13-34 WEEK EMA COMBINATION HAS GOOD THIRTY YEAR TRACK RECORD AND SHOWS NO SIGN OF A BOTTOM -- ANOTHER LOOK AT ELLIOTT WAVES -- S&P 500 STAYS IN SIDEWAYS TRADING RANGE WHILE FINANCIALS FORM BEARISH TRIANGLE

WEEKLY EMA PERFORMANCE ... I wrote recently about the strong track record of the 13 and 34 week exponential moving average (EMA) lines in spotting important market turns. One of our readers asked how that weekly combination did over the past thirty years. Here's a look. I'm using the 13-34 MACD line to track the performance. In its simplest form, readings above zero are bullish while below zero is bearish. In Chart 1, after giving a buy signal in mid-1982, the MACD line turned negative during the first half 1984 before turnig positive during the second half of that year. Chart 2 shows the MACD in negative territory from October 1987 to mid-1988. Chart 3 shows negative readings during the bear markets of 1990 and 1994. Chart 4 shows a brief negative reading during October 1998 which was followed by another negative turn during October 2000. Chart 5 shows a positive upturn in spring 2003 and a negative turn at the end of 2007. In summary, the 13-34 weekly EMA combination was negative during the first half of 1984, from October 1987 to mid-1988, throughout most of 1990 and 1994, October 1998, October 2000 to spring 2003, and since the end of 2007. It was positive the rest of the time. Every major upturn coincided with a positive EMA signal over the last thirty years. At the moment, the weekly EMA spread is at the lowest level in thirty years and is still dropping. Draw your own conclusions.

Chart 1

Chart 2

Chart 3

Chart 4

Chart 5

ANOTHER LOOK AT ELLIOTT WAVES ... I'm always a little reluctant to write about Elliott Waves because their interpretation is so subjective. I did, however, write on Tuesday that the downwave from the May peak looked incomplete. One of our readers asked why I read the chart from May instead of the 2007 peak. Here's why. In my view, the initial drop in the S&P 500 from October 2007 to March 2008 completed the first downwave. A 50% rebound from March to May looks to me like a wave 2. It looks like a downwave 3 started in May. That's why I counted from that point. That downwave should also have five waves. It looks to me like we've only had three. That makes the recent rebound (or consolidatiion) a possible fourth wave interruption in the main downtrend. That increases the odds for eventual drop to new lows to complete the downwave that started in May.

Chart 6

MARKET BACKS OFF FROM INTIAL RESISTANCE ... I wrote last Thursday that the major stock indexes would probably reach their upper Bollinger bands. The daily bars in Chart 7 show the S&P 500 falling just short of that initial upside target before slipping back below its 20-day average today. That negative action is keeping the S&P 500 in a short-term trading range. The hourly bars in Chart 8 show that sideways range more clearly. It also shows the first important overhead resistance barrier at 1044. The S&P would have to close above that initial barrier to turn its short-term trend from sideways to up. I also suggested last Thursday that I thought the market rebound would more resemble a trading range than a strong rally. So far, it's shaping up that way.

Chart 7

Chart 8

FINANCIAL SPDR FORMS TRIANGLE... Arthur Hill noted yesterday that the Financial SPDR appeared to be forming a "triangle", which is a sideways pattern that forms between two converging trendlines (as shown in the hourly bars in Chart 9). It's normally a continuation pattern which, in this case, should be resolved on the downside. Elliott Wave followers know that triangles are usually fourth wave patterns. That fits into my view that the market itself is probably in a fourth wave consolidation pattern which will probably result in an eventual move to new low ground. A close below the lower line would initiate a new downleg. A decisive close above the upper line is needed to negate that negative pattern.

Chart 9