The stock markets are oversold and ready for a bounce

The stock markets have been falling for as long as 5 weeks. Again the old saying “sell in May and go away” has proved true – at least for the month of May. For the first time in several months last Wednesday something like panic spread in the markets again. Almost a 2.5% loss in only one day had happened as long ago as on 03/16, the day of the Fokushima-lows. Stochastic, MACD, RSI and many other indicators are deeply oversold on daily basis. The new highs hit their lowest level since the middle of March, and the new lows have been increasing hitting some critical levels.

All in all the market action is dominated by fear. Because of that the best conditions are given for starting a new upwards move!

The situation of the S&P 500 – The actual weekly setup: In February the market broke the 4th double arc upwards significantly. Thereby the 5th double arc is going to be the next important target in trend direction. The 5th double arc was supposed to be reached in August at about 1400. After having marked its year high by the beginning of May at 1370 narrowly above the resistance Gann Angle, after 5 weeks of decline the market has now arrived at its “really very strong” support at 1298. As mentioned above already, the downswing including the top-candle has lasted 5 weeks so far – without the top-candle, an optimal moment for a significant low can be formed by a new low next week (5th correction week) – from the candle count point of view. It will take a significant break of the 1298 on weekly basis to let the market reach the support Gann Angle again.

On the one hand that might happen very fast next week – a daily close below 1294 would be the release for it leading to an immediate test of the March lows at 1250 (that’s where the support angle for the next week proceeds).

In case no quick sell-off follows and if the support Gann Angle will not be reached next week and if a weekly close of under 1298 will be produced we’ll assume an eight week decline to happen. Target would be the support Gann Angle at 1270 in that case.

But for the time being we’re working on the assumption that on Monday the rebound upwards shall begin near 1294. A weekly close above1331 would mightily confirm the end of the decline.

The monthly 3 Candle GUNNER24 Up Setup of the Dow Jones clarifies best how close the markets are standing before a sell-off or a powerful rebound, respectively:

The decline began after the main targets in April and May were reached. The April close within the 3rd double arc points to long-term rising prices, and we’ll have to assume that some higher highs will follow. Correspondingly, the current downwards move has to be considered as a correction in the upwards trend which may direct until the 2nd double arc in an extreme case. But it’s much more probable that it will go at most to the middle of the just passed square near 11800. On Friday the market reached an extremely important mark: Precisely by the low at 12104 the rally Gan n Angle was touched that has been dominating the rise in price and time for as long as 12 months.

That happened last at the March low (green circle) – a strong rebound followed. Actually we’re experiencing the forth test of this Gann Angle. The landmark test! A break of this angle on monthly closing basis would be significant resulting in the 1*2 Gann Angle at about 11000 becoming the target…

For hedging our analysis let’s consider the actual monthly down setup of the Dow Jones.

Traditionally at the beginning of a month we use to consider the monthly situation in order to recognize whether some fundamental changes in the markets are initiating and in which long-term phase the markets are situated, respectively.

For today, I examined carefully the gold – monthly 8 Candle GUNNER24 Up:

After reaching the major gold target which was the 3rd double arc by the May lows gold has re-steadied itself. By the new burgeoning of the world-wide financial fears the investors take refuge in the safe harbors again. Finally May closed narrowly above the resistance Gann Angle again. June opened underneath that Gann Angle rather converting it into a resistance angle from the actual point of view. At any rate it’s clearly recognizable that gold has been moving around it for many, many months, without ever being able to break it upwards finally we presume. But we can always use it to make at least our short term decisions. The “relatively strong” rebound that followed after it had been tested from below shows us that it might emit a strong resistance for June. From the Wednesday high at 1551.6 a decline of more than 30$ followed. There, at the Thursday low at 1520.4 a speedy upwards move started until the 1548.4, which was the Friday high.

All in all the market really wants to go up. The sell-offs are quickly being bought again on daily basis. All the same the long term resistances are simply too violent to make out another swift upwards trend. Even though the 1551.6 in June were definitely taken on daily basis the 3rd double arc above would threaten that during the whole summer is expected to form a tough mass, hard to penetrate. Looking at the candles of the last months I think that a consolidation at the highs is to be made out – and, yeah, some time in summer a closing within the 3rd might happen possibly preparing the next long term target being the 4th double arc (not visible). But actually we can work on the assumption that gold is going to consolidate quoting between 1600 and 1500 during the coming months.

The weekly setup is showing us which temporal course the upwards trend is taking. The last four weeks gold has been working its way upwards in a very narrowly defined Gann Angle corridor.