Will Rally Become Impulsive?

Friday's June23 market action was encouraging because strength in the former leaders($NDX) has resumed with additionally the NYSE A-D line posting a +1060 with high-low plurality increasing to +71. Similarly, NASDAQ A-D line improved to +870 with highs-lows rising to +74. The NASDAQ McClellan Oscillator was positive at 9.02 and the NYSE McClellan Oscillator will turn clearly  positive from Friday's -1.43 reading with another day of +1000 A-D action.

Further Explanation of C & H Pattern

3 people commented (on another site) yesterday about the Cup & Handle pattern being a basing pattern and that the current situation did not meet that criteria because it was occurring too near the ATH's. My response at that time  was not as thoughtful as it needed to be. An important deeper explanation is that the charts I posted were Stockcharts.com Gallery views which feature a daily chart at the top and a weekly chart beneath it.There is actually a C & H pattern from the daily chart which is embedded, or nested if you will, within the C & H pattern on the weekly chart.
On the weekly chart we can see that the bottom of the cup goes down to the 1810 area and was indeed the result of a steep decline. The upper edge, or lip of the cup, on both sides is not far below the ATH's.  I think most people were looking at the daily chart,on which the whole C & H pattern does take place within about 100 points of the closing ATH. But, in fact the whole C & H pattern on the daily chart forms the developing handle on the weekly chart. On the Gallery view, the weekly C & H looks V-shaped, which is not ideal since the ideal shape has a more rounded bottom forming a U, not a V. I originally called it an inverted  H & S pattern which was mutating into a C & H pattern with an inverted pyramid shaped cup. Below is a Gallery view of the $SPY. Note how the C & H on the daily forms the handle of the C & H on the weekly.

Cup & Handle Patterns Nearing Completion

Many indexes and ETF's look to be completing their cup and handle patterns. When that happens, which could be within a week, there will be upside fireworks. I have posted a Gallery View for each index or ETF.

http://stockcharts.com/freecharts/gallery.html?%24INDU
http://stockcharts.com/freecharts/gallery.html?s=%24SPX
http://stockcharts.com/freecharts/gallery.html?$MID
http://stockcharts.com/freecharts/gallery.html?IWP


As a bull, I feel acutely aware of the possibility of an irregular B corrective wave that surpasses the old all time highs. That is an accepted tenet of standard Elliott Wave Theory,at least as I know it. That may or may not be the case for OEW. Tony is the final authority on that. Possibly it is an OEW principle in the process of mutating. I am not a aware of an RN Elliott or Prechter-Frost defined limit to the height of the B-wave above the previous ATH’s. The farther above the
closing SPX high of 2130 and the intra-day high of 2135 it goes, the less likely it is that the price movement is just a B- Wave. Above a closing high of SPX 2200 is where I would say that the irregular flat corrective wave theory loses 99% of
it’s credibility.

Another Wall Street Crossroads

The stock market at this time is providing enough evidence for either the bulls or bears to make their cases. Two important indicators which displayed strength at the recent rally peaks are the late Richard Russell's Primary Trend Indicator (PTI) and the NYSE advance-decline line (NYSE A-D line). Both of these made new all-time highs at the April 21, 2016 rally closing peak of 2100 and neither of which has sold off too sharply during the subsequent decline from that apex. A link to the $NYAD  is given below but I can not give a link to the PTI because it is proprietary to Dowtheoryletters.com.

http://stockcharts.com/freecharts/gallery.html?%24NYAD

On the weekly charts of indexes, ETF's, and mutual funds a potential inverted head and shoulders pattern can be seen, one which has evolved into a sort of cup and handle pattern with steep sides (like a type of wine glass). Here are a few charts of mutual funds and ETF's which illustrate it. The list is ordered with the largest cap funds at the top and the smallest-cap funds at the bottom. The aforementioned chart patterns are stronger the larger-capitalized their groups are:

http://stockcharts.com/freecharts/gallery.html?s=DIA
http://stockcharts.com/freecharts/gallery.html?SPY
http://stockcharts.com/freecharts/gallery.html?s=PEMGX
http://stockcharts.com/freecharts/gallery.html?s=IWP
http://stockcharts.com/freecharts/gallery.html?PRDMX
http://stockcharts.com/freecharts/gallery.html?s=GGOIX
http://stockcharts.com/freecharts/gallery.html?s=IWM
http://stockcharts.com/freecharts/gallery.html?s=IWO
http://stockcharts.com/freecharts/gallery.html?s=IWC

