October 17
weekend update
REVIEW
Markets rallied for the second week in a row as they continue to work their way higher in this uptrend. Economic reports were mixed. There was improvement in the weekly jobless claims, export prices, CPI and the Empire index. On the downside were rising import prices, slower retail sales; and declining inventories, Philly FED, industrial production and a UofM sentiment reading. The FOMC minutes, released on wednesday, was a non event. For the week the SPX/DOW gained 1.4%, and the NDX/NAZ gained 0.8%. Asian markets rose 2.5%, Europe was +0.4%, and the Commodity equity sector was +2.2%. Bonds lost 0.1%, Crude rallied 9.5%, Gold gained 0.3%, and the USD lost ground to the EUR but gained against the JPY.
LONG TERM: bear market rally
After a five year bull market, Oct 02 to Oct 07, that entire gain and then some was wiped out in just seventeen months. We were bullish throughout the bull market as it unfolded in impulse wave after impulse wave. We turned bearish in Jan 08 and rode the decline into the recent March 09 low. At that low we identified a complete OEW pattern, a detailed zigzag, and then projected a 50% retracement rally over the next five months. We labeled the March low Primary wave A of a long term ABC bear market. We expected the rally off that low to be a simple zigzag, and when completed it would end Primary wave B. It has been seven months since Primary B began and it is now closing in on that 50% retracement level, SPX 1122. The recent high is SPX 1097. Primary wave B has unfolded in three waves: Major A SPX 956, Major B SPX 869 and Major C SPX 1097 thus far. Each of the rising waves have not been impulsive, but corrective. This is typical of a bear market rally. The uptrends during bull markets unfold in five wave patterns. These two uptrends have been three wave patterns.
Technically, bear market rallies can unfold in a myriad of patterns. They are not always just simple three wave zigzags. A good example of this is the 1937-1942 bear market. In this example Primary A wiped out over 50% of market value in just twelve months. Then Primary wave B rallied for eight months, retracing 59% of the decline. What followed was a drop of 25% over the next five months, before nearly retesting those highs five months later. After that complex pattern the market headed lower and lower into a final low in 1942. We would have to assume that many turned bullish during that B wave rally, and some would have called it a bull market as well. We would have remained long term bearish. We are not suggesting that a complex B wave will unfold. We continue to expect a simple zigzag. Yet, with all the central bank monetary intervention, worldwide, the completion of this Cycle/Supercycle bear market could take longer than expected. If it doesn't, mid-late 2010 would be our targeted date. If it does, we're probably looking at a bear market low some time in 2012.
MEDIUM TERM: uptrend high at SPX 1097
During this entire bear market every uptrend, with two exceptions, have ended at the next higher long term OEW pivot. The first exception was the Major wave B, Mar 08 - May 08, uptrend. It skipped one pivot and ended at the second highest. The current uptrend, Major wave C, is the second exception. It skipped the OEW 1041 pivot and is approaching the second higher 1107 long term pivot. This is one of the reasons we became cautious when the SPX hit 1039 in late August. In tracking the internal structure of this uptrend we continue to label the rally from SPX 869 to 1039 as Intermediate wave A. The decline to SPX 992 as Intermediate wave B, and the current rally Intermediate wave C. Intermediate wave A was a 5-3-5 zigzag, and Intermediate wave C should be the same. The first five waves of Intermediate wave C completed at SPX 1080, the three at SPX 1020, and the second five is underway. In fact, several of the last five waves also appear to have completed: wave 1 SPX 1079, wave 2 SPX 1067 and wave 3 SPX 1097. So we should have only a wave 4, which is already underway with friday's drop to SPX 1082, and then a wave 5 to complete the uptrend. When this uptrend completes it should end Major wave C and Primary wave B.
When we apply fibonacci ratios we observe price clusters around three areas. The first is current resistance at SPX 1096-1097. At this level Int. C = 0.618 Int. A, Major C = 2.618 Major B and Major C = 0.786 Major A. The second level of resistance is at SPX 1107-1112. At this level Minor C = Minor A, the OEW 1107 pivot, and under the current short term count SPX 1111 is the maximum allowable for wave 5. The third level is SPX 1122-1125. In this last one Primary B = 0.50 Primary A and Major C = 0.886 Major A. On the upside, should the SPX surpass the pivot at 1133, the next pivots are 1168 and 1179 another long term OEW pivot. On the downside, should the SPX break below 1050 and the NDX below 1700, then a downtrend would like be underway.
SHORT TERM
Support for the SPX is now at 1061 and then 1041, with resistance at 1090 and then 1107. Short term momentum was again extremely overbought on thursday, dipped to oversold on friday, and ended the week at neutral. Counting from the SPX 1020 Minor wave B low, we have Minute wave 1 SPX 1079, Minute 2 SPX 1067, Minute wave 3 SPX 1097 and Minute wave 4 SPX 1082 thus far. Since Minute 3 (30 pts) is shorter than Minute 1 (59 pts), then the maxium allowable for Minute 5 is 30 points, or currently SPX 1112. During this last rally there are negative RSI divergences forming on many timeframes, and an overbought condition on the monthly charts. However, we're only observing a few sectors in confirmed downtrends. We would have expected more sector deterioration at an impending uptrend top. Best to your trading!
FOREIGN MARKETS
The Asian markets gained 2.5% on the week, only Japan's NIK remains in a downtrend.
The European markets gained 0.4% on the week, all five of these indices continue to uptrend.
The Commodity equity markets gained 2.2% on the week, and all three remain in uptrends.
COMMODITIES
Bonds slipped 0.1% on the week, bond yields are getting close to confirming an uptrend.
Crude rallied 9.5% for the week, crude confirmed an uptrend earlier in the week.
Gold gained 0.3% on the week, after making all time new highs it got a bit choppy, uptrend remains.
The USD (-1.1%) lost ground against the EUR (+1.2%) but gained against the JPY (-1.3%). The USD is close to a medium term low, EUR close to a high, and the JPY looks to be downtrending.
NEXT WEEK
On monday the Home builders index at 1:00. On tuesday we have the PPI and Housing starts, and on wednesday the Beige book. Thursday is the weekly Jobless claims and Leading indicators, on friday Existing home sales. The FED is quite active this week. On monday FED chairman Bernanke gives a speech at 11:00. Then on wednesday FED governor Tarullo gives a speech in Wash. DC. On friday the FED meets at the Boston regional bank, chairman Bernanke gives at speech and vice chairman Kohn heads a panel discussion entitled; "After the Fall". Best to your week!
CHARTS:
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