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by David G. Hawkins

Since my last post here, the market has decisively turned down on both the short and intermediate terms.  So in this post, I’m setting up the support ladders under the current price on both the daily bars (short term) and weekly bars (intermediate term) charts, and also showing the Arms Price Projection for this down trend.

The first chart here is the weekly bars chart.  We see that price has come down through S4 (not labeled), S3, and is in the process of breaking S2; this latest price bar is incomplete as I’m showing this as of yesterday.  The breakdown through S3 was the definitive event that establishes that we’re now in a new downtrend.  Below S2 is the ladder of support, defined by the labeled S curves, one of which is copied from the monthly bars chart.

The second chart here is the daily bars chart updated through yesterday, Tuesday May 15th.  The levels of the support ladder curves from the weekly bars chart are copied here.  As this downtrend unfolds, we should watch to see if there comes a turnaround in price at one of these ladder levels.

The red curve is the primary resistance curve, R1, for this downtrend.  So far, it’s still early in the trend and there has been now pull-up in price that may test R1.  If the first pull-up doesn’t come close to R1 before turning down again, then that will be the indication that this is an accelerated downtrend and at that point we can fit a BottomFinder to this downtrend – but not yet.

The lower blue bar identifies the consolidation top that preceded this new downtrend.  I’ve applied Arms’s Price Projection technique here, about which I blogged in detail a few months ago.  It defines the region into the cum vol future during which there will be significant downward pressure on price.  That pressure will end at the cum vol indicated by the horizontal position of the dotted blue vertical line.

For now, all we can do is sit back and watch this downtrend develop.

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by David G. Hawkins

Intermediate Term – Weekly Bars Chart

The first chart here is the weekly bars chart.  In my post here of two weeks ago I said, “The TopFinder is chugging right along tracking this uptrend, which is now 78% complete.  . . . If you’re long, sit back and enjoy.”  At that time there was no sign of weakness in this up trend.  But now, the trend is getting a bit “long in the tooth” (so to speak), 87% complete.  It’s not uncommon, when a trend approaches 90% complete, to start to show some weakness, and here we see the latest bar coming down significantly in price.  But, it is still holding above S3, so the trend is still intact.  Once a trend gets above 90% complete, we often see an increase in volatility before reaching the end, so don’t be surprised to see that develop here.

Short Term – Daily Bars Chart

In my last post here, I remarked that some weakness was showing up, saying “ In this current scenario, a pullback to or below New S1 would be fully consistent with what we’re seeing now.  . . . a big pullback should not be a surprise.”  And indeed, we now see that a big pullback has happened, well below New S1, down almost to S2 Cal.  The little green horizontal line segment below the bottom of this pullback marks the level of S3 on the weekly bars chart, so it appears that, at least for now, price has supported there and started back up again.  Whether this nascent 3-day old up move will become a new up trend depends on whether price breaks above New R1.  If it does not, then there’s no new up trend, and movement down from New R1 would indicate most likely a new down trend.

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by David G. Hawkins

Long Term – Monthly Bars Chart

The first chart here is the long term monthly bars chart.  We see that the uptrend is proceeding strongly, both looking at a small number of recent bars, and looking much longer term, since March of 2009.  There really isn’t much more to say about this chart, other than if one is long, enjoy the ride!

Intermediate Term – Weekly Bars Chart

The second chart here is the weekly bars chart.  The TopFinder is chugging right along tracking this uptrend, which is now 78% complete.  As with the long term chart, we can say, it you’re long, sit back and enjoy.

Short Term – Daily Bars Chart

The third chart here is the daily bars chart.  Although it’s still proceeding upwards, over these last two weeks it’s looking like the upthrust is loosing some steam.  The recent two pullbacks are not too far above the new S1, so this uptrend is not strongly accelerated.  Over the last month and a half, the Money Flow Index (top pane) is showing negative divergence with price, indicating some weakness starting to come in behind the scenes.  In this current scenario, a pullback to or below New S1 would be fully consistent with what we’re seeing now.  This is not a prediction of such, but just an observation that some weakness is coming in, so that a big pullback should not be a surprise.

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by David G. Hawkins

Short Term – Daily Bars Chart

The first chart there is the daily bars chart.  We see that the price consolidation started two price bars before the TopFinder (TF) ended.  The price decline started when price broke below the TF curve on March 5th.  The day before, the TF was 95.5% complete.  I always advise users of the TF that when cum vol gets to more than 90% completion of the TF, price often becomes more volatile.  The TF rarely ends exactly where the consolidation starts.  In this case, the uptrend ended when the TF was more than 95% complete, which is a very good performance for a TF.

