So far, the basic idea of the stock market having topped a large B wave can be intact, as Tony Caldaro explains. Although at this blog, we entertain other possibilities (like the idea of a low in March and new highs in May). But we don't doubt that this us a bear market and it's just a matter of time before the next huge multimonth wave down can be confirmed. Tony Caldaro has been tracking the equities markets as well as currencies and commodities with his Objective Elliott Wave analysis, at his the ELLIOTT WAVE lives on site - his great work is a reason we keep his site in the list at right. Let's see what he's sharing now (thanks Tony!):
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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
by Tony Caldaro
February 6, 2010
weekend update
REVIEW
The first week of February starts off like a roller coaster. While it would appear little transpired on a week to week basis: the week started at SPX 1074 and ended at 1066. What occurred in between, a rally to SPX 1105 then a drop to SPX 1045, had the bulls wondering and the bears celebrating. Economic reports for the week were generally positive. While construction spending continued negative. Auto sales dropped, as did productivity, and weekly jobless claims increased. On the flip side, personal income/spending continued positive and, ISM manufacturing/services continued to improve. Also, factory orders and pending homes sales rose, while the payrolls/ADP employment reports improved, and unemployment dropped to 9.7%. Even the decline in consumer credit was far less negative than in recent months. The managed economy appears to be getting a bit more manageable. For the week the SPX/DOW were -0.65%, and the NDX/NAZ were mixed. Asian markets were -2.1%, Europe was -3.8% and the Commodity equity markets were -2.3%. Bonds gained 0.6%, Crude lost 1.4%, Gold slid 1.5%, and the USD gained 1.3%. This week's economic reports will be highlighted by the twin deficits and retail sales.
LONG TERM: bear market
We continue to prefer the count that a Supercycle bear market has been ongoing since Oct 07 at SPX 1576. We counted the decline from Oct 07 to Mar 09 at SPX 667 as a Primary wave A detailed zigzag. Then, based upon historical OEW charts, we projected a 50% counter trend rally near the SPX 1120 level for Primary wave B. This rally did unfold, in what appears to be a simple OEW zigzag, from the Mar 09 low to Jan 10 at SPX 1150. Now the preferred count remains a five Major wave decline into late 2010 to complete a 3-3-5 flat near the Mar 09 SPX 667 low.
While Primary wave B was underway several events occurred that were not anticipated. First, we expected the rally to last about five months. It took ten months. Nevertheless, we were still able to hone in on the upcoming January 2010 uptrend high as early as the beginning of December. Second, we did not expect to get an OEW long term uptrend. One did occur. This, however, gave us reason to pause, and review the internal market action of both uptrends from the Mar 09 low. Since 70% of OEW long term uptrends are a signal that a bull market is underway. We were forced to offer an alternative bull market count, which appears on the NAZ chart at the bottom of page 1 in the link below. We also discovered in the midst of the previous bear market flat, during 1937-1942, a long term OEW uptrend was also triggered. Our final determination, while respecting both of these opposing market views, was to carefully track this downtrend. Should this downtrend be impulsive, then the bear market scenario holds. If a corrective downtrend unfolded, then the market is likely to head higher after the downtrend concludes.
MEDIUM TERM: downtrend hits SPX 1045
Thus far this downtrend is only 13 trading days old. Yet, it has already declined 105 points, (SPX 1150 to 1045), more than the previous downtrend, (SPX 956-869). Also, the percentage drop has already equalled that Jun-Jul 09 downtrend at 9.1%. This time the selling has also been far more broadbased than the sector specific selling during the previous downtrend. All these factors suggest that the market has completed a more significant wave in Jan 10, than in Jun 09. Which fits into the continuing bearish scenario. We are not, however, totally convinced at this time that the downtrend is indeed implusive.
