Are we ever going down?
It is time to revisit the stock market to see how things currently look. On this chart I have plotted a few things. First in red over the price are the big picture retracement levels that are commonly followed. We are approaching the 50% level, which is also in the same general area as an AB=CD leg for the two up swings off the March low. I don't think there is magic to fibonacci numbers other than they are so widely followed by fund managers, that at times they can become self fulfilling.
I have plotted also a custom indicator that I am working on that I just call the commercials hybrid. It uses the commercials data in a different way, and also measures them across all indexes, not just the SP 500. As you can see this indicator has been pretty good, with the only reading that was flat out wrong being the sell signal following the beginning of the March rally. There was a buy at the March low with this indicator, so when anything flips that fast it is rarely valid anyway. It was easy to ignore that one but even if we did not the overall accuracy of this has been pretty good.
As you can see it has now moved back into the sell zone, low readings are sells, high readings are buys. Now that we have this we can begin to look at other things to see if this has any merit.
First, the US Dollar. Since there is an incredibly tight inverse relationship between these two markets now, we need to look there to see how things look.
The daily chart of the DX shows we have a ton of divergence as we move lower. This is itself is often typical of strong trends, so not a reason to just run out and get long. Had you done that you would have been run over repeatedly this year. However, when this occurs at a time when something else significant is happening, it is time to pay more attention. Larry Williams releases a forecast each 6 months or so that presents roadmaps for market turns. Anyone seriously interested in trading should definitely buy this report. It is uncanny how accurate at times these reports are for forecasting turns in prices many months in advance. At times they get the exact day right 6 months ahead of time. They do also drift off at times. The key is to following the ones that the market is pacing to, and the DX has been one this year.
This roadmap calls for an 11/20 low, so since that is right now, and we have this divergence, things are starting to come together somewhat. The dollar index itself is very lightly traded, so the volume in analyzing commercial activity there is not very useful. The best way to do it is to take the inverse, which is actually the individual currencies themselves. Overall we do have a fairly large amount of selling not buying in the currencies. As a result even though the DX just shows a recent net selling bias, I think that has to be ignored due to these other variables.
There is also as I have written recently, quite a bit of commercial selling going on in various commodity markets, also telling us of a possible dollar rally. So we have the hybrid index telling us to look for a decline. We have this confirmed by a possible dollar index rally. It is also further supported by a bias towards a decline in commodities. As a result, when we see all of this going on in a zone in price that is also a large picture 50% price retracement, things begin to tell us we should have a stock decline coming. Also, as I stated last week, many of the individual sector etf's have flashed short term momentum divergences.
I think in summary this tells me we are finally going to have a decline here. Whether or not it will be a buy spot or the beginning of something bigger on the downside is impossible to know at this point. We know the PPT is out there ready to do everything they can to support this market. I think at this point it would be shocking to see the 6500 level get taken out, but at some point if enough fund selling were to happen, even the PPT will not be able to stop it.
Personally, I hope a decline sets up a buy, but we will just have to see when it happens.