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Erik McCurdy
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Erik is the senior market technician for Prometheus Market Insight and has been performing chart analysis since 1995. The software program that he developed to monitor long-term stock market trends has correctly identified 92% of the cyclical turning points in the S&P 500 index since 1940.... More
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  • Daily Charts for September 1, 2010 11 comments
    Sep 1, 2010 5:53 PM | about stocks: SPY, DIA, QQQ, IEF, TLH, UUP, ULE, YCL, GLD, GDX, USO
    Stocks Complete the Formation of a Short-term Low

    Cycle analysis has been forecasting the imminent development of a Short-Term Cycle Low (STCL) in the stock market, and today's massive rally has confirmed that the anticipated low occurred yesterday.

    Two weeks ago, we postulated that this STCL might develop in conjunction with either the existing home sales report or GDP revision report last week, both of which were widely known to be negative in character. While the short-term turn did not actually accompany an anticipated "sell the rumor, buy the news" rally for either of these reports, the downtrend from August was unable to move appreciably lower on the negative data releases, indicating that the market was attempting to form a short-term low. Today's sharp rise, spurred by a better than expected reading from the August PMI, confirms that the latest STCL is now in place.

    The character of this next short-term cycle will be important to monitor closely, as it has the potential to provide an important signal with respect to the long-term trend.

    The long-term topping formation in stocks is on the verge of a meaningful breakdown, so the strength and duration of the developing short-term uptrend will be important determinants of cyclical direction moving forward. If this next rally is relatively weak and the S&P 500 index subsequently returns to recent lows sometime during the next two weeks, a long-term breakdown confirming the start of a new cyclical downtrend from late April would become highly likely. However, if the rally instead advances to the early August high on heavy volume, the imminent long-term breakdown scenario would become less likely and an extension of the sideways consolidation pattern from May would be forecast. The stock market has officially entered another one of those "make or break" periods from both short-term and long-term perspectives, so it will be important to continue monitoring market behavior closely.

    Stock Daily Chart Analyses

    The following daily chart analyses provide short-term forecasts for the stock markets that we monitor. For intermediate-term outlooks see the latest weekly review, and for long-term outlooks see the big picture update.

    The S&P 500 Index

    The index closed sharply higher today, breaking well above resistance at the upper boundary of the downtrend from early August and confirming the start of at least a short-term oversold reaction. A new cycle low was also confirmed by today's rally, suggesting that a one to two week rally or period of sideways consolidation is likely.

    Today's strong rally confirms that the latest Short-Term Cycle Low (STCL) occurred yesterday. The window during which the next STCL is likely to occur is from October 12 to December 1, with our best estimate being somewhere in the October 22 to October 28 range.

    A close above current levels would confirm the developing oversold reaction and predict a move up to congestion resistance in the 1,100 area. A close below the recent low at 1,047 would confirm the break below congestion support near 1,050 and forecast a move down to cyclical congestion support in the 1,022 area. The reaction confirmation scenario is more likely (~70% probable).

    The European Top 100 Index

    The index closed sharply higher today, moving up toward recent highs of the uptrend from late May. Technical indicators have strengthened and are now slightly bullish overall, supporting a continuation of the advance.

    A close above strong congestion resistance in the 222.50 area would predict a test of the recent high near 225. A close below uptrend support at 214 would reconfirm the short-term downtrend from early August and forecast additional losses. The uptrend continuation scenario is slightly more likely (~60% probable).

    The Shanghai Composite Index

    The index closed moderately lower again today, retreating from recent highs of the uptrend from early July. Technical indicators are neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    A close above congestion resistance near 2,700 would reconfirm the uptrend from early July and forecast additional gains. A close below the recent low near 2,570 would confirm the start of a new short-term downtrend and predict a move down to the bottom of the trading range at the 2,500 level. The uptrend continuation scenario is slightly more likely (~60% probable).

    Treasury Daily Chart Analyses

    The following daily chart analyses provide short-term forecasts for the US treasury markets that we monitor. For intermediate-term outlooks see the latest weekly review, and for long-term outlooks see the big picture update.

