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Expect More Decline
by Carl Swenlin
October 23, 2009
The stock market continues to frustrate those who are expecting a decent correction, and I am among that impatient throng. It is possible that the correction has actually begun, but, after a choppy week, the S&P 500 found momentary support on the 20-EMA. As you can see on the chart, the 20-EMA has been a fairly consistent support level since the rally began.
Short-term indicators are slightly oversold, but medium-term indicators, like those below are in the neutral zone and showing persistent negative divergences. Also, they are topping near the zero line, which is an indication of greater than normal internal weakness.
Cycles have not been of much use lately, but it is worth mentioning that the 20-Week Cycle is due to trough at the end of November. Price declines associated with the 20-Week Cycle trough can be quite impressive, sometimes more so than 9-Month Cycle lows.
Look for an upside surprise from the dollar. It is being squeezed into the apex of a descending wedge pattern, and the most likely resolution of this kind of pattern is to the upside. Note also that the weekly PMO (price momentum oscillator) is becoming quite oversold. I do not mean to imply that the long-term trend will be turning up, but sentiment on the dollar is very negative, and bounce could trigger a lot of short-covering.
Bottom Line: Regarding the stock market, this is one of those weeks where I could have skipped making any comment at all. While I keep looking for a correction, the market shows no significant external weakness. Nevertheless, technical weakness is evident, and an important cycle low is due next month. As for the dollar, it is fundamentally doomed as far out as I can see; however, that does not mean it won't rally from time to time, and the technicals say we should prepare for a dollar rally soon.
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Technical analysis is a windsock, not a crystal ball. Be prepared to adjust your tactics and strategy if conditions change.
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2008 TIMER DIGEST RANKINGS FOR DECISION POINT
#17 Intermediate-Term Stocks (52-Weeks) (TD Index 111.9 Vs. SPX 61.51)
#4 Bond Timer (*TD Index: 112.32 Vs. Bonds 118.26)
#5 Gold Timer (TD Index: 126.33 Vs. Gold 104.61)
#9 Long-Term Timer (2 Years) Stocks (TD Index: 132.35 Vs. SPX 63.69)
#2 Long-Term Timer (3 Years) Stocks (TD Index: 150.38 Vs. SPX 72.36)
#2 Long-Term Timer (5 Years) Stocks (TD Index: 168.82 Vs. SPX 81.23)
#3 Long-Term Timer (10 Years) Stocks (TD Index: 159.36 Vs. SPX 73.48)
2007 TIMER DIGEST RANKINGS FOR DECISION POINT
#40 Intermediate-Term Stocks (52-Weeks) (TD Index 91.9 Vs. SPX 103.28)
#5 Bond Timer (TD Index: 105.85 Bonds 104.39)
#2 (Tied) Long-Term Timer (2 Years) Stocks (TD Index: 117.63 Vs. SPX 117.63)
2006 TIMER DIGEST RANKINGS FOR DECISION POINT
#11 Intermediate-Term Stocks (52-Weeks) (TD Index 111.3 Vs. SPX 113.6)
#3 Bond Timer (TD Index: 112.32 Vs. Bonds 97.46)
2000 TIMER DIGEST GOLD TIMER of the YEAR
*All timers are assigned an Index of 100 at the beginning of the year. The amount above or below the starting index indicates the percentage gain or loss for the year.
Beginning in 2006 we began using mechanical models -- the Trend Model for Bonds, Gold, and Long-Term Stocks, and the Thrust/Trend Model for Intermediate-Term Stocks. Prior to 2006 we used discretionary signals.
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BIO: Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of DecisionPoint.com, a premier technical analysis website specializing in stock market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.
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