

So since the overall trend from the October low is still positive at this point and the OEX has entered the +/- 1 day time window of the 11/11 Gann Angle and the market is likely in a series of wave ii's, a reversal in the opposite direction is looked for, early next week.

Any positive breakout (daily closing basis) Monday, from the Triangle pattern formed in the OEX, could lead to a test of the October high but wouldn't necessarily cancel this GA view, as if this move occurs within the next few trading days, it would still be roughly within the time window of the indicated bearish reversal.

If the Triangle remains intact, the odds of the wave ii scenario would increase. This could come as an intra-day breakout from it but close inside the Triangle again, forming a bearish reversal bar.

But who knows, the Berlusconi resignation could bring some temporary positive mood to the market and drive prices even higher and keep the trend alive longer than expected. But it could come on underlying technical weakness, as so far the recent advance is not backed up by i.e. McClellan's 21 EMA breadth and Volume.

One way to deal with this foggy market situation is to take advantage of the Inside Week pattern observed after this trading week, as seen on the weekly chart. Inside Weeks or Days reflect market indecision and a breakout from this indecision is determined by a break of either the High or Low of the previous week, to get a clue as to where the market is heading.

So a positive breakout would probably lead to a test of the earlier mentioned stiff trendline resistance area, before looking for an Intermediate degree wave (2) top. Any negative breakout, on the other hand, would increase the chances of the wave (2) top already in place, at the October high.

An Inside Week is also observed in the 20Y T-Bond etf TLT weekly. So the same strategy is used here, to try find out where this Bond market is going.

The USD Daily is in a short term uptrend, which probably will continue if the stock market makes a bearish reversal next week. Trendline resistance is up around 79.6.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) and turned Long on SLV (Silver etf) after this trading week. Updated SLV NN chart

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

The OEX fell back for support early in the trading week, after showing an overbought 2-RSI reading at the end of the previous week. The minor (blue) L2 DGL (Dynamic Gann Level) apparently was strong enough to cause a reversal, a move which stopped when it met the L3 resistance.

If the overall positive trend from the Oct. low seems intact when prices are entering the time window (+/- 1 day) of the upcoming 11/11 Gann Angle cycle convergence, it could mark a peak in the market.

On the other hand, if prices are clearly falling into this GA, it could instead indicate a positive reversal coming. The key is to observe the directional trend going into these GAs and look for a reversal in the opposite direction, when the time window is reached.

This GA marks 90 Trading Days from the July high and 135 TD from the larger May high, so it's a fairly strong GA which could have an impact on the market.

2 new contracting trendlines have been formed in the VIX (Volatility) so higher volatility is looked for, in case trendline support is reached next week and holds on a daily closing basis. Vice versa for trendline resistance.

A look at the weekly chart shows a Cycle10 bearish reversal. So who knows, the market may have already peaked before reaching the weekly trendline resistance, mentioned in the previous update. Or it may go for one more push towards this resistance area, into the earlier discussed 11/11 GA. Only time can tell for sure what will happen. A break of this week's OEX low will increase the odds further that Cycle10 has started a new downside pressure phase, mid term.

The monthly charts have been updated, most showing a snap-back move towards earlier broken trendlines. This pattern is often seen before the new trend (in this case bearish) resumes. Any clear monthly close above these trendlines and the May high, will negate the current Primary wave 3 scenario and lead to further delay of the wave 2 top. MACD is still holding on to it's long term bearish mode, despite of October's roughly 100 points advance in the OEX.

The 20Y T-Bond etf TLT weekly is reacting up from first Fib. support but 25-RSI has yet to climb into overbought territory.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) and Short on SLV (Silver etf) after this trading week. Updated SLV NN chart

Below is also a S&P 500 Neural Net Forecast for the next trading week, chart courtesy of chartsedge.com
Please, be aware that inversions can occur in these NN forecasts, like in the Bradley indicator. It should be used with other indicators.

The market made a brief retreat after Monday's trading session, when it ran into the L3 DGL resistance and 2-RSI reached an overbought condition.

After the dip, the market blew sharply through this key DGL and 2-RSI once again became overbought as a result. But this move to new highs was not backed up by New High - New Low Index readings, tracing out a minor bearish divergence. So this advance is loosing steam it seems.

Because of the magnitude of the advance from the October low, it is possible that the mid October consolidation in fact was the wave b (Flat) part of an a-b-c structured wave (2) of Intermediate degree.

The NYSE Summation Index & 3 EMA continues to show a clear uptrend. However, a look at the OEX weekly chart shows there is not much upside potential left, in case the trendline convergence resistance turns out to be strong enough to cause a mid term reversal.

This view is supported by the weekly Cycle10 now at levels where it normally would make a bearish reversal. In addition, daily 25-RSI is about to enter its overbought territory and Bullish Percent sentiment is close to strong trendline resistance.