Certainly we have labeled the decline from SPX 1150 to SPX 1072 as Intermediate wave one. The rally, which was quite short lived, to SPX 1105 as Intermediate wave two. Then the decline from SPX 1105 to the recent low of SPX 1045 as part of Intermediate wave three. We're quite comfortable with counting these three waves down from the SPX 1150 high. We all were, however, a bit perplexed by the wave action around the SPX 1090 level in late January. The market appeared to hesitate when it should have been impulsing lower. Putting that aside, since this has occurred in the beginning of downtrends before. As long as Int. wave three continues to unfold impulsively it will continue to add more conviction to the bearish scenario. Remember, we need to track this downtrend quite carefully. Also of note.
When we review the major US indices we observe three waves up from the Mar 09 low. Objectively, this can be counted as an 'abc' B wave, or as a 1-2-3 of an impulse wave. When we review the thirteen foreign indices we track we observe something totally different. Ten of the foreign indices appear to have bullish patterns. Seven of these ten indices have actually completed five waves up from their low, or more. Can the US, and others, collapse while the rest of the world merely corrects? Certainly possible. Not all indices bottomed together in 2002/2003 either.
Another observation we have is well seated in the "managed market for a managed economy" concept. After most stock markets bottomed in early 2003 they all started rising in unison. During the entire period from Mar 03 to Oct 07 the DOW never corrected more than 10%. Not once. After the Oct 2007 top that 10% limit was broken in Jan 08 and the bear market was underway. After all that went on in 2008. and more than a 50% loss in total value, the market finally put in a substantial low in Mar 09. The first uptrend carried the DOW into a Jun 09 uptrend high. Then the DOW corrected just 8.9%, ending the downtrend, and entered a prolonged six month uptrend. While this ten month rally was underway banks were increasing equity through secondary offerings and issuing bonds. Corporations were also improving their balance sheets through downsizing, other cost cuts and equity/bond offerings as well. While the stock market rallied the economy bottomed and started to turn around. GDP turned positive in Q3 and even more positive in Q4. If real free market capitalism is a relic of the past, and a "managed market for a managed economy" is the current mantra. We're not likely to see a correction of more than 10% in the DOW during this downtrend. Lots of food for thought.
SHORT TERM
Support for the SPX is at 1061 and then 1041, with resistance at 1090 and then 1107. Short term momentum displayed a positive divergence at fridays lows. Momentum on the daily charts also displayed a positive divergence at friday's lows. This sets up the short term count for some interesting possibilites for next week. We have been counting this downtrend as Major wave one of Primary wave C. From the high: Int. wave 1 SPX 1072, Int. wave 2 SPX 1105 and Int. wave 3 underway. This is the preferred count. We will suggest that Minor wave 1 of Int. wave iii completed at SPX 1045, and Minor wave 2 is underway. This makes the most sense from the wave structure thus far. This would indicate that the late friday afternoon rally should run into resistance on monday. Then a Minor wave 3 down will likely take hold.
Another potential count, based upon a bullish scenario, would suggest that an ABC completed into friday's low. The positive divergence on the daily chart, at friday's low, aids in suggesting this outcome. An interesting inflection point for this always interesting market. Best to your trading!
FOREIGN MARKETS
The Asian markets were all lower on the week -2.1%. All five indices are in confirmed downtrends.
The European market were all lower as well -3.8%. All five indices are in downtrends, and Spain's IBEX lost 7.7% on the week.
The Commodity equity markets were mixed -2.3%. All three indices are in downtrends, but Canada's TSX was up 1.2% on the week.
COMMODITIES
Bonds gained 0.6% on the week as prices remain in an uptrend, with downtrending rates.
Crude lost 1.4% on the week and confirmed the downtrend we mentioned last week.
Gold lost 1.5% on the week, breaking through the double bottom pattern. Support remains in the $1025-$1075 range.
The uptrending USD gained 1.3% on the week. It pulled back, and then rallied to a higher high, as expected. Now displaying a negative divergence.
NEXT WEEK
A relatively quiet week ahead economically. Nothing scheduled for monday. On tuesday we have Wholesale inventories, and on wednesday the twin deficits Trade and Budget. Thursday, weekly Jobless claims, Retail sales, and Business inventories. Then on friday a Consumer sentiment reading. The only FED activity is testimony on wednesday from FED governor Tarullo in the US Senate. Best to your weekend, and week!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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