The S&P 500, Dow Jones Industrial Average, and other market indices moved much higher than most expected these past two weeks! Tony Caldaro with his Objective Elliott Wave warned us weeks ago of potentially bullish alternatives coming to the fore. Fortunately that fits with our Year 2010 overall plan anyway! Therefore we appreciate being able to share below, Tony's weekend update from his Elliott Wave Lives On site (you can always find his site and feed in the site list at right). So here's his weekend update:
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the Elliott Wave Lives On
by Tony Caldaro
March 13, 2010
weekend update
REVIEW
The US market ended its multi-month inflection point on a positive bullish note this week. Positive signs started showing up in early January and continued right into the corrective correction between Jan-Feb. The SPX confirmed the more positive scenario this week when it traded above the Jan 1150 high. Now with a continuation of a bear market a low probability. We conclude that the projected bear market rally from Mar 09 has extended into a bull market. On the economic front it was a quiet week. Consumer sentiment and wholesale inventories declined while the budget deficit expanded. On the positive side; retail sales, business inventories, and jobless claims improved, while the trade deficit was less negative. For the week the SPX/DOW were +0.8%, and the NDX/NAZ were +1.9%. Bonds were -0.2%, Crude was flat, Gold dropped 2.8%, and the USD lost 0.8%. Asian markets were +1.5%, European market were +0.5%, and the Commodity equity markets were +0.9%. Lots of economic data ahead in this options expiration week along with the FOMC meeting.
LONG TERM: bullish
Since early January we have continually noted various positive technicals unfolding in the US equity market. The first one that caught our attention was the OEW long term uptrend confirmation in the first week of January. While we had projected, within a few days of the low, a bear market rally to unfold from Mar 09 at SPX 667 to over SPX 1100. We expected it to unfold in three waves, which it did, and then resume the bear market to retest the lows. So the OEW long term uptrend confirmation was notification that something else might be transpiring. While the SPX was forming the third wave top at SPX 1150 we were delving into OEW on a Supercycle and Grand Supercycle scale. What we were trying to determine is how the expected bear market rally could possibly be a bull market after such a severe but short seventeen month decline. As we put the bits and pieces of the puzzle together we posted our findings. You can scan through the achive for the past two months to review them. They are all under special headings. In the following paragraphs we will do our best to present the big picture for the US stock market. Please review the archive articles for the details.
The first Grand Supercycle (GSC) for the US started around the year 1700 and concluded in 1929. The crash and depression of the 1930's was the bear market following that 229 year GSC bull market. From the depressionary low of DOW 40.56 in July 1932 the next 200+ year GSC began. During that GSC bull market there were five Supercycle (SC) waves. Three SC bull markets separated by two intervening SC bear markets. Each of the three SC bull markets lasted about 70 years. We labeled these waves SC1 thru SC5 in the GSC article. As noted, after the 1932 low another 200+year GSC began. The current GSC should also unfold with five SC waves. The first of these waves concluded in Oct 07, seventy-five years after the 1932 low, and we have labeled it SC1.
The SC1 bull market consisted of five Cycle waves: 1932-1937; 1937-1942; 1942-1973; 1973-1974; and 1974-2007. Following a SC bull market there should naturally be a SC bear market that gets more oversold than both of the two Cycle wave bear markets, and declines more than of these Cycle waves in percentage terms. This would confirm that a SC bear market was underway. The two Cycle wave bear markets created the largest percentage declines of all the bear markets during the entire seventy-five SC bull market, and were the most oversold.
The 1937-1942 Cycle [2] bear market lost 52.6% of market value and hit an oversold level of 29 (RSI 14).
The 1973-1974 Cycle [4] bear market lost 46.6% of market value and hit an oversold level of 24 (RSI 14).
From Oct07 to Mar09 the bear market lost 54.4% of market value and hit an oversold level of 19 (RSI 14).
These are the three greatest bear markets since the GSC low in 1932. And, the recent bear market qualified as something greater than a Cycle wave bear market. A Supercycle bear market. This might also explain why it unfolded more quickly than the two Cycle wave bear markets. The 200+ year GSC bull market was corrected in just 34 months, between Sept29 and July32, while the market was losing 89.5% of its value. The recent 75 year SC bull market could then have been corrected in only 17 months, between Oct07 and Mar09, while the market was losing 54.4% of its value. This was a greater average percentage loss per month than either the GSC bear market or both Cycle wave bear markets. Since all of these technical bear market parameters have been met. The only other two parameters left are a completed bear market wave formation, and then a bull market to confirm the low.
While the bear market was unfolding from Oct 07 to Mar 09 OEW was quantifying the waves. By Mar 08 we have five waves down to SPX 1257. Then there was a two month rally into May 08 to SPX 1440. This was followed by another five waves down to Mar 09 at SPX 667. In OEW and EW terms this is a completed zigzag. What was surprising was that each of the downlegs unfolded in a clean five waves. Quite unusual for the typical bear market during the SC bull market. A couple of days within this Mar 09 low we clearly identified the completed wave pattern and projected a 50% retracement bear market rally. The liftoff from that low was quite dramatic. But so are large B wave rallies during bear markets. After the uptrend peaked at SPX 1150 in Jan 10 we noted that the downtrend would have to be implusive to resume the bear market. The entire decline from Oct 07 to Mar 09 was impulsive. The next decline, in the then expected double bottom, should start off impulsive as well. It did not! By early February we noted that the downtrend looked corrective, not impulsive. An alternate bull market scenario was now starting to take shape. This week that suspicion was fully confirmed when the SPX made new highs from the Mar 09 low. Everything appears in order for the bull market from Mar 09 to continue.