So if this really is a wave (2) coming to an end soon, this stiff weekly trendline convergence resistance area (590 - 600) could be an exellent point to Short the market for the mid & long term (i.e. Bear etfs.) This area is also where a larger L3 DGL (Dynamic Gann Level) comes in.

So it could be a good Risk/Revard trade setting up soon, where a quick exit is possible by any clear weekly close above both the trendlines or the April high, which would negate this wave wave (2) scenario. A wave two can't retrace more than 100% of wave one, to remain a valid count, according to the Elliott Wave Principle.

The Reward part can be many times more the Risk part, given the mid term overbought position of the market and the Elliott Wave setup, with the upcoming Intermediate degree wave (3) likely being the sharpest one of this five wave pattern, if this Primary wave 3 Impulse underway from the April high turns out to be a correct wave count.

The VIX (Volatility) broke out sharply to the downside from the 2 contracting trendlines discussed in the previous update but 25-RSI is soon getting "oversold" as a result, which would flash a warning sign about higher investor fear ahead and with it, pressure on the stock market.

The 20Y T-Bond etf TLT weekly reached the first Fib. support level this week, which caused the low for the trading week. Any weekly close below it, would indicate more weakness ahead, towards the 50% retracement level.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) but turned Short on SLV (Silver etf) after this trading week. Updated SLV NN chart

The wave a or alternate c is pushing higher, now struggling with a minor trendline convergence resistance. It is also getting closer to the key L3 DGL mentioned in the previous update.

From a Murrey Math point of view, the OEX is roughly 5 points away from testing the 4/8th MML (Murrey Math Line) which is viewed as one of the strongest resistance/support levels in this method. Often near term tops/bottoms are forming at this MML.

Stochastic momentum is also flashing a warning sign, tracing out a bearish divergence versus the new high in prices. And given the current position of the very near term 2-RSI indicator, which is about to enter it's overbought territory, odds are good the market will make a retreat from the resistance area outlined above.

This week's up and down price oscillations within a tight range, gives a good example of how the NYSE Summation Index with the 3 EMA can help out showing the true trend, despite the price "noise" seen throughout the week.

The significant market advance from the early October low is soon causing an overbought extreme reading in the sentiment related Bullish Percent Index with stiff trendline resistance coming in around 90.

The VIX (Volatility) developement has formed 2 contracting trendlines, which should lead to a breakout (either upside or downside) before the Apex is reached. The directional breakout should give a clue as to where the market is heading thereafter.

The 20Y T-Bond etf TLT weekly weakness continued this week but has yet to reach the first Fib. support level. The bearish trend looks intact at this point.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week.

This week's break above trendline resistance confirmed the end of a wave 5 (Diagonal Triangle) or b (alternate wave count) at the early October low. So a corrective wave (2) of Intermediate degree is probably underway to the upside, with the market currently working on the last stages of the first wave a part of a possible a-b-c three wave structure to the upside.

Wave two's in general often takes the form of simple zig-zag corrections, while wave four's tend to turn into complex triangles. A typical wave two would retrace 50% or 61.8% of wave one.

Friday's close came above the long standing L2 DGL (Dynamic Gann Level) resistance, with the horizon now cleared for a further advance towards the next L3 key resistance area. The markets wants to reach these key DGL's 60 - 70% of the time, before making a short term reversal. Friday's 2-RSI climb above 90, shows there is not much left on the upside, before a pullback is likely in the very near term. So i doubt the L3 zone (567 - 570 area) is overcome on the first attempt, (if the market decides to go for a test of it) before making a retreat next week.

I.e. the NYSE Summation Index is now in a firm uptrend, after it formed a bullish divergence earlier in October. By simply putting on a 3 day EMA (exponential moving average) on this index, the trader is able see the true trend more clearly, filtering out "price noise" and small wiggles in the indicator itself. When the 3 EMA is crossed, it's an alert of a possible trend change. And potential divergences forming in it, are also useful to watch, for finding stronger moves about to start.

Investor fear, as reflected by the daily VIX (Volatility) has collapsed in the last two weeks, with it's 25-RSI getting close to "oversold" levels as a result. So higher volatility (stock market weakness) is in the cards soon.

Gold and Silver (GLD & SLV etfs) have recovered in recent weeks. GLD is still trading within a long term bullish channel, while SLV seems to have already established a new bearish channel.

The 20Y T-Bond etf TLT weekly closed below minor trendline support this week, opening up for even more weakness towards first Fib. support (110 area). The 25-RSI just leaving it's overbought zone, shows there is plenty of room left on the downside, before reaching an oversold condition in this etf.

The Neural Net system is still Long on the OEX weekly and Long on GLD (Gold etf) and Long on SLV (Silver etf) after this trading week.