On the day that the TF actually ended, the price decline that had started two days earlier came to a screeching halt right at S3, and the next day it reversed and started a new uptrend, which continues robustly to the present.  I’ve launched a new S1 curve from the beginning of this uptrend.

Intermediate Term – Weekly Bars Chart

The second chart here is the weekly bars chart, which I last reviewed here two posts ago, on Feb. 17th, q.v.  Then, the strong uptrend was right about at the 2007 high, but I observed, “This uptrend is very strong and showing no signs yet of pausing.”  Indeed, we see here that price has blasted right through the 2007 high and has closed far above it.

The sharp down spite of two weeks ago, a doji candle, supported just above S3, from which price has sprung strongly up. That brief, one-candle pullback amidst this accelerated uptrend gives us a place to which to fit a TopFinder. Doing so, I see that it also nicely fits the first pullback last December, so that gives us confidence in this TF.  Currenty, this TF is about 70% complete, with projected completion at the horizontal location of the dashed purple vertical line.

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by David G. Hawkins

Long Term – Monthly Bars Chart

The first chart here is of the long term, the monthly bars chart.  We see that price poked significantly above the 76.4% Fibonacci level, and closed still above it.  This bodes well for a continuation of this long term uptrend.  Above where we are now, the next resistance is a relatively minor one, the gray line marking the 2008 high at 1440.  After that, there’s no clear resistance before getting to the 2007 high of 1527.

Short Term – Daily Bars Chart

The second chart here is of the short term, the daily bars chart.  (I’m not going to review the weekly bars chart this time since we are mid-week.  I’ll do that one after the Friday close of March 16.)  See my last post for an in depth discussion of the TopFinder on this chart.  We see now that the TopFinder is about 92% complete, nearing its projected end at the dashed vertical line.  Last time I said,

“The blue trendline is an extrapolation of the linear regression fit to this trend, and at the projected end of the TopFinder, its level is 1400.  This is NOT a prediction that price will go to 1400 at the TopFinder’s end, since price usually starts to roll off considerably as it approaches the end.”

And indeed we see that price action is now sagging below the extrapolated trend line.  Last time I also said,

“Once the current short consolidation of the past week ends and price moves up again, I’ll launch S4 from the low of this consolidation.  Typically, an accelerated uptrend spawns S curves thru S4 before it ends.”

And as you see now, I have launched S4.  The four-fold hierarchy of S curves is now complete, and we anticipate the end of this trend in a week or so.  After that, we expect at least a brief consolidation before the market decides what to do next.

This TopFinder was fitted to the price at the lowest arrow labeled “Fit”.  But notice that the curve is close to fitting nicely also at the other two arrows, Feb. 16 and 27; one is a little over and the other a little under.  This gives us more confidence in this TopFinder.

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by David G. Hawkins

Intermediate Term – Weekly Bars Chart

The first chart here is the weekly bars chart.  In my last review of this chart on Jan. 15th, I noted that price was in the midst of a cluster of resistances, and “. . . price needs to break out above this cluster of resistance and close above Monthly R1 before we can be sure that an uptrend is still in progress.”  Well, we can see now that price certainly did make that break-out!  Price has shot up in a very steep straight line since the latter part of December.  In the next chart here, the daily bars, I’ll examine this uptrend in detail.

We see that price now is very close to the 2011 high and to the 76.4% Fibonacci retracement line from the monthly bars chart (see my last post).  Last evening on the Nightly Business Report TV show on PBS, I heard a technical analyst pontificate about how reaching the 2011 high will cause price to consolidate here for a few months.  He was quite certain about this.  I’m not so certain.  This uptrend is very strong and showing no signs yet of pausing.  Also, look at the upper pane of this chart, the so-called Money Flow Index, which is really the volume weighted RSI.  It usually rolls over from an overbought condition many weeks before price slows down, and right now that index has just attained overbought status, nowhere near showing a negative divergence as it did at the 2011 top.  So, most likely, I think this trend still has legs.

Short Term – Daily Bars Chart

The second chart here is the daily bars chart, where I dissect this powerful uptrend we’re in now.  First, go back and look this chart as shown in my last post here, Feb. 1st.  There I showed that a TopFinder that was fit to the minor pullback in mid January had just about ended.  Consolidation was to be expected, and indeed a consolidation was already in progress.  The updated chart here shows that the hammer candle on Jan. 30th nailed the low of that consolidation, from which price continued robustly upward.

I have fit a new TopFinder to that Jan. 30th low (marked “Fit”).  It has a “Duration” of 20 million shares of cumulative volume, and is currently about 77% complete.  The projected horizontal location of the end of this TopFinder is shown by the dashed vertical line.  The blue trendline is an extrapolation of the linear regression fit to this trend, and at the projected end of the TopFinder, its level is 1400.  This is NOT a prediction that price will go to 1400 at the TopFinder’s end, since price usually starts to roll off considerably as it approaches the end.  You may think of 1400 as an upper limit to what the price will be at the end.