April 6 2014 Rally Day Within Consolidation Pattern

With an SPX close of 2066.66, we had a devil of a good up day today! Market participation was broad and inclusive. The NYAD line posted a +1550, NASADAQ line  a +1212. The Transport and Utilities sectors were the notable exception. My guess is that they are being negatively impacted by higher oil prices at this time. However, they did perform well earlier this year during the upward phase of the oil price action. So far, the overall market still appears to need a rising oil price in order to continue it’s uptrend. I remain moderately convinced that that dynamic may change soon, but, even if it doesn’t, I believe the bull market will still resume intact. However, I think we could yet see another little downleg to complete a micro ABC pattern on the $NYAD.
http://stockcharts.com/freecharts/gallery.html?$NYAD

April 3 Technicals & Fundamentals

The McClellan Oscillator needs to have some sharp up days to snap out of it's correction. When that happens, this market will surge towards ATH's. The breadth of the market is harder to pull up than the large caps in and of themselves. Therefore the strong A-D days that it will take to get the McOs rising sharply again will energize all the price indexes to the upside. 1977 and 2008 are the only times that I know of  that the A-D line was in a strong uptrend while the Dow declined.  And I am not even sure 2008 was a strong A-D uptrend or not. I wish someone with access to better charts than I have would post the A-D line and the DJIA for the 2008 time period and even the 1977 example.
The positive correlation that the oil price has had with the stock market may not continue. For the last year and a quarter the market has been discounting the negative effects of lower oil and gas prices on energy-related companies. The market may again start discounting the benefit of lower oil and gas on companies and individuals who consume them. In fact, it probably already started in Dec 2015 with the beginning of the Utility sector rally, although low interest rates have helped. But low interest rates are also an effect of low energy prices. This dynamic may cause different industry sectors to be leaders in the next segment of the bull market.
http://stockcharts.com/freecharts/gallery.html?s=%24NYAD
http://stockcharts.com/freecharts/gallery.html?$NYMO
The Transports rose steeply a couple of weeks ago but since then have declined much more sharply than the Industrials. They are a sector, like the Utilities, which obviously benefits from lower energy prices.  I am expecting the Transports to be co-leaders with the Industrials and NASDAQ in the next rally phase, if not to surpass the Industrials. The mid-cap growth sector, which is not an industry group, but a size and style group, have started to gain in relative strength. I am particularly interested in that market segment because I own a couple of mutual funds of that type,
There is much incredulity about the logic of a bull market continuing amid so many economic, financial, and geopolitical stresses. Being a bull does feel a little like going "over the top" of the trenchline into no-man's land with shells bursting all around and then climbing the wall of the enemy's fortifications in the face of machine-gun fire."Climbing a wall", yes, that is what we bulls must do: Climb a Wall of Worry. And "Climbing a Wall of Worry"  is what sustainable bull markets do as well.

Pivotal Market Interpretation on Feb. 15, 2016

The decline to Feb, 11 low at an intraday SPX price of 1810 and a closing SPX price of 1829 from the all time high of 2135 from the May 18-July 20 double top at 2135 and 2128 respectively was more appropriate in time and extent for a Primary degree down wave than the decline to the 1867 low or even the 1872 low were. A broad A-B-C pattern was etched out by the Primary 4 down wave. The A leg divided into an a-b-c starting from the July 20, 2015 top at 2128 and ending at the Aug 25 low of 1867. The b wave starting from 1867 divided into a 1-2-3 topping at 2021 on Sept 16, 2015 with the c-wave ending at the Oct 29 low of 1872 in a single wave decline,creating a double bottom.
From there a strong B-wave rally took the SPX to an eventual peak at 2081 on Dec 29, 2015. The double top pattern created by the Nov 3, 2015 and Dec 1,2015 highs of 2116 and 2104 respectively were the absolute highs of the rally. That could have been called a 5-wave rally with the 4th wave dividing into an a-b-c and the 5th wave peak at 2081 failing on Dec 29, 2015 to even match the Dec 1 high. From the Dec 29, 2015 peak of 2081 the C wave fell to 1810 (intraday) on Feb 11, 2016. The a wave hit it's low at 1812 on Jan 20; the b-wave peaked at 1947 on Jan 29; and the c-wave probably ended on Feb 11 at 1810. The large A-B-C pattern consists of the Major waves of Primary 4. The anomaly in this wave pattern is the 5-leg B wave which ended in the "failed fifth" wave on Dec 29, 2015. According to Elliott Wave theory, a corrective upwave is supposed to take a 3-wave form. But at the time it was happening, it was believed by many of us to be Major 5 of Primary 5. For the market to maintain that deception it had to deviate from the orthodox pattern, only appearing as a corrective B wave (to me) in retrospect.