    The US 10-year Treasury Note Yield

    Yields closed sharply higher today, reacting off of recent lows of the long-term downtrend from April. Price action remains volatile as treasury yields attempt to form a short-term bottom in the 2.50% area. Technical indicators have strengthened and are now neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    We monitor cycle highs in yield as they correspond to cycle lows in price. The volatile nature of yield behavior over the past week has caused a change in our preferred cycle count, moving the previous Short-Term Cycle High (STCH) from July 13 to July 27. According to the revised count, we are 26 trading days into the cycle that followed the STCH on July 27. The window during which the next STCH is likely to occur is now through September 9.

    A close above gap resistance near 2.69% would confirm the start of an oversold reaction and predict additional gains. A close below the recent low at 2.46% would reconfirm the downtrend from April and forecast additional losses. Both possibilities are equally likely at the moment.

    The US 30-year Treasury Bond Yield

    Yields closed sharply higher today, reacting off of recent lows of the long-term downtrend from April. Price action remains volatile as treasury yields attempt to form a short-term bottom in the 3.52% area. Technical indicators have strengthened and are now neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    A close above congestion resistance near 3.72% would confirm the start of an oversold reaction and predict additional gains. A close below the recent low at 3.51% would reconfirm the downtrend from April and forecast additional losses. Both possibilities are equally likely at the moment.

    Currency Daily Chart Analyses

    The following daily chart analyses provide short-term forecasts for the currency markets that we monitor. For intermediate-term outlooks see the latest weekly review, and for long-term outlooks see the big picture update.

    The US Dollar Index

    The index closed sharply lower today, retreating from recent highs of the short-term uptrend from early August. Technical indicators are now effectively neutral, indicating that near-term direction is in question.

    We are 18 trading days into the cycle following the Short-Term Cycle Low (STCL) on August 6. The window during which the next STCL is likely to occur is now through September 16, with our best estimate being somewhere in the September 7 to September 13 range.

    A close above congestion resistance near 83.50 would reconfirm the short-term uptrend from early August and forecast additional gains. A close well below congestion support at 82 would predict a move down to congestion support in the 81 area. The uptrend continuation scenario is slightly more likely (~60% probable).

    The European Euro Index

    The index closed sharply higher today, reacting off of recent lows of the short-term downtrend from early August. Technical indicators have strengthened and are now neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    A close above congestion resistance in the 129 area would reconfirm the short-term reaction from late August and predict additional gains. A close below the recent low at 126.20 would reconfirm the downtrend from early August and forecast additional losses. The reaction confirmation scenario is slightly more likely (~60% probable).

    The Japanese Yen Index

    The index closed slightly lower today, retreating from recent highs of the uptrend from early May. Technical indicators are neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    A close well above the recent high at 119.15 would reconfirm the uptrend from May and forecast additional gains. A close below congestion support near 117 would predict a move down to congestion support in the 115 area. Both possibilities are equally likely at the moment.

    Precious Metal Daily Chart Analyses

    The following daily chart analyses provide short-term forecasts for the precious metal markets that we monitor. For intermediate-term outlooks see the latest weekly review, and for long-term outlooks see the big picture update.

    Gold

    Gold closed near unchanged today, holding above congestion resistance in the $1,240 area near all-time highs. A bullish consolidation formation from early May is in progress, increasing the likelihood of another long-term breakout by the middle of September. Technical indicators have been gradually weakening over the past two weeks but remain slightly bullish overall, supporting a continuation of the advance.

    We are 7 trading days into the cycle following the Short-Term Cycle Low (STCL) on August 23. The window during which the next STCL is likely to occur is from September 9 to September 21, with our best estimate being somewhere in the September 10 to September 16 range.

    A close well above current levels would reconfirm the uptrend from late July and predict a test of the all-time high at $1,256. A close below congestion support near $1,210 would forecast a move down to congestion support in the $1,180 area. The uptrend continuation scenario is slightly more likely (~60% probable).

    The Gold Currency Index

    The Gold Currency Index (GCI) is a composite of gold prices in the currencies of 10 of the largest economies in the world as defined by GDP. It is therefore currency independent, reflecting the intrinsic value of gold as an international currency itself.

    The GCI closed slightly lower today, retreating from recent highs of the short-term uptrend from late July. A bullish consolidation formation from early May is now in progress, increasing the likelihood of another long-term breakout by the middle of September. Technical indicators have been gradually weakening over the past two weeks but remain slightly bullish overall, supporting a continuation of the advance.

