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*Please make sure you understand how to use the table above. The main purpose of this report is to provide information so contradictory signals are always presented.
SEASONALITY: THE EARLY NEXT WEEK IS BULLISH, OE FRIDAY IS BEARISH
According to Stock Trader’s Almanac:
- Monday before July expiration, 2008 broke Dow 5 year bull run.
- July expiration day, Dow down 6 of last 9.
From the July seasonality chart below we can see that the next Monday to Wednesday are very bullish.
INTERMEDIATE-TERM: REBOUND THEN MOST LIKELY THERE’LL BE A 2ND LEG DOWN
No change for the intermediate-term forecast. Still expect a 2nd leg down and the correction phase at least will last to Oct 2, 2010 (See 07/02 Market Recap for more details).
However, since the retailers sentiment is now way too bearish so chances are very good that the rebound we’re seeing may go very far. The charts below show how bearish the retailers sentiment is:
AAII Bull Ratio from sentimentrader.
Rydex Bear Fund Asset Flow from sentimentrader. The chart basically says that Rydex traders bought huge amount bear fund.
SHORT-TERM: EXPECT PULLBACK AS EARLY AS THE NEXT MONDAY BUT MOST LIKELY THE REBOUND ISN’T OVER
See chart below, the min price and time target discussed in 07/07 Market Recap were fulfilled on Friday.
Also considering:
- The price volume negative divergence mentioned in Friday’s After Bell Quick Summary, short on Friday close and cover on Monday close, it’s almost 100% winning rate. (There’s a description error in Friday’s After Bell Quick Summary. Should be “cover short the next day”, instead of “hold until the first profitable close”)
- 1.0.1 S&P 500 SPDRs (SPY 15 min), Bearish Rising Wedge (or Ending Diagonal Triangle in Elliott Wave term).
- The next Monday, 07/12 is a potential turning date (See 07/02 Market Recap for more details).
When the time, the price and the pattern are all conform, chances are very good we may see a pullback the next Monday.
If indeed the pullback starts the next Monday, especially if it’s a huge scary one, then the question inevitably would be: Is the rebound over? I believe most likely not. The argument is the up momentum this round is so far very strong. Hope you still remember what I discussed in the 05/21 Market Recap about “a forward accelerating car cannot be reversed backward without reducing the forward speed first”. At that time, the market was missing NYMO positive divergence, therefore a new low was expected (and indeed). Now should be similar, see chart below, RSI shows no negative divergence yet, so a new recovery high is expected.
Based on the above assumption, the chart below shows the estimated price and time target:
- The mini price target is SPX 1099.97.
- The time target could be around 07/16, after that the market may pullback to around 07/31.
- Another possibility is to pullback from 07/12 to 07/16 then rise to around 07/31. (I’ll explain why 07/31 is important later.)
HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST
*DTFMS = Dual Time Frame Momentum Strategy. The signal is given when both weekly and daily STO have the same buy/sell signals. Use it as a filter, don’t trade directly.
