Tony Caldaro provides unbiased Elliott Wave analysis, using his proprietary techniques he developed from his deep studies of financial market movements over the decades, at his the ELLIOTT WAVE lives on site (always in the list, and site feeds, at right). His insights have proven very helpful into the March lows and then coming up from those lows - thanks Tony! This weekend is an ideal time to really pay attention to what he's seeing for the financial markets:
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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
by Tony Caldaro
January 02
weekend update
Happy New Year!
REVIEW
A generally uneventful week closed out the month, quarter and year. Economic reports for the week were positive: Case-Shiller remained positive, weekly jobless claims were lower, Chicago PMI and consumer confidence were higher. The SPX/DOW were -1.0%, and the NDX/NAZ were -0.6%. The Asian markets (+1.8%) were all higher, Europe (flat) was mixed, and the Commodity equity markets (+0.5%) were mixed. Bonds were -0.2%, Crude was +1.7%, Gold was -0.8%, and the USD (+0.1%) was up for the fifth week in a row. Back to business on monday.
LONG TERM: bear market rally
When reviewing the entire 124 year price history of the DOW from 1885 until the present. One can observe that there have only been six occasions when the market has lost nearly 50% or more of its value. The shortest of these bear markets was 22 months between 1906-07, and the longest was 82 months between 1890-1897. After 1928 when the DOW was configured into its current form. The shortest has been the 23 month 1973-74 bear market, and the longest the 61 month 1937-1942 bear market. The other two occasions were the 34 month 1929-32 bear market, and the current bear market from Oct 2007. If the current bear market ended in Mar 09 after only 17 months, it will have been the shortest bear market of its kind in recorded history. When factoring in the events that have unfolded in the past several years, and the response by government and the central bank. We continue to consider that potential outcome as highly unlikely. When we find the mean and average time of these five completed bear markets we arrive at 34 months and 44 months. Therefore, historically, this bear market will more likely end between Aug 2010 and Jun 2011.
When we then take into consideration the OEW wave structure from the 1929 Supercycle top to the 2007 Supercycle top. We observe that the bear market following the 1929 Supercycle top took the form of a zigzag. Therefore, applying the rule of alternation, we would expect the bear market following the 2007 Supercycle top to take the form of a flat, (double bottom). Also of note is the 4 year presidential cycle. This cycle started functioning in 1938 and has consistently bottomed at important stock market lows. The last two major bear markets 1937-42 and 1973-74 ended with a low in this cycle. It is next scheduled to bottom in 2010. When we combine these long term factors they suggest a bear market low, in the form of a flat, some time in late 2010.
MEDIUM TERM: uptrend
When the bear market began in Oct 07 at SPX 1576 it declined in five waves to Mar 08 at SPX 1257. This was about a 300 SPX point decline over five months and we labeled it Major wave A. A short countertrend Major wave B rally then topped in May 08 at SPX 1440. Then another five wave decline unfolded into Mar 09 at SPX 667. This decline was about 800 SPX points and it took ten months to unfold. Notice Major wave C was 2.618 Major A, and it was twice as long. At the lows OEW observed the completed zigzag (5-3-5) and we labeled it Primary wave A. We then projected a 50% zigzag retracement rally (SPX 1122) which would end between the OEW 1107 and 1179 pivots. In Mar 09 at SPX 667 the market rallied to Jun 09 at SPX 956 to complete the first uptrend of Primary wave B, Major wave A. A short countertrend decline, Major wave B, followed into July and SPX 869. Then another uptrend commenced, Major wave C, and it made new highs this week at SPX 1130.
Observe the following. During Primary wave A, Major wave C = 2.618 Major wave A and was twice as long: 10 months vs. 5 months. Now during Primary wave B, Major wave C will equal Major wave A at SPX 1158 and will be twice as long in January: 6 months vs. 3 months. We continue to have price and time relationships pointing to a January high. Also of note, all the Major waves of the entire bear market have been multiples of Fibonacci numbers: Primary wave A 300-200-800 and Primary wave B 300-100-300.
Some other technical observations to consider. During the bull market of 2002-2007 Major wave 1 topped at SPX 954 and Major wave 3 topped at SPX 1163. Notice Primary wave B has been following the same route. Major wave A topped at SPX 956, and Major wave C is closing in on SPX 1163.
In regard to market momentum. Typically at the end of every Major wave a divergence occurs on the weekly charts. We observed a negative divergence at the Oct 07 bull market high, and negative divergences at every counter-trend high during this bear market. As this uptrend works its way higher another negative divergence is being created. Last but not least is the OEW pivots. Every uptrend during this bear market, including the 2's and 4's of the declining Major waves A and C, has terminated at a long term pivot. The next long term pivot is at SPX 1168/1179.
In summary, price and time relationships, plus momentum and the pivots, all point to a Primary wave B top in January near the SPX 1160's area. Then when we combine this projection with the long term historical data. This Primary wave B top should be followed by a Primary wave C decline into late 2010 to end the bear market.
SHORT TERM
Support for the SPX remains at 1107 and then 1090, with resistance at 1133 and then 1168. Short term momentum was extremely overbought near the 1130 high, and on friday reached extremely oversold. We have been anticipating a five wave advance from the early Dec SPX 1086 low. The wave structure, thus far, has unfolded with the following: Wave 1 SPX 1116, Wave 2 SPX 1094, Wave 3 SPX 1130 and Wave 4 hit 1115 on friday.
Notice the slight overlap between the Wave 4 low and the Wave 1 high. When you review the DOW hourly chart, which has been in the same wave structure, the overlap is very clear. This suggests that this last five wave rally may end up as a five wave (a-b-c-d-e) ending diagonal triangle. This potential is noted on the DOW hourly chart. Since Major wave A of this Primary wave B started with several short term diagonals. It would be quite fitting to end Major wave C with a diagonal triangle pattern. Best to your trading!
FOREIGN MARKETS
The Asian markets (+1.8%) were higher this week and China's SSEC (+4.3%) was the biggest gainer. Yet, the HSI and SSEC remain in downtrends.
The European markets (0.0%) were mixed but generally flat on the week. All indices remain in uptrends.
The Commodity equity markets (+0.5%) were mixed with Brazil's BSE (+1.5%) the biggest gainer. Only Russia's RTSI is in a downtrend.
COMMODITIES
Bonds lost 0.2% on the week as yields continued to rise. The 10YR touched 3.92% this week as it continues its uptrend.
Crude gained 1.7% this week. It's very close to confirming an uptrend, and the GJX (GS energy prices) has already confirmed an uptrend.
Gold lost 0.8% on the week. The anticipated correction off the recent $1226 high should end some time in January.
The uptrending USD gained 0.1% on the week. The downtrending EUR (-0.2%) and JPY (-1.6%) continue to correct.
NEXT WEEK
The first week of the new year will be a full one. On monday ISM manufacturing and Construction spending will be reported at 10:00. Tuesday we have Factory orders and Auto sales. On wednesday the ADP index and ISM services. Thursday we have the weekly Jobless claims. Then on friday the Payroll report, the Unemployment rate, Wholesale inventories and Consumer credit. Busy week! As for the FED. They start their week on sunday morning with a panel discussion headed by FED vice chairman Kohn, and a speech by FED chairman Bernanke around 10:30 EST. On monday there is a speech by FED governor Duke at 1:00 and the Foreign exchange rates will be released. On wednesday the FOMC minutes will be released At 2:00. This certainly should be an interesting week as most of the market pundits return. Best to your week, and Best to you and yours in 2010!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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