Because of this week's market dip below the August low, the price technical side for a valid wave 5 from the August high has been fulfilled. However, as the finer wave structure from that high looks a bit foggy at this point, the chances of an already completed wave 5 would increase with any clear break above trendline resistance (daily closing basis) next week.

An alternate wave view suggest a more complex wave 4 pattern is developing, as i admit the structure from the August high to Tuesday's low doesn't exactly look like a text book five wave impulse structure, which should be expected from a wave 5.

A near term bearish reversal from trendline resistance and a break below the recent low, would indicate the wave 5 has more unfinished business to the downside, leaving a series of 1-2s lower.

With the brief dip below the Aug. low, a check for possible bullish divergences developing in key momentum and breadth indicators, shows this to be a fact in i.e. 25-RSI and McClellan's 21 EMA making higher lows, compared to the stock market's lower low. Often stronger bull moves starts sooner or later, after observing such bullish divergences.

But it doesn't always occur. With this in mind, the New High - New Low Index one day only reading below its August low, gives mixed technical readings this time.

So in my view, a workable strategy on the Long side in this case, could be to wait for hard technical signals, like a break of trendline resistance and a re-test of it from above, for a possible trade setup.

On the Short side, since the very near term related 2-RSI has already made a bearish reversal from mildly overbought levels, a break below Friday's low, would signal more to come to the downside, in the next few days thereafter. At a minimum, a close below the 5 EMA is a probability.

The VIX (Volatility) currently resting at trendline support, reflects a pivot point in the market, either a reversal (stock market weakness) or a breakthrough (even higher prices) is the next market event looked for.

The 20Y T-Bond etf TLT weekly pulled back this week, as mentioned it could in the previous update. Given the overbought 25-RSI, any weekly close below minor trendline support, could open up for even more weakness in the weeks thereafter.

The Neural Net system turned Long on the OEX weekly and is still Long on GLD (Gold etf). It also turned Long on SLV (Silver etf) after this trading week.

Not much has happened since the 09/23 STU, the market is still working on a wave 5 Impulse from the August high, a pattern which turned into a series of 1-2s lower this week. The market is now possibly in the early stages of a wave iii lower. If this count is going to work out correctly, it should force prices below the August low, sooner or later.

At a minimum, a test of the August low is in the cards for the upcoming trading week. 2-RSI should have dipped below 10 by then, alerting of an upside breather coming thereafter. Overall, if the August low fails to hold, this wave 5 may go for a test of the L3 DGL (Dynamic Gann Level) support zone.

I'll bet a New High - New Low Index bullish divergence will be a fact, if a test of the August low is seen. It would give support to this last wave 5 scenario.

Put/Call Ratio readings continues to reflect an oversold market condition.

The VIX (Volatility) is pushing higher, overcoming trendline resistance this week. It backs up the above near term market view.

The 20Y T-Bond etf TLT weekly formed a Hammer candlestick this week, up against the major trendline resistance. This could mean a pullback coming next week.

The Neural Net system is still Short on the OEX weekly and turned Long on GLD (Gold etf). It is also still Short on SLV (Silver etf) after this trading week.

Once again, the L2 DGL (Dynamic Gann Level) resistance zone proved strong enough to force a near term reversal in the market. And with it, increasing the odds of the last wave 5 underway to the downside being a correct wave scenario, as the OEX is just a few points away from testing the August wave 3 low.

Only time can tell for sure if this wave 5 will take the form of a Double Bottom pattern or make a lower low, before reaching it's termination point. What's quite certain though, is that an upside corrective phase is next on the list of market events, if this is a wave 5 ending soon.

Friday's positive OEX reversal came as a result of an oversold 2-RSI, this could be a short breather for a day or two, before the near term bearish trend is likely resuming.

Anyway, the current development in i.e. the New High - New Low Index (possible bullish divergence forming) and Put/Call Ratio readings, (climbing into oversold territory) is in line with what should be expected from a wave 5 being close to a wave 3 low.

The same goes for daily Volume readings and RSI 25 behavior, possibly tracing out a bullish divergence here as well. This will be confirmed with any actual test of the August low in prices, while making a higher bottom in RSI 25 at that point.

As for an update on the VIX (Volatility), one can see that investor fear has exploded since summer but currently has yet to reach the high readings, experienced at the August low in the market.

The buck is gaining ground, after USD daily prices broke out from a Triangle pattern, roughly 3 weeks ago. The sharp advance has already fulfilled a 1:3 Risk/Reward ratio trade, if a Stop was placed right below the lower Triangle line. After a pullback likely starting soon, the USD should climb even higher thereafter, as the demand for the dollar could increase further in future.

Gold prices, here represented by the GLD weekly etf fell sharply this week. The high Volume readings at the recent peak, suggest a major top in place, which will be confirmed with any downside breakout from the bullish channel.

Silver also sold off strongly this week, with SLV nearly reaching the 50% retracement level, at the low for the week. Trendline and key Fib. support around 22.5 - 24, is a possible target zone for the coming weeks.

