Weekend Update – A Huge Inflection Point!

The markets closed the week at a very critical inflection point, leaving both bulls and bears hopeful.  What else would you expect?  Below is a view of the markets from the perspectives of both the bulls and the bears.

The Bullish Case:  The chart up top shows the bullish count for the SPX, it remains my alternative count until the red channel is breached with conviction.  Note the 3 channels: a) the black channel held the bull market off the March 2009 lows, which I label C1; b) the red channel marks the C2 bear market which began in the Spring; and c) the blue channel, which might just bind the entire 5 wave Super Cycle that began in March 2009.

These channels depict a pretty convincing case for the bulls.  The Alpha Index Indicators, which I present nightly to subscribers, correctly called the rally in the major indexes and have been on BUY/LONG signals practically since the beginning of October.

The Bearish Case:  OK, the bullish case is pretty compelling, so what could the bears possibly be seeing to bring them hope?  Well, first of all they hope the red channel on the top chart holds. Second, the bullishness has reached obscene levels.  The chart below a weekly chart showing the percentage of companies above their 50 day moving averages.

The 92% level has marked extreme overbought conditions and signaled a correction is imminent.

Another key indicator that has accurately marked tops and bottoms is shown on the 60 min chart above.  It doesn’t always build negative divergence, but when it does, it has been accurate.  Now, it appears to be building massive negative divergence; is it pointing to a major correction forthcoming?

The Nasdaq has been leading the charge.  It bottomed nearly a full month ahead of the other major indexes.  And, since its bottom in early August has traced out a brilliant bearish Gartley pattern [note: this pattern becomes invalid should the NDX make a new high.  Should that happen it can morph into a bearish butterfly once the move up (from red (B) to black [B]) is 1.27 to 1.61 times the move from red (3) to red (A)].

And finally, is Alpha Bull/Bear Indicator, which I developed as a long term indicator, blind to short term swings and relatively free from whipsaws.  Note how it would have kept one in practically the entire bull market form the March 2009 low.  It went short in July 2010, and though strengthening is still quite a way from crossing.  

So what say you?  Bull or bear, who wins the day?  Please Vote!  Next week should be quite illuminating!

About alphahorn

I received an MBA from Columbia University’s Graduate School of Business in New York and am a Wall Street veteran. I’ve worked for a number of investment banks including Smith Barney and First Boston/C S First Boston in New York. Over the years, I have developed my own Proprietary Swing System and I combine that System with my own Elliott Wave Analysis to trade.
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