Divergence appearing in the predictions by different technical analysis methods now making us more alert as shown in these charts

Divergence is starting to appear in the equities market predictions derived from different technical analysis methods, compared to how things were back in March as many methods were pointing to that being a significant low. In this post I'll show an overview of the pullback scenarios offered with Elliott Wave, the looming bearish head-and-shoulders pattern, and the alternative view painted with the Bradley model cycle. There's plenty to cover this weekend in commodities, currencies and bonds too, but we'll start with this overview of the equities markets. Looking more closely at the short-term S&P 500 (SPX) chart, the markings I made on it yesterday morning still reflect useful thoughts and that chart is below (as posted in Levels to look for in the S&P 500 today and near-term based on technical analysis, Elliott Wave, cycles and Fibonacci (6/26/09)). Yesterday's action didn't change much for the SPX' level on this chart. Although on Thursday it had pushed past the blue downtrend line, it had touched up to (maybe poked a bit) another downtrend line that would be parallel to the shallower brown line ... meaning, the Elliott Wave count potential that we've seen wave 1 down off the 956 high, then wave 2 up, and getting ready for wave 3 down, is still viable. As noted on the chart, you can also see that there remains another potential that we've seen wave "a" down from the 956 high, then wave "b" up, and getting ready for wave "c" down that can take the SPX to about 850. That "abc" target would be consistent with both a head and shoulders target, as well as the default P&F target, as well as with Tony Caldaro's alternative idea that all we get is a moderate pullback and then the markets spend many more weeks completing another rally leg up. The more bearish primary count is that a wave 3 down takes the indices down to test and likely drop underneath the March lows.


The swing-trade perspective question is, of course, whether or not the equities markets do push above near-term resistance to defeat the potential of a bearish right shoulder of the head-and-shoulders pattern (and the Elliott Wave 2 idea) in order to stamp a new high, into next week and perhaps even into mid-July as indicated on the Bradley model?

There are other ideas besides the two alternatives I've summarized above. There are two more bullish ideas. One is bullish short-term, that the markets have yet to achieve an upside target at perhaps 963 (one of the Fibonacci levels on my weekly SPX chart, at bottom; and note that Tony Caldaro has a pivot at 962 which he finds was already tested at 956 but if we see more upside then it would come into play again of course). This could coincide with the "Bradley model" discussed below. I believe the Bradley model also looks similar to Chris Carolan's "Solunar" cycle forecast, although I haven't seen his recent updates which he's now making available only by subscription (his site is also in the list at right). Below is the Bradley cycle forecast as provided by Manfred Zimmel at his amanita.at website, which I've posted several times including most recently in this post, Cycle peak for S&P 500? Time to look at the Bradley model's cycles again (6/2/09). I also posted more information about the Bradley model in this post, "B" on Cycles: Part III, information on the Bradley siderograph model used in market cycles analysis (5/16/09) and you can find prior posts about it using the "Cycles on Bradley model" label in the labels list at the right side of the page.

*A reader has commented with the reminder that the mid-July date can also be a low, since the Bradley dates are turn windows and not necessarily highs or lows. (Separately - Might also fit with what the COTsTimer blogspot is talking about this weekend?) The note about this fact on the Bradley model is actually marked by Manfred Zimmel onto his Bradley chart, below, but it's still a good reminder. Anyone not already familiar with how to factor in the Bradley model should read the "B" on Cycles: Part III post cited with link above (part of a cycles review I did - use either the Bradley model label, or the Cycles review label for more on all that).

Another more bullish idea as espoused by Terry Laundry in recent weeks with his T Theory (which he'll update this weekend or on Monday at his T Theory site, see links for all these various analysts included at the right side of the page here) is that the markets have already started the first move up in a bull market that will run for 17 months. **UPDATE - turns out Terry DID already post an update on Wednesday at his T Theory website saying, sure enough, that low might have been the low to kick off his new "T" (and I'm sure he found the rise the next two days consistent with early confirmation of his idea on that).** That idea should be enough to cause any bear to switch sides, if we see upside extending past the Bradley's mid-July cycle trend change date! As I recall from Terry's update last week, he thought that the markets would test down to the 55-day moving average and then get ready to move up again. Well the SPX certainly did test to and slightly under that on Wednesday, and then rebounded the past two days; so we'll find out with his next update if he thinks that was it for the pullback. I'm guessing for now that his breadth indicator is similar enough to the McClellan Oscillator that it's showing a similar rebound and we'll have to see if it's breaking above resistance in his indicators this weekend.

Does the market have the "strength" to move higher? We'll be continuing to examine that using technical analysis of course. For now, here's an update of how the McClellan charts are looking for the NYSE and Nasdaq. The Nasdaq does look stronger, which won't surprise a number of people who follow certain cycles forecasting, and yet both show that the breadth improvement of the past few days is once again testing resistance levels. On the Nasdaq chart I've also marked off an interesting gap that this index might be wanting to fill - and I've also got a Fibonacci extension level at 1912.89, as well as the slightly higher Bollinger Band (20,2) midline on the monthly chart currently at 2040.19, so these may tie in with the gap fill possibility if the Nasdaq can muster the strength to do it.



Below is my weekly SPX chart and I'll apologize again for not having taken the time to clean up the older markings on it. I still like the Fibonacci levels, and even my clunky trendlines although Andre Gratian's trendlines are more detailed and fine-tuned (we can look forward to Andre's newsletter update to post here tomorrow). Also notice that the indicators have weakened off again and the raw volume bars show solid selling. These indications raise the possibility that if we do see a higher level into mid-July, it might occur with intermarket divergence with the Nasdaq making a higher high while other indices put in a lower high. For now that's just speculation on my part however.


I do want to caution once again that the indicators on the monthly chart still do not look like the 2002/2003 lows and therefore I don't see them giving support to the idea that we're putting in a low comparable to that time frame. For most of the indices and most trading styles, I think it remains valid to adopt a skeptical approach (short or flat) against the mid-June highs. Nimble traders and daytraders can play the shorter-term waves, while swing traders and position traders should work with the trendlines and levels I've referred to above. On my daily SPX chart (below) I've placed markings associated with the major concepts, and even added a green path that the SPX may take if it breaks over resistance, along with a red path if it remains under resistance. The green path shows a higher level into mid-July consistent with the Bradley chart - but then what, roll over to re-test the March lows, or something more bullish like Terry Laundry's scenario? One idea that I could have marked, but did not, was the idea that if we follow the red path down, it could bottom around that 850 level and then leave it far behind by rebounding upward in the continued rally that I mentioned as Tony's alternative count, or as Terry Laundry's more bullish scenario. Time will prove all but one of these ideas as mere hypotheticals of course, and it isn't a bad idea to retain the mental flexibility to see all sides of a trade and be prepared either way.