This chart is really a textbook example of a TopFinder in action.  The uptrend is accelerated since price is moving along far above S1, so the application of a TopFinder is very appropriate.  Also, notice that I’ve put in the hierarchy of support curves as it now exists – S1, S2(calibrated) and S3.  Once the current short consolidation of the past week ends and price moves up again, I’ll launch S4 from the low of this consolidation.  Typically, an accelerated uptrend spawns S curves thru S4 before it ends.  So, this uptrend is percolating along in classic fashion.

I don’t do predictions.  What’s presented here is not a prediction that this uptrend will continue to the projected end of the TopFinder.  Rather, what I’m showing is that current price action is consistent with that of an uptrend that is 77% complete.  Past experience shows that the projection has a higher probability of completing than not.  But of course nothing in the market is certain, so no predictions can be made.

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by David G. Hawkins

Although the middle of the month isn’t for two more days, I’m doing this post now so that it is at the end of a week and the weekly bars chart will have a complete bar for its most recent bar.

Short Term – Daily Bars Chart

The first chart here is the daily bars chart.  In my last post I noted that this chart was showing a robust uptrend, with a TopFinder that was about 3/4 done.  We see here that that TF has completed, and indeed the uptrend itself topped out two weeks earlier.  Price then fell back, but found quite remarkable support at the R1 curve.  Here is another one of these awe-inspiring performances by a Midas curve.  In the midst of all the volatility in the market, price came down to and smartly bounce up off this well established curve, and has remained above it.  Price is also breaking the resistance launched from the top of this last trend, so, even though price is in what looks like a sloppy sideways consolidation, by holding support and breaking resistance, it’s giving some indication that the follow-on move will probably be to the up side.

Intermediate Term – Weekly Bars Chart

The second chart here is the weekly bars chart.  In my last post, I noted that price was in a strong new uptrend.  Now we see that over the last two weeks there was a minor pullback, so I’ve fitted a TopFinder to that pullback, and it’s currently 63.5% done, with its projected end at the horizontal location of the dashed vertical purple line.

Overall, even though the ongoing European financial crises are daily roiling the market, we see that Midas analysis continues to give meaningful tracking information to what’s going on.

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by David G. Hawkins

Intermediate Term – The Weekly Bars Chart

The first chart here is the update of the chart in my last post, expanded.  In that last post two weeks ago, it was quite unclear to me what was happening.  But now we can see that price broke out from its consolidation very strongly to the upside, blasting right through three significant resistance levels.  Now it’s clear that a very strong uptrend started in early October with the bounce up from the old S1 level.  We can get a more detailed look at this uptrend on the next chart.

Short Term – Daily Bars Chart

Here we see clearly the robust uptrend we’re in on this timeframe, which started on Oct. 4th with the bounce off of Weekly S1.  There was a minor pullback on Oct. 20th, and I have fit a TopFinder to that pullback which is now 3/4 done, projected to end at the horizontal location of the dashed vertical purple line.

Long Term – Monthly Bars Chart

The last chart here is the monthly bars chart.  The size of October’s candle shows that volatility has really increased.  However, even though this is a tall white candle, it doesn’t change the observation that, on this timeframe, the market is still in a downtrend that started at the end of May.  Price is still holding below resistance while starting to break supports, and that’s the Midas definition of a downtrend.

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by David G. Hawkins

The Weekly Bars Chart – Stair-stepping Down With Increased Volatility

The chart here is the updated weekly bars chart from late 2008.  In mid August of this year, the market started a wide sideways consolidation, bounded on the bottom by Old R4 and on the top by the light gray horizontal line that is defined by the high of November 2010.  Two weeks ago, price broke sharply below Old R4, but then bounced strongly at Old S1, the primary support curve launched from the major market bottom in March of 2009.  And last week, price roared right up to the top of this consolidation range.

It’s very difficult to categorize what’s going on now.  If the break below Old R4 signaled the start of a new downtrend out of the consolidation, then I would not have expected price last week to come all the way up to the top of the consolidation.

There are two probable interpretations of what’s happening.  The first is that two weeks ago’s bounce off Old S1 is the start of a new uptrend.  If so, then expect to see price break up out of this consolidation top.

The second interpretation is that price is indeed starting a new downtrend but with greatly increased volatility.  And if this second one is true, then we’d expect to see price turn down either from where it is right now or from the next resistance level above this, and then go on to break below Old S1.

