Tony Caldaro's weekly Elliott Wave commentary on the markets for 3/6 week

the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
March 07
weekend update
REVIEW

The US unemployment rate hit 8.1% last month, its highest level since the early 1980's. Most economic reports also displayed a continuing contraction in activity. The equity markets responded with their worse week since November. The DOW dropped under 7,000 (now at 1997 levels) and the SPX under 700 (at 1996 levels). For the week the SPX/DOW were -6.6%, and the NDX/NAZ were -5.4%. Asian markets were down 5%-7%, but China rose 5.3%. Europe lost 6.2%, and the Commodity equity markets were -4.8%. Bonds were +1.4%, Crude gained 1.7%, and both Gold and the Euro were flat.
LONG TERM: bear market
By the end of this week the bear market will be entering its 18th month, and the loses are mounting. The SPX is down 58% from its October 2007 high, the NAZ down 56%, and the DOW/NDX have lost 54% of their value. Since 1932 there have been only two other times that the DOW had lost more than 40% during a bear market. The 1973-1974 Cyclical bear market (47%), and the 1937-1942 Cyclical bear market (53%). The current loss in the DOW has now exceeded both, suggesting that we are in a Supercyclical bear market. The last Supercycle bear market occurred between 1929-1932, and the DOW lost 89% of its value during that 34 month period. The rule of alternation, however, suggests that this Supercycle bear market should alternate in wave structure with its predecessor. Since the 1929-1932 bear market was a large zigzag, this bear market should take the form of a flat, triangle or complex structure. The most common alternating wave structure is a flat. This suggests after the initial low is established, a strong rally should follow, and then a retest of that low should end the bear market. This remains the preferred scenario. In regard to time, this bear market could end as early as 2010, or as late as 2012. In regard to price, we continue to monitor the OEW pivots while we await the exhaustion point of this first decline.

MEDIUM TERM: downtrend
Entering this past week there were several positives indicating the potential low may be at hand. Most of these positives broke down, day by day, as the market continued lower. From the start of the bear market we count five waves down into the Mar 08 low ending Major wave A. Then a Major wave B rally into the May 08 high, followed by another five waves down into the recent lows. When this last downtrend concludes it should end an ABC Primary wave A, and a strong Primary wave B should follow. Major wave C from the May 08 high divides as follows: wave 1 July 08, wave 2 Aug 08, wave 3 Nov 08, wave 4 Jan 09 and wave 5 ongoing. With this week's break through the SPX 734, 717 and 696 pivots, the next important pivots are at 644 and then 606. The pivot at 644 also coincides with a Fibonacci cluster between SPX 640-652. SPX 640 represents a 61.8% retracement of the entire Cycle wave from 1974-2007. At the 606 pivot there is also a Fibonacci cluster between 584-612. At SPX 605 Major wave C equals 2.618 times Major wave A. Therefore both of these pivots should represent some very significant support.

SHORT TERM
Support for the SPX remains at 644 and then 606, with resistance at 696 and then 717. Short term momentum was oversold at Friday's lows (SPX 667) and moved to neutral at the close. We have been counting this last downtrend as a five wave structure: Minor wave 1 SPX 804, Minor wave 2 SPX 875, Minor wave 3 SPX 742, Minor wave 4 SPX 780, and Minor wave 5 underway. Since Minor wave 3 (133 points) was shorter than Minor wave 1 (140 points), Minor wave 5 can not exceed SPX 647 (133 points) and remain the fifth wave. Third waves can not be the shortest. Therefore if the SPX drops below 647 before this downtrend ends. Then the decline from SPX 875 is the third wave, and we will still need to await a fourth wave rally and another decline to end wave 5. Therefore the pivot at 644 and the SPX 647 level take on an even more significance. Lastly, the NDX still has a positive derivative divergence with the SPX/DOW. Also, positive momentum divergences remain on all timeframes. This type of technical setup usually precedes an important low. This week could be quite interesting.

FOREIGN MARKETS
The Asian markets are all downtrending except China, which has risen 32% since its October low. The European markets are downtrending as well, as both the DAX/FTSE made new bear market lows this week. The Commodity equity markets are both downtrending. Canada made a new low, but Brazil is a good 20% above its lows.

COMMODITIES
Bonds continue to trade in a tight pattern while trying to start another uptrend. Uptrending Yields have negative divergences.
Crude is uptrending from its February lows, but the rally looks quite choppy.
Gold dropped more than $100 from its recent high at $1,007 and this week retraced some of that loss.
The currencies remain the same: USD uptrending with negative divergences, EUR and YEN downtrending.

NEXT WEEK
On Tuesday Wholesale inventories are reported, and on Wednesday the Budget deficit. Thursday the weekly Unemployment claims and Retail sales. On Friday the Trade deficit along with a Consumer sentiment reading. As for the FED, on Tuesday FED chairman Bernanke reports to the Council on Foreign Relations at 8:30. I don't recall an active FED chairman ever publicly addressing the CFR. Best to your week!

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