05/27/2011 Market Outlook (Could be green next week but not without a fight)

SHORT-TERM: 63% CHANCES A GREEN NEXT WEEK BUT THERE’LL BE A DIP FIRST TO EVEN REVISIT THE 05/25 LOWS

63% chances we’ll see a green week the next week, however, chances are even higher that there’ll be a dip (before eventually close in weekly green) below the Friday’s close even to revisit the 05/25 lows.

The chart below is my final evil plan for the part of the next week which I’ve mostly mentioned in 05/27 Trading Signals. I made a little modification though as now statistics seems to argue that the chances for a dip are pretty high.

The statistics below argues for a 63% chances a green close the next week but also 93% chances there’ll be a dip of some kind (before eventually closes in green). Besides, see seasonality session below, also argues that there’re 64% chances a green close the next week. By the way, be careful about “the 3rd time is the charm”, because since the March 2009 bull market, this has been the 3rd 4 consecutive red weeks. The previous 2 turned out to be a great chance to retire earlier, just now the question is: Will the 3rd time be different? That said, this so called the 3rd time is merely a speculation for fun, not even a warning as in the intermediate-term session below, you’ll see my forecast is a new high but chances are good that the rally for the 3rd time will be far less than the previous 2 times.

There’re 3 additional reasons why I’m looking forward to a dip of some kind the next week:

• As mentioned in 05/24 Market Outlook, 70% chances SPX will close below 05/24 close.
• As mentioned in 05/26 Market Outlook, 69% chances SPX will close below 05/26 close.
• The 3rd argument is actually the most important one: 0.2.4 Nasdaq Total Volume/NYSE Total Volume spikes again. If you’ve been following me recently, then should have little doubt about this signal now. Actually, the most that makes me feel uneasy is 8.1.1 Normalized NATV/NYTV. The chart below shows all the past cases when the normalized value was higher than that of now, looks obvious that the chances for a dip are pretty high.

INTERMEDIATE-TERM: MAY SEE NEW HIGH, TARGETING SPX 1352 to 1381 AREA, BIG CORRECTION MAY FOLLOW AFTER THAT

For the intermediate-term, I believe we’ll see a new high but even higher chances, the wave count in the chart below could be right that SPX 1381 (Refer to 04/01 Market Recap for how I get the SPX 1381 target) is indeed the wave 5 final target.

Why do I expect a new high?

• 3 push up pattern looks still missing the final push up.

• The most recent II Correction % spikes too high which according to the red lines below almost guarantees that there’ll be a new high ahead, then followed by a real correction (attention, this chart also is the reason I believe there’ll be a real correction ahead, just it could be a new high first then followed by a correction).

The chart below is another reason (besides the II Correction % above) I believe there’d be a bigger correction ahead: OEX Open Interest Ratio looks a lot like that of year 2007. OEX option traders are famous for being mostly correct about the market, now with this huge open interest ratio, chances are pretty high that something is in the cooking.

SEASONALITY: BULLISH TUESDAY, WEDNESDAY AND THE ENTIRE WEEK

According to Stock Trader’s Almanac:

1. Day after Memorial Day, Dow up 8 of last 11.
2. First trading day in June, Dow up 10 of last 12, 2002 –2.2%, 2008 –1.1%.
3. Memorial Day week Dow down 7 of last 14, up 12 straight 1984-1995.

Also see 05/20 Market Outlook, Memorial Day week, positive 64% of the time.

For May seasonality day by day please refer 04/29 Market Outlook.

ACTIVE BULLISH SIGNALS:

• 0.2.1 10Y T-Bill Yield: ROC(30) < –9, so bottomed?
• 0.1.1 SPX Intermediate-term Trading Signals: CPCE MA(10) too low, so a bottom is close.

ACTIVE BEARISH SIGNALS:

• 4.0.1 SPX Long-term Trading Signals: Weekly EMA(13) is too far above EMA(34).
• 4.0.7a Collection of Leading Indicators I: Negative divergences become too much and too big.
• 8.1.1 Normalized NATV/NYTV: Too high, so topped?
• *0.2.4 Nasdaq Total Volume/NYSE Total Volume: New recovery high, so topped?

ACTIVE BULLISH OUTLOOKS:

• 09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
• 03/11 Market Recap: Bullish in 3 to 6 months.
• 04/21 Market Recap: QQQ weekly Bullish Engulfing is bullish for the next 6 weeks.
• 05/27 Market Outlook: II Correction % too high, so should be a new high ahead then followed by a real correction.

ACTIVE BEARISH OUTLOOKS:

• 05/20 Market Outlook: A little bearish next week, either close in red or drops below SPX 1318.
• 05/27 Market Outlook: May revisit 05/25 lows the next week, at least a dip of some kind.

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST: 

TREND COMMENT SPY & Weekly UP   QQQ & Weekly *DOWN   IWM & Weekly UP SSEC & Weekly DOWN   EEM & Weekly DOWN   XIU & Weekly *UP   TLT & Weekly UP *3.0.1 20 Year Treasury Bond Fund iShares (TLT 60 min): Could be an Ascending Triangle in the forming. UUP & Weekly UP   GLD & Weekly UP   GDX & Weekly DOWN   USO & Weekly DOWN XLE & Weekly *UP   XLF & Weekly DOWN   IYR & Weekly UP   XLB & Weekly *UP

* = New update; Blue Text = Link to a chart in my public chart list. UP = Intermediate-term uptrend. Set when weekly buy signal is triggered. DOWN = Intermediate-term downtrend. Set when weekly sell signal is triggered.