I’m leaning towards the second interpretation because both the monthly and the quarterly bars charts are suggesting that we’re already in a new downtrend.  That’s why I’ve set up those six levels below the consolidation range, which come from support curves on the monthly and quarterly bars charts, along with a significant horizontal level (gray line), and the blue dotted line which is the 23.6% Fibonacci level from the monthly bars charts.  These levels are the ladder of supports, and one should look for price to go on stair-stepping down through this ladder, forming minor pullbacks at some of them as it goes down.

Of course, I could be wrong.  The first interpretation may be correct; we may be at the beginning of a new uptrend.  If so, we’d expect price to stair-step up through the resistance levels above the consolidation range.

I wish I could be more definitive, but the current state of the market simply isn’t clear.  Furthermore, as I’ve said so many times before, I don’t predict what will happen, only describe what is happening right now.  And right now, it’s just not clear what’s happening.

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by David G. Hawkins

Since this is both the end of the month and the quarter, I’ll concentrate on the monthly and quarterly bars charts, especially the quarterly one.  In the two weeks since my last update here, the weekly bars and daily bars charts have changed very little, still in basically sideways consolidations.

Long Term – Monthly Bars Chart

The first chart here is the updated monthly bars chart, and there isn’t much more to say about it than I said a month ago.  The latest candle is still just sitting above the Old R4 curve.  So, let’s move on.

Very Long Term – The Quarterly Bars Chart From 1980

The second chart here is the quarterly bars chart from 1980 through yesterday.  Unlike all of my other charts in this blog, which are equivolume, this one is time-based, and the Midas curves on it, including the TopFinders, are all calculated with every volume datum set to 1 instead of using the real volume data.  In chapter 6 of our book, I go into a lengthy exposition of why it is necessary to make these changes when analyzing the very long term timeframe, and am not going to repeat that here.

Early 1982 was the beginning of the monstrous Baby Boomer Bull Market that ran until 2000.  Notice that TopFinder TF1 tracked it beautifully, ending within the the bar after the top.  After the Internet bubble burst in 2000 and the market crashed down to its low at the end of 2002, a powerful new uptrend brought it right up to the 2000 top again.  See how TopFinder TF2 tracked that perfectly.

Next the Great Recession started in 2007, taking the market even lower than it was in 2002.  Now notice the most remarkable thing:  That green curve is the Midas support curve launched at the beginning of 1982 bull market.  As the market came crashing down in 2009, it stopped exactly at the support curve and bounced up!  If you’ve been reading our book and following this blog, this sort of behavior should no longer be a surprise to you.  I’ve been at this for over 16 years, yet every time I see this happen, it still raises the hairs on the back of my neck.  The Midas method works so well it’s almost spooky!  When the market started to move up in the second quarter of 2009, absent the Midas method you would’ve had no reason to trust that a real bottom was in.  But, seeing the bounce off such a major Midas support curve would’ve told you.

In April of 2009, the market started another powerful uptrend, looking very similar to the one that started in 2003.  TopFinder TF3 is tracking it, and it is only a bit more than half done, projected to end at the dashed vertical purple line, which could easily take it up above the 2000 high.  At the end of last year, the market broke strongly above those two major red resistance curves, attesting to the strength of this uptrend.

But in the second quarter of this year, the market stalled, and this third quarter saw a dramatic pullback, which closed below both the S2 tracking this trend and TF3.  Closing below the latest S curve is the Midas definition of the end of a trend.  Therefore, I must conclude that the uptrend that started in April of 2009 is over.

Why did this latest uptrend end so prematurely?  I think it is certainly no coincidence that the top in June happend exactly at the end of the Fed’s QE2 program.  The money from QE2 didn’t go into helping the economy, it went straight to the stock market.

Very Long Term – The Quarterly Bars Chart From 1950

Now let’s look even longer term.  The third chart here is the quarterly bars chart from June of 1950, which is the earliest date for which we have daily data on the S&P 500.  This is just a few months after the 1949 beginning of the huge Eisenhower Era Bull Market that ran up to 1972.  The lowest green Midas S curve on this chart runs essentially from the beginning of that bull market, and is analogous to the curve started in 1982.  When the market swooned over 40% in the recession of the 1970s, it came down and supported right on that lowest curve, another hair raising performance of the Midas method.

It’s simplistically tempting to continue the analogy, and say that, after we work through some short term difficulties, we’ll be off to another major very long term bull market.  But, there are darker, more ominous clouds on the horizon.  This chart from 1950 is part of a much longer term pattern going back many decades further.  We have monthly price data on the S&P 500 going back to 1871, and in our book I have done a thorough analysis of it.  What it shows is that there are very long term, very deep cycles, and at the present, the market has not yet gotten to the bottom of the current cycle.  This analysis is too much to put in a blog post, so I encourage you to read our book.

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