June 22nd, 2011

Is That A Right Shoulder We’re Beginning To See?

In my last post three weeks ago I talked about the technical supports that could act as breaks on the the market’s descent. In particular, I pointed out that

“…there is a potential neckline at around 1265, the low in March. Should the market touch that trendline then 2/3 of a potential head-and-shoulder reversal top would be put in place.

A cross by the Index under the 200-dma would indicate that the trend has clearly turned bearish for the first time since 2009. I don’t think that will happen. I still have faith in the resumption and successful completion of the “mid-term election cycle” market that began in November and, if the market follows the historical precedent, should end at around 1500 by year-end. But, I must confess, I’m going to get more and more cautious if (as) the market approaches that 200-dma.”

Fortunately for us who are of the “bullish” persuasion, the market stopped falling last Thursday with an intra-day low of 1258.07 and a close of 1267.64. Since then it’s been almost straight up with a close today 1295.52. I included the following chart in the Weekly Recap sent to subscribers this past Sunday:

The above chart shows:

  1. huge volume spike which seems to come regularly during options expiration triple and quadruple witching days. Interestingly, the past three triple witching days (December 17, March 18 and this past Friday) saw the market advance for the next 20-30 trading days.
  2. Will it or won’t it break below the 200-dma and the neckline? I hope and now don’t believe it will. I think we’re going to see the market attempt to form a right shoulder of the emerging head-and-shoulder reversal pattern. If it does, that will be our opportunity to lighten up further at more favorable prices. And finally,
  3. Symmetry would bring the market back up to around 1340, 5-6% above current levels, over the next few weeks. At that point we’ll find out whether we’re out of the woods for the next leg up or reversing again and put the final nail into the head-and-shoulder formation.

One additional piece of the puzzle for all those who follow the Lunar Theory as it relates to the stock market, last Wednesday was a full moon and the beginning of the bullish phase of the lunar cycle and conveniently coincided with the end of the market’s slide. But don’t get complacent, a new moon arrives on Friday, July 1 and could mean the end of the current bounce and the beginning of another bearish period.

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  • Anonymous

    from twitter..
    in bull markets, spx has only been down 7-consecutive weeks in one instance since 1928 – subsequent 3 months market was up 15%

    that will SPX close to 1500

  • Anonymous

    The market finally start to move according to your chart..Friday will be the last up day, how many down days for the market after that? Is there a prediction on that?

  • Joe

    I think I spelled that out pretty clearly in the blog post when I wrote: "Symmetry would bring the market back up to around 1340, 5-6% above current levels, over the next few weeks. At that point we’ll find out whether we’re out of the woods for the next leg up or reversing again and put the final nail into the head-and-shoulder formation."

    We may not make it there before July 1, this Friday, which is a new moon and the beginning of a bearish phase if you believe in the Lunar Cycle Theory.

  • Anonymous

    SPX 1340 today…

  • Anonymous

    Joe – you were dead right so far – made it to exactly 1340 today – volume not great but it's pre-holiday – it can go either way here – NICE CALL

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