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Analysis of Three Time Frames
by Carl Swenlin
December 18, 2009
EDITOR'S NOTE: Next Friday is Christmas, and the following Friday is New Years, so I will not be writing a Chart Spotlight article for the rest of the year. Our next article will be published January 8, 2010. We wish you the very best for the holidays.
Since this will be our last article for 2009, I thought it would be appropriate to do an analysis of the short-, medium-, and long-term charts and synthesize a broad outlook for the market.
In my December 4 article I said we should expect an upside breakout, but the market has continued to consolidate in a very narrow range, still testing the long-term overhead resistance which is drawn across the declining tops beginning with the 2007 top. In the short term, we are looking at several weeks of consolidation, which is also known as a continuation pattern. This means that the most likely resolution will be an upside breakout that will continue the rally that began from the November lows.
There is also the issue of the ascending wedge pattern, which normally breaks to the downside. Should that happen, there is support at about 1050, on the bottom of the slightly rising trend channel. Because the two prominent short-term set ups are in opposition, I would have to say that the short-term (days to weeks) picture is neutral.
With two opposing possible short-term outcomes, let's look at the weekly chart, which gives us a medium-term (weeks to months) view of the market. This chart looks bearish. We can see price stalling at resistance, and the PMO is overbought and trying to roll over. The strongest message from this chart is that a medium-term correction is about to begin.
Finally, the monthly chart looks very bullish for the long term (months to years). I say that primarily because the PMO has turned up from a deeply oversold reading and has passed up through its 10-EMA. This is about as bullish a picture as you are likely to see on a monthly chart. Keep in mind that this doesn't override the medium-term or short-term picture. If you study the chart carefully, you will see that quite violent price swings can occur without causing the monthly PMO to change direction. Nevertheless, the overriding message is that the long-term direction of the market is most likely to be up.
Bottom Line: The short-term chart presents two opposite possible outcomes, but the medium-term (stronger) time frame points toward a correction of modest duration; therefore, an upside breakout is unlikely to be sustained. The long-term (strongest) chart tells us that, regardless of how severe a correction we experience, the bull market will ultimately prevail. Our Thrust/Trend Model remains solidly on the March buy signal.
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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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2009 TIMER DIGEST RANKINGS FOR DECISION POINT
#9 Intermediate-Term Stocks (52-Weeks) (TD Index 129.36 Vs. SPX 123.45)
#8 Intermediate-Term Stocks (5 Years) (TD Index 147.81 Vs. SPX 92.01)
#18 Bond Timer (*TD Index: 87.7 Vs. Bonds 83.86)
#5 Bond Timer (10-Years) (*TD Index: 127.25 Vs. Bonds 127.51)
#9 Gold Timer (TD Index: 115.30 Vs. Gold 124.00)
#3 Gold Timer (3 Years) (TD Index: 181.56 Vs. Gold 169.92)
#3 Gold Timer (10 Years) (TD Index: 322.74 Vs. Gold 375.51)
#6 Long-Term Timer (2 Years) Stocks (TD Index 136.41 Vs. SPX 75.94)
#7 Long-Term Timer (3 Years) Stocks (TD Index 141.22 Vs. SPX 78.62)
#2 Long-Term Timer (5 Years) Stocks (TD Index 165.27 Vs. SPX 92.01)
#5 Long-Term Timer (10 Years) Stocks (TD Index 162.51 Vs. SPX 75.90)
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 and the benchmark index are assigned a starting TD 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.
Nothing herein should be construed as an offer or solicitation to buy or sell any security. Past performance does not indicate future results.
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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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