Stock-Market-Observations

Update July 2 2004

Not much to report on the progress of the current Short Range T in the daily charts. Click on the Daily chart for larger image.

The S&P has been contained in the 55-Day adaptive channel that has narrowed so the market is stuck in a narrow trading range. The upper red envelope normally acts as resistance so the market may bounce about until the blue volume oscillator completes some sort of decline phase.

The next chart reviews the 39-week Adaptive Channels. Click on this Weekly chart for larger image.

On this intermediate scale we see a trend that is up off the black 39 Week MA which continues to rise. The longer-term trend is deemed to be bullish as long as this MA holds reactions.

Keep all these points in mind as we move along. If the current rate rise scenarios or growth negatives take their toll on the market near term it is possible for the 39- week channels to begin a year 2000 type of adaptation that follows all the rules summarize below but looks odd from the Short Range T point of view. It is best not to become too confused.

Anytime the market becomes cautious within an ongoing uptrend (as is possible here) and the market volatility begins to dry up, the upper red envelope and the black 39-week MA begin to flatten out, as the uptrend begins to turn into a trading range. Just as important, the S&P point spacing between the upper envelope and the MA begins to shrink.

I found this process very confusing during the year 2000 topping process, and if we were to see it repeat, I am sure it would also look erratic. However the 39-week perspective held up fine so I prefer to talk in terms of its more understandable swings.

Just keep in mind that if one is a long-term investor and problems arise, but the 39-week MA holds reactions, then the result will become an erratic trading range with lows at the 39-week MA and important peaks at the upper bound as normal. The trading range very well may become a important top later on, but if may take a year to complete, so swings will have plenty of time to play out. The 39-week channel places no particular time limit on the swings.

Turning to a trader’s perspective under these same conditions, any break below the daily 55-day MA, that is not quickly reversed, implied a trip down to the 39-week MA. If no breakdown occurs a trip to the upper 39-week channel red limit will likely see a peak. If the breakdown occurs, a new Cash Build Up line will likely be needed in the daily blue volume oscillator chart before the upside reversal can get started. There would be plenty of time to find that pattern.

This summary covers all the cases that I faced in the erratic bubble- bursting period. I hope this perspective provides good guidance for the next year or so, if events should begin to deteriorate for any reason. Terry Laundry

Comments July 9 2004

The S&P has broken below its 55 Day MA and the correction scenario outlined in my July 2 Update may be in progress. However I don’t want to get specific right now because the S&P appears trapped in a very narrow sideways adaptive envelopes that has limited both upside and downside for some weeks.

It will be interesting and more useful to see whether the S&P can break down below the lower envelop and then turn the 55 day MA down into a decline mode. There is the possibility that the market is marking time while waiting for the earnings parade to start. In another week or two the direction should be clearer but my prior comments should still provide the T Theory projections.

An equally interesting and perhaps related move has been the rise in Gold above $400/oz. I would expect we are in an advance back to the recent $430 highs. More important however for my Gold Mega-T comments is the need to break above this level to confirm a more bullish long-term trend.

The most significant development that could occur would be a simultaneous confirmation of a new Gold Mega-T as the same time an equity breakdown is registered via the 39-Week Adaptive channels noted last week. We are a long way from confirming either of these conditions but the possibilities are extraordinarily interesting from a T Theory standpoint.

Terry Laundry

July 16 2004 Adaptive Channels

The market current sagging tendency does suggest that we ought to expect the current pullback will retest the 39-week MA (S&P 1088) as shown in the Adaptive Envelope Chart below. Click on image for a larger view.

Last time down, the S&P bounced right off the 39 week MA, which when in a rising trend is a normal ongoing bullish pattern. And if a new bounce follows a new successful retest, then the picture will still be favorable with an upside objective at the upper red dashed envelope in time.

However it is always possible that the sluggishness we are seeing is a sign of weakness and bouncing off the black 39-week MA is only providing temporary support much as you can see in the year 2000 during the early history of this chart. Another weak bounce might suggest the advance from the early 2003 low was not the beginning of a true long-term bull market and was only a rally.

A true bull market will normally hold the 39-week MA on corrections then develop strong upside momentum after the correction is over. Persistent basing without following upside momentum, on the other hand, is more likely to be a warning of a distribution top with downside potential come.

It will take some time to size up the probable outcome but this concept will provide a very simple way to judge the nature of the trend developing over the weeks leading into fall.

Terry Laundry

July 23 2004 Comments