Thursday, February 28, 2013

headed for trouble

Here are three charts which tell me that the technical condition of the US stock market is weakening and that a drop of at least 10% will start within a few weeks from somewhat higher prices than currently prevail.

The two bottom charts both say that the best part of the rally from the November 2012 low point is behind us. The bottom chart shows the 20 day moving average of the number of stocks in the S&P 500 which are trading above their own 50 day moving averages. You can see that this indicator recently reached levels from which extended down moves have begun during the past 4 years. Normally the S&P 500 continues to rally for a number of weeks even as this 20 day moving average declines so this tells us that the top of the market probably still lies ahead of us.

The middle chart tells a similar story. It shows the 20 day moving average of the daily count of the number of issues on the NYSE making 12 month highs. Normally this moving average starts declining well in advance of important tops. I think it has made its high, probably for the current bull market, but the top in the averages is almost certainly at least several weeks ahead of us.

The top chart is a daily chart of the Dow Industrials. On this chart I have illustrated two methods for trying to anticipate the stopping points of market swings.The blue rectangles show that the rally in the Dow from its November 2012 low has now matched the size of the June-September 2012 rally. The red arrows show that the Dow has exceeded its September 2012 top by an amount which equals the distance by which the May 2012 top exceeded the May 2011 top. Both calculations suggest that some sort of top in the Dow is at hand.

In my judgement any top in the Dow which develops over the next month or so will not be the top which ends the current bull market. The bottom two charts suggest that the big top is still months ahead of us and is not imminent.

Instead a top near current levels will probably produce a drop which carries the Dow below its November 2012  low and possibly below its June 2012 low. This would be a drop of 10-15%. However I think any such break will be brief, lasting only a few weeks at most, and will be followed by a rally to new bull market highs later this year.


Bill said...

Carl, great analysis. Thanks for all the work that you do here. I agree with everything you said except that I think the top is already in. The market is still in the topping process (trading sideways over the last three weeks) but I don't believe we'll take out the February high in the month of March. It's all downhill from here.

Adsense said...

Hi Carl
Here is the summation of what i have been following with the spx . this is based on the weekly chart .
the low at the end of june 2010 was the beginning point of the 3 peaks domed house and the start of an Extended Advance . Feb 7 2013 was 952 calendar days , March 18 2013 is 991 Calendar days and would have to
be the maximum or i m WRONG . point 10 for the most part you and i agree . points 15 through 20 was the time period of April through DEC 2012. point 21 would have been the early Feb high ( correlates with the Feb 7th date )point 22
the lows in Feb 2013 and we are now heading to the point 23 peak
which would ideally end the week of march 11 ( next week ? ) or maximum march 18th ( the longest bullish time span that Lindsay allowed ). the 1551-1567 range on the cash SPX would fit perfectly if it were to happen . To add to this i have observed that when counting the time period from a low to a low and then adding that same time to a high it tends to project the next high . ill go into detail and explain because this is not the norm as you think .
the low from june 4 2012 as example
to the low of nov 122012 was 23 weeks .
( all weekly bar counts hence the week of dates noted )
adding 23 weeks to the high on the sept 10 date called for a high the week of feb 18 2013 . now looking out a little further doing the same type counts .
the low in the week of nov 21 2011 to the low the week of nov 12 2012
was 51 weeks , adding 51 weeks to the high the week of april 2 2012 calls for a peak the week of march 25 2013 , this weekly time frame also correlates with the lindsay time span count march 18 2013 ( 991 days ) . next some simple counts , i have also observed 23 week high to high's and there is a lil twist to this also . april 2 2012 high sept 10 2012 high feb 18 2013 high , each of these highs were 23 weeks apart . now following each of these highs there were drops then secondary highs , each of these secondary highs were also 23 weeks apart .
the week of april 23 2012 , oct 10 2012 ( oct 9 2012 was 831 days )
the next count calls for a high the week of march 11 2013 .
all though all time counts say pretty much all say the same thing i do realize that the market will have to prove me correct.
i mentioned on this blog not to long ago that i had a bullish bias and could see the negatives developing as you noted in your 3 peaks update , i also stated that i could not see any valid time counts at that time for a top and the mid march time period is the important on for me . i have also mentioned back in November 2012
that a failure to take out the nov 2012 low on a drop would change my view of the 3 peaks domed house pattern that you and i were both pretty much in agreement with .
point 18 was the nov low point 19 the mid dec high and point 20 came the last week of dec 2012 .thats how i see it . also i have observed pts 19 through 23 are 5 wave movements . and the weekly chart on the spx is a pretty clean 1234 with wave 5 next ( the dow already completed the minimum for a 5th wave )
I want to be wrong and see all of this fail and the bull market extend yet i don't think that is the prudent way to be thinking at this juncture
good luck