SundayFiled under Elliott Wave Analysis
The week ended with the SPX/DOW at levels not seen since early 1997. While the NDX/NAZ held above their 2002 lows, which were also at 1997 levels. Economic reports continued to worsen. Case-Shiller reported housing prices -18.5% for 2008, Consumer confidence is at record lows, Unemployment claims hit 667K, Homes sales are still declining, and Q4 GDP was revised to 1982 levels: -6.2%. Once (2005) worldwide market cap leader Citigroup moved closer to nationalization as the Gov’t now owns 36% of the common stock. For the week the SPX/DOW lost 4.3% as the DOW flirted with 7,000, and the NDX/NAZ lost 4.6%. Europe fared better -2.9%, and Asia as well -1.2%. Bonds lost 1.3%, Crude soared 11.8%, Gold dropped 6.0%, and the Euro slid 1.2%. US Gov’t paper, Gold, the USD and YEN remain in bull markets.
LONG TERM: bear market
With this weeks drop to new bear market lows the SPX/DOW have now completed the minimum required to complete: 5 waves down from the Jan 2009 high, 5 waves down from the May 2008 high, and 3 waves down from the Oct 2007 high. In OEW terms, Minor wave 5 of Intermediate wave 5 of Major wave C of Primary wave A is now in the process of completing. When Primary wave A does complete we’re expecting a substantial bear market rally, possibly retracing 50% of the entire decline. This is exactly what occurred during the 1929-1932, 1937-1942 and 1973-1974 Cyclical bear markets: a 50% market decline followed by a 50% retracement of that decline. The other general indices, NYA and WLSH are also displaying the exact same pattern. While the specialty indices, like the NDX/NAZ, TRAN, R2K are displaying a similar ABC structure. While the general market indices has been making new lows, market breadth is displaying a positive divergence, see page 8 link below. This oftens occurs at significant turning points in a long term trend. What this illustrates is that less and less stocks are participating in the declines. When one also observes that banks stocks (KBE) were +12% this week, shipping rates (BDI) continue to climb, short term interest rates (USY1Y) are rising, numerous market internals are improving, and the market leaders: AAPL, GOOG, GS are still in uptrends. This indicates that the stock market should be reaching a significant turning point.
MEDIUM TERM: downtrend
From the beginning of this bear market we expected it to unfold in a series of ABC’s. The first A would be a Primary wave, consisting of a smaller abc, and this would be followed by a Primary wave B rally, before the final Primary wave C ends the bear market. Thus far, we’re still projecting a bear market low in 2010. The first significant decline of the bear market was Major wave A, a five wave structure, which ended in Mar 2008. Then a Major wave B rally followed ending in May 2008. Since then Major wave C has been underway. OEW waves subdivide as follows: Cycle, Primary, Major, Intermediate, Minor, etc. Since Major wave A was a five wave structure, Major wave C has also become a five wave structure: Int. 1 Jly 2008, Int. 2 Aug, Int. 3 Nov, Int. 4 Jan 2009 and Int. 5 underway. With new bear market lows achieved this week, Int. wave 5 has reached the minimum required to end this last wave before the Primary wave B rally. When examining the internal wave structure of Int. wave 5, we can count 5 waves down from the early Jan 2009 high. And the end of waves we often look at several technical indicators for guidance. First there is always an OEW pivot at the turning point. The market closed right at one on friday, SPX 734. This is the same pivot that provided support for the Nov 2008 low. Just below SPX 734 are 717 and 696. Second we look at Fibonacci relationships. As posted last weekend support appears between SPX 680 to 725. Next we observe momentum on all timeframes to look for divergences. In this case positive divergences since it is a downtrend. Currently positive divergences are appearing on all timeframes, and the monthly timeframe is the most oversold it has been for the entire bear market, extremely oversold. In summary, much of the technical evidence supports an upcoming significant turn in this bear market.
Support for the SPX remains at 734 and then 717, with resistance at 768 and then 789. Short term momentum is displaying a positive divergence at friday’s close. At the current lows this downtrend is exactly 209 SPX points, (944-735). This falls a bit short of equalling the first downtrend of Major wave c, Int. 1 and 240 points. Yet, it exceeds both Int. 1 and Int. 5 of Major wave A, which were 170 and 139 points respectively. When Major wave A bottomed in Mar 2008, Int. wave 5 exceeded Int. wave 3 by only 13 points. Should this Int. wave 5 of Major wave C be similar, it should exceed Int. wave 3 by only a few points. Int. wave 3 ended in Nov 2008 at 741, and Int. wave 5 is currently 6 points lower at 735. Again this market looks like it’s getting close to a bottom.
The Asian markets are mixed, with China, Hong Kong and India in uptrends, and Australia basing.
The European markets did better than the US this week, but both England and Germany are in downtrends.
The Commodity Equity markets were mixed, and remain in mixed trends, Canada +2.2% and Brazil -1.2%.
Bond yields inched up a bit higher this week, and it appears that uptrend is continuing.
Crude rallied 11.8%, it remains a volatile market and is nearly confirming an uptrend.
Gold dropped 6.0% this week, it may have ended its uptrend at $1,007 or one more high is needed.
The currencies, especially the Yen were volatile as usual. USD remains in uptrend and Euro/Yen in downtrends.
A busy week ahead. On monday Consumer spending, core PCE, ISM manufacturing and Construction spending. On tuesday we have Pending homes sales and Auto sales. Wednesday ADP employment and ISM services. Then thursday, the weekly Unemployment claims, Productivity and Factory oders. Friday rounds out the week with Non-farm payrolls, the Unemployment rate and Consumer credit. The FED gets involved on tuesday with testimony by FED chairman Bernanke before the Senate. Then wednesday the Beige book is released. And finally on thursday vice chair Kohn gives testimony to the Senate. Certainly looks like a volatile week ahead. Best to your week!asdf
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