    A close above congestion resistance in the 32 area would reconfirm the uptrend from late July and predict a move up to the all-time high near 32.75. A close below congestion support in the 31 area would predict a move down to long-term uptrend support near 30. The uptrend continuation scenario is slightly more likely (~60% probable).

    The Gold Miners Index

    The index closed moderately lower today, retreating from recent highs of the short-term uptrend from late July. Price action has been confined to a trading range between 1,300 and 1,500 since May and a move outside of this range will likely signal the direction of the next meaningful move. Technical indicators are now slightly bullish overall, supporting a continuation of the advance.

    A close well above the top of the trading range at 1,500 would reconfirm the uptrend from July and forecast additional gains. A close below new congestion support near 1,440 would predict a move down to congestion support in the 1,400 area. Both possibilities are equally likely at the moment.

    Commodity Daily Chart Analyses

    The following daily chart analyses provide short-term forecasts for the commodity markets that we monitor. For intermediate-term outlooks see the latest weekly review, and for long-term outlooks see the big picture update.

    The CRB Index

    The index closed sharply higher today, moving back above congestion resistance at the bottom of the previous trading range near 267.50. Technical indicators are neutral to slightly bullish overall, indicating that near-term direction is in question with a slight upside bias.

    A close above current levels would confirm the break above congestion resistance in the 267.50 area and predict additional gains. A close below uptrend support near 263.50 would reconfirm the downtrend from early August and forecast additional losses. A confirmed break above congestion resistance at 267.50 is slightly more likely (~60% probable).

    Oil

    Oil closed sharply higher today, reacting off of recent lows of the short-term downtrend from early August. Technical indicators are now effectively neutral overall, indicating that near-term direction is in question.

    A close above congestion resistance in the $76 area would predict a move up to congestion resistance near $78. A close below the recent low near $71.50 would reconfirm the downtrend from early August and forecast a test of congestion support at the $70 level. Both possibilities are equally likely at the moment.

    Disclosure:
    No positions

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Comments (11)
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  • Erik I'm starting to get the impression that your calls for short term cycle lows (STCL) are pretty damned accurate. I read that recent comment by one goofball critic of your work who made the rather uneducated and cynical statement that it was just another "the market might go up or the market might go down" type of commentary. It's becoming abundantly clear that nothing could be further from the truth.

     

    The market internals, prior to today, had gone through a span of 16 straight days of getting absolutely hammered, yet the market has recently only chugged sideways instead of collapsing. In my view, that type of phenomenon just provides more evidence that the market is fractured and very polarized. Add to that, the fact that today we witnessed the 26th or 27th ninety percent panic buying or panic selling day since April. This is unprecedented. That too shows the shaky ground that the current market is floating on. This is also the very type of market internals that the Hindenburg Omen was set up to detect. No wonder it has flashed several signals recently.Yet those who have incentive to disallow the market to do what it should do, and who have the power to prevent a collapse, have apparently made the statement that there is further upside to come. Bizarre beyond words, but it is what it is.

     

    My personal impression now is that the next leg up, which apparently began in earnest today, could be (probably should be) about the same length of the previous rally off the early July lows. If this new leg runs at about the same rate and duration as the July rally, it could end somewhere around Sept. 15th plus or minus a few days. Perhaps it will be involved in yet another OPEX week pump job as is the all too often pattern set by GS and JPM. I mean, let's not kid ourselves, they are the ones who sell almost all the insurance against market collapse (aka 'put options') and they're the ones who make darned sure they collect those premiums. That's illegal... to 'make sure'. It would be like bundling up mortgage packages that were guaranteed to default and selling them as AAA rated risk. If anybody ever did anything like that, they'd be in jail by now. Wouldn't they? In any event, until the comedy branch of the FED (aka the SEC) starts doing their job, this criminal activity will obviously continue. So perhaps the top of this rally will coincide with OPEX and end on Sept. 17th, rather than the 15th. Makes sense to me. So let's call it Sept. 17th just for the hell of it. That's not very far from here.