In summary. A 200+ year GSC started in 1932. There will be no crash and no depression it occurred over 75 years ago. The first 70+ year SC bull market of this new GSC started in 1932 and ended in 2007. The bear market that followed from 2007-2009 corrected that bull market. We've labeled the 2007 high as SC1 and the 2009 low as SC2. A new 70+ year Supercycle bull market is underway, SC3. Supercycle bull markets unfold in five Cycle waves. For a good example of this review the SC bull market between 1932-2007. The first bull market coming off a SC bear market low should be labeled Cycle wave [1]. The bear market to follow will be labeled Cycle wave [2]. These first two Cycle waves usually create the foundation for the stock market before the explosive upside that is to follow during Cycle waves [3] and [5]. Some technicians would call this a basebuilding process. In other words, the market will not shoot to the moon from here! Cycle wave [1], this bull market, will unfold in five Primary waves I thru V. It is not likely to make new all time highs. Although marginal new highs are possible. Typically a commodity bull market, which is usually transpiring during this reflation period, eventually stunts the advance of the bull market in stocks. Inflation drives up yields, and rising yields slow down most mature economies. After the commodity bull market runs its course, likely to end in 2014, the stock market bases and then starts the next Cycle wave bull market.
Understandably there will be some critics since some of this analysis goes against conventional thought. This is to be expected. OEW is not EW. OEW quantifies the waves as they unfold. Then we do our best to interpret what it is projecting. OEW is the market. We simply project, monitor and adjust when necessary.
MEDIUM TERM: uptrend hits SPX 1153
After another near 10% corrective downtrend between Jan and Feb a new uptrend began on Feb 5th. This uptrend is now four weeks old and has traveled from SPX 1045 to a new high at SPX 1153. While the bear/bull market inflection point worked itself out, we were tracking this uptrend on the DOW charts. From the positive divergence at the downtrend low on the DOW daily charts this market has impulsed higher. It should be noted that we also had a positive divergence on the DOW daily charts at the July low as well. And, both corrections appear to be simple zigzags. We labeled the Mar09-Jun09 uptrend as Primary wave I on the DOW charts. Then the simple zigzag correction, Jun09-July09 downtrend, was labeled as Primary wave II. While the extended uptrend from July09-Jan10 certainly looks like a third wave. We can not label it as such, since its correction did not alternate with the Jun09-July09 correction. Therefore we have labeled that uptrend as Major wave 1, and the Jan10-Feb10 downtrend as Major wave 2. Major wave 3, of a subdividing Primary wave III, should now be underway. This count also applies to the SPX. For now we have labeled the NAZ/NDX differently, since there was alternation between corrections. But this count is likely to change as these four indices can not function too well with opposing wave counts. If this market continues to display the strength of the past twelve months. The SPX is likely to end this uptrend around the OEW 1316 pivot. This is not yet a target. Just consider it a better than average possibility.
SHORT TERM
Support for the SPX remains at 1133 and then 1107, with resistance at 1168 and then 1179. Short term momentum finished friday around neutral. RSI momentum on the daily charts, however, is extremely overbought. We continue to count this rally from SPX 1045 as the first wave, Intermediate wave one, of the Major wave 3 uptrend. The detailed count is displayed on the SPX/DOW hourly charts. We are currently observing negative divergences on the hourly and short term charts, plus an extreme overbought condition on the daily SPX/NDX charts. In response to this condition we are posting a tentative (green) Minor wave 3 labeling above the current highs. This market may set up another small negative divergence on the hourly charts with this last small wave. We have been expecting the SPX 1150 area to offer some resistance. And, it has for the past four trading days. After this small wave tops we should get a pullback on the daily charts to at least the neutral level to end Minor wave 4. Then the next rally should complete Intermediate wave one. Then a more sizeable pullback should follow during Intermediate wave two. Best to your trading!
FOREIGN MARKETS
The Asian markets gained 1.5% on the week. The NIKK led (+3.7%) and the SSEC lagged (-0.6%). All indices are in uptrends.
The European markets gained 0.5% on the week. The DAX led (+1.2%) and the SMI was lower (-0.2%). All but Spain's IBEX are in uptrends.
The Commodity equity markets gained 0.9% on the week. The leader was the RTSI (+1.7%) and the lagger the TSX (+0.3%). All are in uptrends.
COMMODITY MARKETS
Bonds were down 0.2% on the week. They traded lower four of the five days. Expecting uptrending Bonds to turnover soon as the 10YR yield has not made a lower low since early February.
Crude was flat on the week. It had gains all week and gave it all back on friday's decline. The uptrend traded as high as $83.47 this week.
Gold didn't benefit from a rising stock market or a declining USD. It was down 2.8% on the week. It has been pulling back for seven trading days since it hit its uptrend high at $1145. Silver has been leading and much stronger. Expecting Gold to resume its uptrend soon.
The USD (-0.8%) is certainly beginning to look toppy after a three-four month uptrend. The EUR gained 1.1% on the week, and the CHFUSD is close to confirming an uptrend. The JPYUSD (-0.3%) looks a bit toppy as well. Some other currencies have been uptrending during this USD rally lately. Expecting the USD to resume its bear market.
NEXT WEEK
Certainly doubt we will see a quiet market this week! Monday kicks off the excitement with the Empire state index at 8:30, Industrial production at 9:15, then the Home builders index at 1:00. On tuesday FED governors gather for a shortened FOMC meeting, they will release at statement at 2:15. Also on tuesday Housing starts and the Import price index will be released in the morning. On wednesday, the monthly PPI will be released. On thursday we have the CPI, the weekly Jobless claims, Current account deficit, Leading indicators and the Philly FED. Friday ends the week with Options expiration. Best to you and yours!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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