The sp500 has been trading with a relative calm as of late. We are currently in correction mode on the sp500 but all things considered the market has been holding up in a relatively good and orderly corrective fashion. The sp500 continues to trade in a tight rising trading channel and so far has not violated the trading channel. Because it has not violated the bottom of the channel we can still give the stock market a ‘pass’ and say that all things considered the trend is your friend and bias continues to remain up.
Adjusting to market expectation outcomes on the longer term time frames is also important to do as one heads to end of week, end of month, end of quarter or end of year. We want to try to find clarity on the longer term trend of the market.
As I write, we are 20 trading days away from the end of the second calendar quarter this year. That means that the all important long term QUARTERLY price candlestick will complete its formation 10 days from now. Quarterly price candlesticks have powerful long term price implications because they contain 3 full months of trading price action.
As you can see from the chart at left the most recent quarterly price candlestick has a very long topping tail in the current formation. In fact it is the longest tail on the top portion of the price candle since this mini bull started in 2009. One has to be careful to make a judgment too early on this price candlestick because it is not fully completed yet. However I will say that at least the potential for serious bearishness is evident. We have this full quarterly price candle that has busted to new lifetime highs outside the entire 13 year swing trading range. Everyone is bullish up at this level. The worst thing the market can do to the masses is pull the rug out from under the breakout and break back inside the 13 year trading range (under 1550). I am not suggesting that it will, but I am on watch for what the probabilities are as we go into the end of the June 2013 quarter.
Very long topping tails can be an important warning sign that supply is coming into the market and could forewarn that future price candles will be more bearish.
The current quarterly price candle needs 10 more trading days to complete it. One of two things can happen during this time. We could rally up into the end of the quarter and remove a large portion of this topping tail. OR we could sell off into the end of the quarter and close near the 1560 or 1570 range.
If we close the quarter near 1560-1570, it would create a quite bearish looking reversal hammer candlestick.
So if that occurs then we have to be on alert during the month of July and August for a rally that starts the 3rd quarter but then succumbs to the overwhelming supply and then continues down confirming 2nd quarter bearish price implication candle.
A retest of the sp500 to the 1550 level during the months of July August or September would be quite normal price action and would fit into the mold of a classic Wyckoff price retest. However one would not want to see much of a violation under the 1550 level as this remains critical very long term trading range support.
A violation under 1550 could mean a long term 2B sell signal is being initiated which could have very bearish long term implications.
So step one is to make a judgment call after the next 10 trading days to see how the quarterly candle completed.
Then, assuming it has bearish implications ( a very big assumption at this point ), focus in on the July price action leading into August 8th, 2013. August 8, 2013 is a ArmstrongEconomics.com cycle model turning point. Of course it does not guarantee anything. But what it does is set up is a potential zone for a major turning point assuming we complete June 2013 with a bearish quarterly outlook. The turning point dates in the cycle model below are just that, turning points. The expectation is that price moves into such dates and then creates the potential for reversal.
Early August going into September is usually a seasonal warning zone anyway, so if we sell down hard into end of June 2013, the scenario of an up move in July leading to a peak in early August 2013 seems realistic. But again, there are a lot of IFs.
First lets see how we end the June 2013 quarter and reserve full judgment until that point.