     

    Since your work suggests a possible next STCL occurring somewhere in late Oct. (your current best estimate is good enough for me), then it appears that if you're right, as your past record suggest you will be, then the next leg down would likely be a long hard disastrous fall... considering how much 'down time' would be involved.

     

    The more I read your analysis and conclusions, the more I find it to be very valuable as a supplement to my own. Great work! Please keep it up Erik and don't go anywhere too far away, ok?
    .
    1 Sep 2010, 06:41 PM Reply Like
  • Author’s reply » Thanks, AR, I have found that cycle analysis (CA) makes a nice complement to technical analysis (TA); while TA focuses primarily on price, CA is concerned primarily with periods and rhythm. Granted, CA is no more a crystal ball than TA, but it does provide a timing framework within which to perform chart analysis.
    2 Sep 2010, 10:25 AM Reply Like
  • Hi guys, just thought I'd let you know, MCD probably made a long term high today ( I can see a possibility for one more down up sequence that could take a few days or weeks depending) And if you looked at any of my charts from the HO blog you will know why I think this. I have been looking for this bell weather to roll over about the time the markets start down hard, that is what happened in 08, and as bear markets rollover the darlings are always the last to follow. Just one more key to the puzzle. Is the HO blog open for sept?? Good trading.
    2 Sep 2010, 11:54 AM Reply Like
  • Hi skeptic. It was John Lounsbury's plan to open a new insta at the beginning of each month on the HO topic (apparently you're aware of that). Since the HO is essentially a moot point now, I wouldn't blame him if he's put an end to it until the next cycle when it might once again become a useful indicator. For now though, it's no longer of interest... it has done it's thing. I'd suggest though, that since you were interested in that thread, you might want to make sure you're following McCurdy and check in once in a while. I think this might be my new office for a while too, since I haven't yet submitted any articles nor created any instas. I might just hang my hat here or over at Michael Clark's house. Make sure you're following Michael Clark as well :-)
    2 Sep 2010, 12:09 PM Reply Like
  • Author’s reply » Hi skeptic and AR,

     

    I will be maintaining a monthly blog dedicated to general TA discussions:

     

    seekingalpha.com/insta...

     

    I have been extra busy with my newsletter service recently, but I hope to make the blog a useful resource for chart watchers.
    2 Sep 2010, 12:15 PM Reply Like
  • Oh geez... I wasn't even paying attention to that Erik. Thanks a million. I've been focusing more on watching for articles from you.
    2 Sep 2010, 12:33 PM Reply Like
  • Great work, Erik. Just picked up my $1 trial subscription.
    2 Sep 2010, 08:16 PM Reply Like
  • Good idea razor. I like Erik's gig enough that I dropped his name on another website today. The gang over there are Elliott wavers and I'd simply suggested to them how Erik's angle would fit in with what's discussed over there. The response was immediate and wholly in agreement that Erik's take would be a good fit. So I suspect there will be a couple more signing up. If not they're idiots. lol
    3 Sep 2010, 01:12 AM Reply Like
  • As it happens, the Prometheus subscription replaces the EWT subscription I just dropped - precisely for, as Erik stated, their rigidity. I see the wave structures plain enough, though I somewhat suspect of their counts. But more than that they really do cling too much to their overall bearish picture and tend to ignore other TA indicators screaming for a "counter trend" move.
    3 Sep 2010, 07:56 AM Reply Like
  • Eric: Great article! These first few surging days of September may draw in some retail investors. I admit that I've done a little stock picking, only based on news cycles, though. Historically, this is a rough month to begin a new postion. I'm only playing a biotech (NVAX), because of a potential announcement by BARDA, and a couple of battery plays, Exide and Axion, because September is when the automakers reveal contracts.

     

    Rocks: Great comments!
    3 Sep 2010, 02:57 AM Reply Like
  • Hello all, great job erik, I will bookmark your new blog and check out your news letter. I have been with EWI for several years, also, and am tiring too, of their narrow view. They get stuck on their preferred count and refuse to change it til long after the obvious, but it is a hard gig trying to call each twist and turn. They do talk a lot about cycles also, and have made me a believer in that.The only reason I stay is the charts and info other than EW that they provide; i'd need several subscriptions to get all that. See ya at the TA site.
    6 Sep 2010, 09:29 PM Reply Like
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