Stock Market Analysis

Friday, August 11, 2017

Intermediate Correction Starts...

Exactly as I have predicted since last week, the US market hit yet another exhaustion point at 22,000 points, just like it did back in 21,000 points, and is undergoing an intermediate correction before it can muster enough energy to break the 22,000 points level for real, just like it did back in 21,000 points. Yes, in my report to paid subscribers yesterday morning, I pointed out a confirming signal that the market did on Wednesday close that confirms the inverted hammer signal of 3 days ago to be the beginning of the intermediate correction. This was part of what I said:

"What this means is that yesterday's... confirmed and reinforced my prediction that the Dow is going to turn around significantly following yesterday's topside inverted hammer candlestick..."

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Yes, even though I have called this intermediate correction, I am also of the opinion that as long as Trump remains in office, this primary bull rally has about another year to go and is about only 1/3 way through. Why do I think that way? Because the fundamentals are still strong and getting stronger. Within the framework of such strengthening economic fundamentals, a pullback like this is not likely going to develop into a full on primary bear market crash. As such, I won't be too eager to bet to downside but to keep my eyes opened for opportunities to enter to upside when this short intermediate correction bottoms out.

Supporting this intermediate correction so far is how the volume has contracts all through to the inverted hammer which marked the peak and then starts rising into the fall (see picture on top). This is such a 3 points textbook and classic reversal pattern that it cannot be missed by anyone who has learned even very elementary technical analysis.

Point 1: inverted hammer candle occurring at new high after 10 consecutive up days
Point 2:  volume dropping prior to inverted hammer candle
Point 3: volume rising into the drop

Looking at my favorite support indicators, bond yields continued to retreat as investors continue their rush back to the safety of bonds, supporting the current bearish sentiment. Total equities put call ratio is somewhat at par so traders are a little uncertain now with the market dropping by so much in a single day.

All in all, I see a retest of the 30 days moving average coming up and mostly likely a brief visit below before everything return to normal again.

For now, the market turns a short term bear trend within an intermediate neutral trend within a primary bull trend.


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