Carl Swenlin: More Rally on Perishable News

Carl Swenlin: More Rally on Perishable News

by Carl Swenlin

Carl Swenlin

On Thursday, ECB President Mario Draghi vowed to do “whatever it takes” to save the euro. This has so far sparked a two-day rally in the global markets led by Europe. In our opinion, what it will take is for people/governments to stop spending more than they make. This, of course, will be the last thing anyone will try, if, indeed, they try it at all.

Friday’s price acton was mostly straight up with very little consolidation.

S&P 500 price chart technical analysisClick to enlarge.

(This is a recent excerpt from the blog for Decision Point subscribers.)

Click here for FREE TRIAL!

STOCKS: Based upon a 06/29/2012 Thrust/Trend Model BUY signal, our current intermediate-term market posture for the S&P 500 is bullish. The long-term component of the Trend Model is on a BUY signal as of 1/5/2012, so our long-term posture is bullish.

The rally that began off the June low has been slowly decelerating, but today it showed signs that it may be picking up speed again, breaking slightly above the top of a short-term channel. Unfortunately, there is longer-term resistance just ahead, and it is possible that we will be in for another downward chop as soon as that resistance is reached.

S&P 500 monthly volume price chartClick to enlarge.

Our OBV suite summarizes the ultra-short-term, short-term, and intermediate-term condition wery well. The ultra-ST CVI s getting overbought, the STVO is turning up from oversold levels, and the VTO has turned up in the neutral zone. These indicators generally support the idea of a continuation of the rally; however, unless the cursed choppiness relents, the CVI is getting overbought enough to signal another price top.

S&P 500 Climactic Volume Indicator CVIClick to enlarge.

As we mentioned yesterday, we are projecting a 20-Week Cycle low around October 1st (give or take a month). The 20-Week Cycle is almost as important as the 9-Month Cycle, and is sometimes more violent. We have no idea how difficult that cycle low might be, but we don’t like the idea of it arriving between the two cruelest months of the year. Also, we are now at the 20-Week Cycle midpoint, so we want to be alert for a possibly important price top in the next month or so.

Conclusion: The markets continue to be whipsawed by news that at first inspires confidence that is soon erroded by the underlying reality of the situation. The bottom will eventually fall out, but there is no way to know if that event is days or years in the future. In the meantime, we will continue to see constant changes from confidence to fearfulness. We certainly hope that this situation will not continue to manifest itself in the kind of chop we have witnessed in the last two months.

Currently the trend is up, and internals are amenable to a continued rally. But resistance is not far away, and cycle pressures are not favorable.

* * * * * * * * * * * * * * * * * * * * *

Technical analysis is a windsock, not a crystal ball.

* * * * * * * * * * * * * * * * * * * * *

Carl Swenlin is a self-taught technical analyst, who has been involved in market analysis since 1981. A pioneer in the creation of online technical resources, he is president and founder of, a premier technical analysis website specializing in stock market timing, market indicators, charting, and focused research reports. Mr. Swenlin is a Member of the Market Technicians Association.