The 20Y T-Bond etf TLT weekly reached the major trendline target this week. Even with a RSI 25 now above the 70 level, no clear bearish divergence is observed though, so a re-test of the high sooner or later, could be in the cards. If RSI 25 is making a lower peak at that point, it would be stronger evidence of a more significant top forming in TLT.

The Neural Net system turned Short on the OEX weekly and is still Short on GLD (Gold etf). It is also still Short on SLV (Silver etf) after this trading week.

After 5 positive trading days in a row, the 2-RSI has climbed above 90, indicating a near term overbought condition in the market. This, at the same time as the OEX has reached the same L2 zone which caused the previous near term top. So a pullback could be the outcome early next week.

As for an update on the Elliott Wave situation, the OEX has probably been working on a wave ii Flat pattern, from the low made 2 weeks ago. This would be a valid wave count as long as the August high stays intact. If broken, a more complex a-b-c-d-e wave 4 Triangle could be developing, which should not overlap the wave 1 low. The wave ii scenario is part of the last wave 5 structure to the downside, which would complete a full five wave Impulse structure from the May high, the Intermediate degree wave (1).

The 20Y T-Bond etf TLT weekly is getting closer to the larger trendline, mentioned in the previous update. At this point, the sharp uptrend is viewed as intact, despite 2 weekly down closes in a row. Any weekly close below the minor trendline (black) could open up for some more weakness and could mean it has already formed a top up against the red trendline, which is drawn through closing highs instead of using the highs.

The Neural Net system is still Long on the OEX weekly and finally turned Short on GLD (Gold etf). It also turned Short on SLV (Silver etf) after this trading week.

The mid August decline (the supposed wave 5 possibility mentioned in the previous update) failed to reach the wave 3 low before reversing, forcing a revision on the wave count for the short term. Any wave five would normally reach the end points of wave three's at a minimum, excluding the rare truncated fifth scenarios.

So apparently the wave 4 turned into a more complex w-x-y pattern, which probably ended at the August high. From a DGL angle, that top came up against a L2 (50%) line, projected from March this year.

Back to the daily chart, any downside break of the minor trendline (daily closing basis) the OEX market is now resting at, would increase the odds of the last wave 5 underway from that high, which should lead to a test of the wave 3 low, sooner or later.

So if this wave count turns out correct, the minimum short term downside target could be the 500 area. From a Murrey Math point of view, that would be the strong 8/8th MML support zone. Since the 2-RSI is about to dip below 10, a brief market breather is not ruled out though early next week, before likely resuming the short term bearish trend.

But an eye is kept on the next Gann Angle cycle convergence, due 09/07 (+/- 1 day leeway), as any fast move and test of the August low, going into this GA time frame, could mean a wave 5 termination and a Double Bottom already in place at that time. Especially if RSI 25 is tracing out a bullish divergence at that point.

With another trading month just ended, a look at updated monthly charts i.e. shows an OEX MACD which seems to cross it's MA, which would be a conservative long term sell signal for this market. But if zooming in on the chart, it's in fact still a hair away from crossing it, keeping the bullish mode from July 2009 barely intact.

With Intermediate degree wave (2) about to launch to the upside (after the one degree lower wave 5 termination) we'll see what the September trading month will bring for this indicator. It depends on how long it will take to complete the wave (2) upside correction, as part of this Primary degree wave 3 Impulse structure from the May high.

Despite the doom and gloom stories found in the media, the USD daily is breaking out to the upside from a Triangle pattern, a positive sign for the buck. By keeping a Stop right below the lower Triangle line, this could be a trade with a good Risk/Reward ratio, in my opinion. But i'm personally not walking the talk on this one.

The 20Y T-Bond etf TLT weekly reached new highs this week. It closed near the high for the week, which often means even more upside action in the upcoming trading week. Only time can tell for sure but this etf may go for a test of a major trendline drawn through the important Fall 2009 & 2010 peaks, before a significant pull-back could be the next event to look for in this market.

Gold could go for a test of the major 8/8th MML around the $2000 level, before a long term top could be in place. A long term top soon, is also suggested by a major wave 5 structure from 2008 coming to an end.

Considering the resumption chance of deflationary pressure, i.e. Gold, Silver, Oil, Real Estate, Commodities and Credit markets should fall along with the stock market, long term. So i.e. cheaper food and gas prices could be some of the outputs. In the face of these bearish looking markets, the USD could in fact rise, because the demand for the buck could be higher in the future, as the result of people wanting to pay off debt, by selling all kinds of assets, to raise cash.

That's also why many asset prices could be cheaper in the future, because of increased supply. So a potential deflation can be positive for the consumer to some extent but not so good for companies and in turn employment, over the long term.

The Neural Net system turned Long on the OEX weekly and is still Long on GLD (Gold etf). It also turned Long on SLV (Silver etf) after this trading week.

