06/26/12 – Working Off The Overbought © ™

INDEXES & INDICATORS

CHART LINK – at StockCharts.

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CONTACT INFO

Bob@Market-Trend-Observations.com

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TWITTER UPDATE

BobsWaveCounts is my twitter name.  If I have a buy/sell signal and it’s late at night, I’ll tweet.

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LAST BUY/SELL SIGNAL

Bought on Thursday 5/11/12 at 2:36 AM EDT

Sold on Friday 5/12/12 (and shoulda shorted)

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LONG TERM – Up in black 3, chart #10.8

INTERMEDIATE TERM – Probably Up

SHORT TERM – Down

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WHAT’S HAPPENING

At the recent peak, we were the most overbought since October 2011.  Presently we are approaching neutral territory.  I would expect we will move closer to oversold before the decline finishes.  Notice how the McClellan Summation index has rallied back to the zero line and stopped.  Oscillating between +500 and -500 is a frequent occurrence with the zero line as a turning point on occasion.

06-25-12 McClellan Oscillator

Counting since the June 19th peak, it appears that we are close to finishing the 4th step down.

There is always a possibility that what I have labeled as blue 1 could have been 4th step and blue 2 could have been 5th step.  Notice how blue 2 finished close to the Fibonacci line.  It’s not unusual to finish a decline on the next higher Fibonacci line.  Although I don’t think the decline is finished, it would not be surprising for the correction to finish on this Fibonacci line.

06-25-12 SP FUTURES 15 MINUTE BARS

If we don’t significantly break the prior low (June 4, 2012), we should be in for a good rally back to the prior highs (or higher).  It’s not unusual for the correction after the 2nd step to be much larger than the correction following step 1 and that is certainly true in this case. I have seen 2nd step corrections where I doubted that the larger trend was still intact and it’s possible that could happen this year too.

Previously, I said that it looked like we had completed 3 steps down as of June 4, BUT if we significantly break the June 4th lows, we could be in for lots more trouble.

The trouble could be a repeat of last year’s timing scenario where the market bottomed in August and October.  I have never been a fan of this outcome but I don’t get to choose, just observe.  If we corrected all the way back to the October 2011 low (or lower), I would question whether the bull market since 2009 was still intact.  If that were to happen, I would have no choice but to count the shorter and intermediate term fluctuations until the long term picture sorted itself out.  Been there, done that.

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