Stock-Market-Observations

All of the charts are missing for the month of September.  They’re missing from my data and from Terry’s old website.  I’ve done searches and turned up nothing (???).

Bob

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The September 24th 2007 SRT and Envelope Update

Last week the S&P climbed well above the 55 Day MA, currently 1482 as noted in my updated chart at the PDF link below.

Download SRT070921.pdf

The blue Volume Oscillator continues to be overbought, but it shows very strong upside momentum, so corrections are likely to be brief as the S&P resume its original trend into the the right end date of the current T. Any sharp correction should hold at the 55 day MA just to confirm the up trend as usual.

I would also point out that it is possible to interpret this new upside momentum as being driven by a new T, not shown, that uses the cash build up period from the mid March volume oscillator peak to to a center post around the oscillator rising bottom in late July and mid August. This would call for a December peak. I will construct and consider this T possiblity next month.

A further important point for T Theory, is the likelihood that the end of year topping combined with the June/July 2007 topping will complete the long range Advance-Decline Ts projection of a Fall peak for the bull market that began from the double bottom in late 2002/early 2003. To confirm this likelihood we will need to start tracking the A-D line strength to see if it has lost its very strong momentum by year end.

The September 17th 2007 SRT and Envelope Update

Last week the S&P climbed above the 55 Day MA, currently 1476 as noted in my updated chart at the PDF link below. However the blue Volume Oscillator continues to be overbought so more corrections are likely before the S&P can stabilize and resume its trend into the the right end date of the current T.

Download SRT070914.pdf

The Federal Reserve announcement next week will probably dominate the picture. Positive news will quickly make the Oscillator very overbought but it would provide the momentum needed to complete this Short Range T come early November.

The September 10th 2007 SRT and Envelope Update

The S&P fell out of its marginal upside breakout last Friday and so the the next recovery will be needed to confirm a sustainable rise above the 55 Day MA, currently 1477. The interesting observation is that the volume oscillator peaked at the highest level for the current chart history which you can see by downloading my updated chart at the PDF link below.

Download SRT070907.pdf

This has bullish longer term consequences and so we might expect the sharp decline on Friday was more related to the market’s overbought nature than the news of a sluggish economy. In any case, it’s bullish longer term and so estimates of this coming weeks carry over should be estimated by standard bullish potential behavior.

If the trend is actually bullish going forward, then it is generally required that any correction hold at or above a prior low (1435 in the chart), and last only a few days. Also, in order to sustain a bull market trend into the late Fall, support must generally occur at the 200 day moving average, which the chart shows to be 1444 currently. This is only 9 S&P points below Fridays close and is likely to be the worst outcome.

September 3 Update:

During September I will post updates of the daily Short Range T (SRT) and S&P 500 Envelope chart on Mondays in order to keep up with the market volatility. Over the last week the 55 day MA at 1478 has been limiting the upside rebound as can be seen by downloading the PDF file below.

Download SRT070831.pdf

Before developing the forecast let me review a few envelope theory principles I have uncovered. The most interesting aspect of the Envelope T Theory, is that while the upper red envelope is nearly always an overbought condition, and the lower green envelope is nearly always an oversold condition, but the 55 day MA which is right in the middle is never a neutral condition. Rather this level is either a clear overbought or clear oversold condition and can be represented as a “binary state” at the 55 Day trend level for the S&P. This can be seen in the chart at the letters G and H.

In late June when the S&P sat on the 55 Day MA, at point G, the trend clearly acted as though it was oversold, ever while the Volume Oscillator would not have reached that conclusion. In early August at point H in the chart, the MA clearly acted as an extremely overbought condition while the Blue Oscillator did not register any particularly significant overbought reading. I have therefore concluded the market’s technical condition can either be overbought or oversold at the 55 day MA, but never some neutral or other average condition. This puts the market’s state as being “binary” in nature, much the same as a coin tossing experiment where the outcome can only be either be a head or a tail because we don’t expect the coin to land on its edge.

To develop the forecast for next week, we find ourselves about on the 55 day MA and so the question from an Envelope Theory perspective is simply which of the two possible states exist now that we are testing the 55 Day MA. In theory only these two diametrically opposite states can exist, making next week’s outcome critical and therefore worth watching. The blue Volume Oscillator is clearly near a peak reading as noted by the horizontal blue dashed line that extends back to prior peaks, so the odds favor a failure to break out next week. Also, with the 55 Day MA sloping down, the odds generally favor the S&P 1478 level will act as resistance. However there are always switches in trend being made, so a simple observation of the trend next week relative to this 1478 tipping point, will confirm whether the MA is acting overbought or oversold.

A couple of prior examples in the chart might make the outcomes clearer to visualize next week. The example of a temporary topping at the 55 day MA, followed by a later successful upside breakout into a sustainable advance can be seen starting at point A in the chart. Here the S&P fussed around the black 55 day MA until strength petered out, causing a correction back to the green line at B to set up a new oversold condition but with a rising bottom Volume oscillator accumulation pattern. The rise to C resulted in an upside break out followed by a correction back to the MA to D which held, allowing resumption of a sustainable up trend.

Another historical bullish breakout alternative we need to keep in mind is the rise into E and successful retest of the MA at F in March. The E/F and the C/D patterns are the most typical way for an upside breakout to occur based on history. So, if for example, investors come back from Labor Day weekend all enthusiastic because they believe the Fed will to take care of any sub prime problems, then it is possible for a sharp S&P rally to break well above the 1478 S&P tipping point. If so, history suggests the breakout will be followed by a pullback to the MA, which if it holds, is a sign of a sustainable rally developing, probably into late Fall.

On the other hand if the extreme enthusiasm needed to punch the S&P over the tipping point, and the volume oscillator to an all time higher peak is not forth coming, then a peaking is the likely outcome, and we can expect a correction back to the green line currently 1420 as noted in the chart. By next Monday I expect the outcome will be clear because there really are only two possible theoretical outcomes; the 1478 has either become resistance for a top or support for a breakout. Since these outcomes are easily referenced to a simple S&P level the oscillator complexities and other ambiguities are eliminated.

Terry Laundry