All the best for the Labor Day holiday!

A wave 5 has forced prices lower in recent days and is soon reaching the early August low, a potential scenario mentioned in the previous update. A test of this low is likely, as Cycle10 is in the early stages of a downside pressure phase. After a completed wave 5, a three wave corrective phase starting to the upside is looked for. This could take the form of an Intermediate degree wave (2) as part of the Primary wave 3 structure, (one degree higher) supposed to be underway from the April high.

Bullish divergences in several indicators like the New High - New Low Index and the 21 MA McClellan breadth, gives support to the view that this is the last wave to the downside, which could terminate in a Double Bottom pattern scenario or at a slightlly lower low. 2-RSI is already fairly oversold (dipped below 10) so a Double Bottom is not ruled out.

Also, the Put/Call Ratio has climbed to an extreme level, indicating a bottom forming soon. The QQQ Weekly Stochastic is tracing out a clear bullish divergence as well.

An alternate wave count, suggest the wave 3 from the July high is about to be completed only, when it's current wave v has reached its termination point.

Anyway, both counts indicate a positive reversal ahead, the difference will be in the upside magnitude. If only the wave 3 is ending, then the wave 4 is not allowed to overlap the June wave 1 low, to remain a valid count. If an overlap occurs, chances are the Intermediate wave (2) is working it's way higher but it can't retrace more than 100% of wave (1), the April - August decline, to avoid negation.

If it's able to overcome the trendline resistance showed on the daily chart, then it could come close to the broken trendline on the OEX weekly chart which will now act as a stiff resistance area instead. Which is also an excellent point to go Short the market if reached, in my opinion. These two trendlines are high probability zones for the start of a more serious market sell-off, in Intermediate wave (3).

A look at the weekly 13 & 34 EMA trend chart shows a confirmed Bearish mode, so taking trades in this direction could be more favorable from now on. In under 2 weeks, the longer term monthly MACD will tell if it has turned bearish too.

An updated Murrey Math Long Term Chart shows a perfect hit to the major 4/8th MML, at the August low.

The 20Y T-Bond etf TLT weekly is soaring, the close near the week's high, indicate even higher prices next week, at least intra basis.

The Neural Net system is still Short on the OEX after this week and still Long on GLD (Gold etf). It turned Short on SLV (Silver etf) weekly, here is an updated NN chart.

The continued VIX (Volatility) explosion this week, reached levels we saw at the mid 2010 low in the OEX. So a volatility resistance zone is now established up there. Monday's advance-decline ratio was the most extreme reading on record. This week's low came exactly at the first Fib. support mentioned in the previous update, as seen on the OEX Weekly chart.

A re-test of the recent sell-off low is in the cards, after the current wave iv corrective phase to the upside has come to an end. The wave v should in turn complete a full five wave 3 impulse structure from July's high. So because of this upcoming wave 3 termination, more consolidation (with an upward bias) is looked for in wave 4. Wave four's in general, can often turn into complex, sideways patterns according to the Elliott Wave Principle.

From a DGL - Dynamic Gann Levels point of view, the mid week bottom formed at the key L3 line. The broken L2 support line should now instead act as a resistance area. As seen on the same chart, RSI 25 is climbing higher from a very oversold condition.

SLV weekly (Silver etf) responded to trendline support and closed near the high for the week, which is often a bullish indication.

The 20Y T-Bond etf TLT weekly managed to overcome trendline resistance this week. So this trendline should now give support instead, when tested from above.

The Neural Net system is still Short on the OEX after this week and still Long on GLD (Gold etf). Long signal is generated on SLV weekly (Silver etf).

Standard & Poor's decision to downgrade the U.S. triple-A rating, has ignited criticisms of rating agencies.

As for an update on the markets, the tide could be turning as major trendline support had to give in to bearish forces this week, increasing the odds of a completed intermediate degree wave C from the June 2010 low and with it... the Primary wave 2 scenario - a full three wave corrective structure from the March 2009 low.

When such trendlines are broken, it's often observed that prices makes a snap-back move towards it, before resuming it's new trend direction. In my opinion, these can be good points to go Short the market, with excellent Risk/Reward ratios, as the trader is able to quickly get out of the position, with any clear close above the trendline, indicating a false downside breakout happened. On real breakouts, the downside can offer good return potential, as violation of larger trendlines is usually a "hard" signal of significant trend changes, likely lasting for some time.

Prosperity is possible in a negative market environment, with for example buying so called inverse ETFs, (Exchange Traded Funds) a Bear fund which is growing when the market is declining. In fact, a whole new series of inverse ETFs are available, which investors can use as protection against declines in many major sectors like financials, real estate, consumer goods, semiconductors, technology, emerging markets and even foreign markets like China.

