Retracement of Retracement of Retracement

By -

Interesting times we have here.  As the title suggests, the past week's trend is down retracing June's uptrend, which is retracing May-present's downtrend which is retracing the Oct '11-present uptrend, but that's the basic nature of the market, isn't it?  I just wanted to throw out a post with what I'm seeing at the moment.

First, an observation I made on the McClellan indicators %Trends. 

McClellan Pcnt Trends

At the bottom of the McClellan indicators are the 5% and 10% trends.  After a bottom is put in on the index and the Percent trend lines cross above zero, you have two things that can happen.

1. If it is a strong accumulation, they will run to around the 100-200 level and stay there.  This usually indicates a strong uptrend has begun.  Or,

2. Sometimes, the trends hit the 100 level and then retrace all the way back to zero.  In all instances (one year sample, needs to be checked further back for consistency), this indicated flat to down movement going forward.

Next, I've analyzed the main index charts I watch and show that we are nearing a decision point. 

Major Indices - June 26, 2012

In the intermediate-term, the 50MA's are still sloped down within large downtrending channels.  Next, notice the thick blue trend lines which have broken on all indices.  This break is the soonest indication of a resumption of the larger trend.  However, it needs to be confirmed with a lower low.  There is potential to form uptrending channels if the potential lower channel lines hold.  The transportation index is the only potential channel low that has been tested so far.  Every other index is at a low that could hold as support.  These support levels (thick black lines) are the trigger for another leg down, but the potential channel bottoms could put a stop to that.  If the indices can break the thin black downtrend lines, then I will expect a test of the large channel's uppermost line.  Breaking that, the uptrend should continue.

Bonds, VIX , and the USD appear to be having trouble at resistance, so I'm leaning towards a short-term break up soon and a test of the large channel highs (Tuesday at time of writing). 

Notice also that the Bank Index has broken down out of its uptrending channel and is finding the channel underside to be stiff resistance this week.

Bank Index - June 26, 2012

Caution is in the air and good arguments could be made for either direction.  Rule #1 is that the market can do anything so our job is to plan for anything using strategy and stops no matter our chosen direction, if any.

 I think 1310 and 1350 are the upside and downside breaks to watch for direction going forward.  Personally, barring bank intervention, it looks to me like we're heading lower before we head higher, but I try my best not to argue with them if they say I'm wrong.