The up days in the bottom forming action in the week of Jan. 18-22 featured a couple of days with the A-D line above +2000, one of which was a +2400+ day. This was a harbinger of further strength in the Fri, Jan.29 rally to come. The Friday, Feb 11 rally was not as strong as the Friday, Jan. 29 surge which at the time I thought was the beginning of Primary 5, but if there is follow through, it will prove more sustainable. Then Feb 11, 2016 would mark the low of Primary 4.

It is true that the DJIA closed 6 points below it's August lows while the DJ Transports have long since fallen below their Aug lows. So there is plenty of justification for calling today's action a Dow Theory sell signal. However, recently the Transports have strengthened and today they closed 200 points above their Jan 20 lows. Picking the appropriate points to compare is a kind of art whether it is the Dow Theory or any other set of indicators that are used in conjunction. I think I am on firm ground in saying that there was a short-term DT non-confirmation to the downside by the DJ Transports. The downside penetration by the Industrials was very marginal as well. However, strict Dow Theory rules state that any closing price above or below a previous level, no matter how small, counts as a penetration. In my opinion, the Dow Theory Transport (Rails) and Industrial confirmations or non-confirmations are the original ancestor of all the myriad index and indicator divergences and confirmations that are used today.
The Dow Theory is based on closing prices, The DJIA fell below it’s Oct, 2014 lows in Aug, 2015. The DJTA did not fall below it’s Oct 2014 lows on a closing basis in Aug, 2015. That is the reason why there was no Dow Theory bear market signal, not because of the flash crash. Subsequent to the Aug 2015 decline, the DJIA rose to new highs. The DJTA failed by a wide margin to do so. On Dec 18, 2015 the DJTA fell below it’s Aug, 2015 low but the DJIA did not do so by a wide margin.
There were declines prior to Aug, 2015 that some Dow Theory practitioners may have used as reference points and thus generated a bear market signal. But I consider the Oct, 2014 lows to be the correct ones to look at for comparison. From what I have read, I would say that most Dow Theorists interpret the price action from Oct 14, 2014 to mean that the Dow Theory has signaled a bear market. But obviously I have an interpretation contrary to that.

The NYSE daily A-D line fell below it's previous low but the NYSE McClellan Oscillator held well above it's previous low of -89 by rising to 58.6 and then halting it's last decline at about -43.5, thereby creating an uptrend. If the NYSE McClellan Oscillator can climb above 60 and then hold above 0 on any pullbacks, that would amplify the nascent uptrend in the NYSE Summation Index, which fought it's way up to -575 from a low of -800, and now appears to be making a higher low at -668.


http://stockcharts.com/freecharts/gallery.html?$NYAD

http://stockcharts.com/h-sc/ui?s=$NYMO

http://stockcharts.com/h-sc/ui?s=%24NYSI

The severe decline in the NASDAQ and in secondary stocks served to revalue growth stocks and generate some sector rotation, possibly in preparation for finding new leadership in the next, and perhaps last phase of this bull market. The NASDAQ daily A-D line fell even further below it's previous low than the NYSE A-D line. Subsequently the NASDAQ McClellan Oscillator rose from a low of -86 to +58.6, and then fell to a higher low at -33, and has currently risen to the 0 level.The NASDAQ Summation index looks to be making a double bottom in the 4292-4313 area. Of course, to kick the NASDAQ Summation Index into an uptrend, the NASDAQ McClellan Oscillator needs to move above 50 and then stay above 0 on any declines.

http://stockcharts.com/freecharts/gallery.html?$NAAD
http://stockcharts.com/freecharts/gallery.html?$NAMO
http://stockcharts.com/freecharts/gallery.html?$NASIT

If both of these Summation indexes can generate durable uptrends, that would be strong evidence that the bull market has resumed rather than just a counter-trend rally developing in a bear market .

From a psychological point of view, I would say that the market has been trying to convince it's players that any forthcoming rally is only corrective in nature, not a resumption of the primary bull. Most of the so-called bullish forecasts I read are only anticipating a counter-trend rally to the upside within a primary bear market. The bull needed to throw off some of the people who were riding it, especially on credit, with too much of a sense of equanimity. Although there some who agree with my position that Primary Wave 4 ended on Feb 11 at 1810 (intraday) or will end soon in this same price area, I think there is a great deal of fear that this is a bear market and it will resume it's destructive path downward after the upward reaction burns itself out. I feel quite a bit of fear myself and am not overconfident about this position that I've taken.