Even some leverage is available through special ETF's. For example, when the market makes a 1% decline, the inverse ETF will grow 2%. But then of course, with leverage, the risk of losing more will increase, when the trader is wrong on the direction of the market.

A few Bear ETFs:

Short S&P 500 ProShares (Symbol: SH)
Short Dow30 ProShares (Symbol: DOG)

Some investors have the view that buying these Bear funds is "a bet against America" and are reluctant to use them. But the positive side is that those prospering from it will be able to help rebuild the economy, in a recovery phase. Those getting wealthy from this strategy, could have the resources to i.e. build new businesses and create jobs, when the next Spring phase starts in the economy. An opinion of when this recovery phase may start, should be given in the next issue of the Market Outlook 2012 Report, which will be out at the start of the new year.

Short term, the market has reached an oversold extreme, as indicated by daily RSI-25 readings and for the very near term, by the RSI-2 double dip below 5. This, at the same time as the OEX is resting on a larger (50%) L2 DGL (Dynamic Gann Level), forming a reversal pin bar on this support Friday. But the question is how the market will react Monday, on the S&P downgrade news. Any break of this week's low, could mean more weakness coming, towards the first (38.2%) Fib. support, calculated from the March 2009 - May 2011 advance ( see weekly chart ).

Investor fear exploded this week, as reflected by the VIX (Volatility) index. It broke through important trendline resistance, with the RSI-25 soon reaching the 70 level. In the past, readings near or above 70, have indicated market bottoms around the corner. After a completed wave iii impulse sell-off in the OEX, some recovery is expected in wave iv, before likely seeing a re-test of the wave iii low, in the last wave v. Thereafter a three wave recovery could start.

Also the current Put/Call Ratio reading reflect a very oversold market, climbing above 1.20.

In a flight to safety, the 20Y T-Bond etf TLT weekly surged through the channel roof and closed up against a major trendline, coming in from 2008.

The Neural Net system turned Short on the OEX after this week but is still Long on GLD (Gold etf). Short mode is still intact on SLV weekly (Silver etf).


Q2 GDP (Gross Domestic Product) grew 1.3%, which is 0.5% less than forecasted by economists. Revised Q1 numbers surprised Wall Street, with it's 0.4% growth only.
Household purchases, which is about 70% of the U.S. economy, increased 0.1%.

According to Argus Research, the ratio of the number of insider shares that have been sold in the open market, compared to purchases, is at 6.43:1, which is higher than 95% of the other report weeks in a decade. So insiders are running from this market it seems.

A 2 day RSI currently shows a very oversold condition, (below 5) at the same time the OEX reached it's key Fib. (calculated from the June - July advance) and L1 DGL support Friday. The regular 14 day RSI doesn't give an edge in trading, according to Larry Connors's research, going back to 1995.

If you instead used a 2-RSI in your near term trading strategy, with just 4 rules, the trader would have correctly predicted the direction of the market more often than not, (over 80%, according to Connors) since 1995. The lower the 2-RSI reading below 10, the better the average performance over a 1 week period, after entry.

Long Entry Rules:

1. The OEX or S&P 500 is above it's 200 MA
2. The 2-RSI closes below 5
3. Buy the market on the Close
4. Exit when the index closes above it's 5 day MA

By back testing a daily chart manually, his statement seems believable, although you would need a good stomach at those more rare times when the market is deteriorating further (the 2-RSI stays at an oversold extreme for a few more days) before the index finally closed above it's 5 day MA, at times with a loss.

Connors doesn't recommend Stops, as this would affect the performance. But in my view, the trader should consider using a "disaster" Stop at i.e. 8 to 10% on the index, in case things goes very wrong, although it could have an impact on the performance, over the long term.

Although the margins are smaller, this strategy also gives an edge in the Short side version, when the 2-RSI closes above 98.

Anyway, this indicator can be useful for finding out when the market is ready top pop, to the upside/downside near term, so i'll probably use more of this 2-RSI indicator in my own analysis.

Also, i experimented with this strategy by adding the helpful Murrey Math Resistance/Support Lines, (created by the math genius T.H. Murrey) which can be auto plotted on the S&P 500, by using Forex Metal's free MT4 chart platform, which has the S&P 500 in the chart data base. The Murrey Math 1.0 EA is available out there on the net.

Another positive side of this strategy, is that the trader doesn't need to sit glued to the screen all day long, since it's based on daily prices, although before entry, the 2-RSI reading must be checked before the close for the day.

Well, enough rambling about this...

Investor fear is increasing, as the VIX broke through trendline resistance this week. Another trading month has just ended and the VIX monthly chart shows a close near the high, which could mean even higher volatility coming in the next month, at least intra basis.

Here are a few other observations after this trading week & month:

- QQQ Daily, five wave structure from the June low completed (possible wave 5 truncation in the OEX)
- OEX Daily, 5 - 20 EMA bearish crossover
- Weekly Cycle10 bearish reversal

- Hammer (reversal candlestick) formed on the monthly S&Ps, Nasdaq Comp, (Major Double Top forming?) QQQ (Nasdaq 100 index stock) and Dow 30 markets.

- OEX Monthly fast MACD (red signal line) made it's first bearish reversal (aggressive sell signal) since Fall 2010 but no MA crossover yet and major trendline support still intact.
So no conservative long term sell signal, after July's trading month.

-EUR/USD Monthly sold off intra-month but closed inside the channel

The 20Y T-Bond etf TLT weekly closed up against the channel roof & key Fib. zone.

The Neural Net system is still Long on the OEX and GLD (Gold etf) weekly markets. Short signal generated on SLV weekly (Silver etf).

Friday's move beyond the Spring high in the QQQ (Nasdaq 100 index tracking stock) will most likely negate the wave 2 scenario in the OEX as well, although the May high has yet to be broken in this market. So instead, the alternate a-b-c wave 4 Flat pattern from the February high to the June low, is not ruled out to be the correct labeling. Especially since the structure from the June low, looks more and more like a five wave impulse pattern, possibly the last wave 5 underway.

So this could mean the one degree higher wave C (better seen on the weekly chart) from the Summer 2010 low is still active but likely near its end, as the OEX is now within the time window of the next Gann Angle cycle convergence, due 07/21 (+/- 1day). Given the clear short term positive trend going into this GA, a bearish reversal is looked for. I addition, weekly Cycle10 has soon reached levels where it normally would make a bearish reversal.

The VIX (Volatility) ended the week near strong trendline support.

The 21 EMA of the McClellan Oscillator still holds on to its bearish mode, despite the recent days market advance. The 21 EMA of this indicator tend to show the true trend, despite of price "noise" in the market.

The NYSE New Highs - New Lows indicator is likely tracing out a bearish divergence, which will be confirmed in case the OEX takes out the early July high and the NH-NL continues to give a lower peak reading. These bearish divergences often warns about more significant tops in the making, not just minor pull-backs.

A look at the chart of weekly closing prices shows that the price position near the Apex of the two converging trendlines, forces a breakout sometime within the Summer/Fall period, whether bullish or bearish?... only time can tell for sure. However, once the directional breakout is a fact, it would probably indicate where the market is heading thereafter, mid/long term. Any positive breakout should at minimum lead to a test of the trendline coming in from 2008. A downside breakout would increase the odds of a completed intermediate wave C from 2010.

So the market is near a pivotal point, given President Obama's ongoing debt negotiations, this is an interesting observation.

The 20Y T-Bond etf TLT weekly is still trading within a positive price channel. The key Fib. zone is reached.

The Neural Net system is still Long on the OEX and GLD (Gold etf) weekly markets, after this trading week.

The OEX made a retreat this week, after the (few weeks ago) snap-back move ran into resistance from an earlier broken weekly trendline. From a DGL (Dynamic Gann Levels) point of view, this peak came up against a (50%) L2 line. On the daily chart, Cycle10 is bottoming out but has yet to make a positive reversal.

The VIX (Volatility) is still oscillating within two important (contracting) trendlines. So the directional breakout, which ought to occur before the Apex (where the two trendlines meet) is met, could set the market tone for some time thereafter. For example, a break above the upper trendline, could open up for even more fear among investors and with it, more pressure on the stock market.

The OEX high formed over a week ago, could be the completion of wave a of 2 or even a full wave 2 structure from the june low is not ruled out. If only wave a is in place, then sooner or later, the recent pivot high should be broken in wave c but is not allowed to go beyond the May high, to keep this wave 2 scenario intact. So it will be interesting to see the outcome of the next trading week.

The 20Y T-Bond etf TLT weekly has established a bullish channel looking price pattern it seems. So the overall positive trend from the early 2011 low looks intact at this point. And RSI 25 still has plenty of upside room, before reaching an overbought condition.

The Neural Net system is still Long on the OEX and GLD (Gold etf) weekly markets, after this trading week.

The OEX broke out sharply from the bearish channel a few weeks ago, after finding support on important weekly trendline support. The rebound has brought prices up for a test of earlier broken trendlines on the weekly chart. The VIX (Volatility) is at the same time resting at trendline support.

Either a wave 1 or c most likely ended at the June low. As long as the May high remains intact, the preferred wave count will stay in focus, as a wave 2 can retrace 100% of wave 1 and still remain valid. A broken May high would move the alternate wave 5 count to the forefront, suggesting a still active Primary degree wave 2 from the March 2009 low.

The Neural Nets system is still Long on the S&P 100 market, after this trading week.

The positive trend in the Bond market, as seen through the 20Y T-Bond etf TLT weekly, is still intact at this point.

After a short breather in the market, the overall bearish trend from the May high resumed mid week. Prices must break out from the established channel pattern (daily closing basis) to indicate a change in the short term trend.

The VIX (Volatility) found support on the earlier broken trendline and is pushing higher.

The blue 4/8th MML (Murrey Math Line) support is still holding, after several tests in the past few weeks. Momentum is tracing out a bullish divergence, versus the current near term double bottom in prices.

The DGL (Dynamic Gann Levels) chart shows the week's high was caused by L1 resistance. L2 support comes in around 556 Monday.

An update on the Wave development, suggest a wave iii coming to an end soon. Even the ending stages of a full five wave structure from the May high, is not out of the question, if the wave iv high already came in the first half of june. From a weekly point of view, it seems a consolidation is going on in the OEX, near strong trendline support. Cycle10 is at the same time preparing for a positive reversal, in an "oversold" extreme condition.

Also weekly closing prices have reached important trendline support, which is found right above first Fib. support. Given the oversold market condition, with bullish divergences showing up on daily momentum charts, odds are good a countertrend move will start from this support area. Any clear weekly close below this zone, would instead open up for even more weakness.

The Neural Nets turned Long on the S&P 100 market, after this trading week.

The positive trend in the Bond market, as seen through the 20Y T-Bond etf TLT weekly, is still intact at this point.

Despite more price weakness this week, in what could be a wave iii underway to the downside, the VIX (Volatility) has yet to overcome the important trendline resistance area, once again closing up against it Friday. The 21 EMA of the NYSE McClellan indicator has nearly reached levels where many short term market bottoms occurred in the past.

In Murrey Math theory, the blue 4/8th MML (Murrey Math Line) is viewed as a strong support/resistance area, this time about to be tested from above.

On the weekly chart, as the OEX closed near the low for the week, it may even go for an intra-week test of trendline support in the 555 area, before finally bottoming out short term. The March low is found a few points above, another support point which could be strong enough to force a market reversal.

Weekly Cycle 10 is now at levels where it normally would make a bullish reversal, which could fit with the March low or trendline target, before a rebound is seen. The 555 area is also roughly the first (38.2%) Fibonacci support, as the chart of weekly closing prices shows.

 

The price structure from the 05/02 high has developed enough to establish a bearish price channel in the OEX. It would take an upside breakout (daily closing basis) from this channel to indicate a change in the ongoing short term negative trend.

 

Volatility (VIX) jumped to 17.4 Friday and is probably going for a test of minor trendline resistance at around 19 early next week, as it closed near its high Friday, suggesting more to come to the upside.

Any daily close above this resistance area would open up for even more fear and in turn more pressure on the stock market. Current RSI 25 readings, shows there is still plenty of room for increased investor fear, before reaching a peaking condition.

 

As for the Elliott Wave situation, it could be the first wave i of a new bearish impulse structure, working its way lower from the 05/02 high. I admit though, the overall advance from the March low to the May high, although technically valid, doesn't exactly look like a text book five wave structure, more like a three wave a-b-c formation.

 

Because of this, i don't rule out a significant a-b-c Expanded Flat pattern formation from the February high. So this willl be the alternate wave count scenario, compared to an already ended wave 5 preferred count.

 

A look at the OEX chart of weekly closing prices now shows a break of the lower wedge line. Often, a snap-back move towards the broken trendline can be the outcome before resuming on its path lower, given its not a false break.

 

The OEX took one more dive Monday, exactly testing the cross of two L1 DGL (Dynamic Gann Level) support lines, before heading higher for the trendline resistance challenge, mentioned in the previous STU update. As it has a few more points to go before this area is reached, next week should reveal whether this zone (597.5) will hold or not.

 

If it's overcome, the odds of the current wave v of 5 count being a correct one, will increase. If it fails to break above it, (daily closing basis) keeping the April 08 high intact, the alternate wave count would still be a valid scenario to consider at that point.

 

The current market advance is not backed up by i.e. New High - New Low readings, which is now forming a lower peak vs the S&P 500 peak made earlier this month, reflecting underlying weakness of this upside move.

 

The VIX (Volatility) clearly closed below important support Thursday, for the first time in many months.

 

From a Murrey Math point of view, the (yellow) 7/8th MML (Murrey Math Line) is viewed as weak in this theory, so if it holds (in this case as resistance up at 609.38) sharp reversals can often be the outcome. As seen on the chart, momentum is getting overbought.

 

As the market has just entered the +/- 1 day time window of the 04/26 Gann Angle and is in a near term positive trend, this GA could very well mark the start of a pullback or even the next near term decline. It marks 180 trading days from the August 2010 top, so it could be strong enough to cause a market reversal. In general, the 90 and 180 numbers used alone, can be powerful enough to have an impact, no need to be in a cycle convergence with another GA number, to mark reversals.

 

A look at the weekly time frame, shows that the reversal this week came right on time, to avoid a break of an important trendline, on the chart of weekly closing prices.