Market gonna continue on up, or might Tony's SPX 1222 pivot do something? The Objective Elliott Wave concepts of Tony Caldaro help measure out the market's movements, trend, and probabilities. We appreciate being able to feature Tony's weekend updates. They're full of insightful analysis, which is also why we keep his site and daily updates feed at the right side of the page (thanks again Tony!). Let's find out what he's seeing and saying today:
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the Elliott Wave Lives On
by Tony Caldaro
April 24, 2010
weekend update
REVIEW
New bull market highs in all four major US indices this week. Economic reports for the week were sparse but mostly positive. Leading indicators rose, along with the PPI and exisiting/new home sales. The weekly jobless claims improved, but durable goods orders declined. Overall a nice recovery in US stocks after the options expiration selloff of a week ago. For the week the SPX/DOW were +1.9%, and the NDX/NAZ were +2.1%. The action in foreign markets, however, was mostly to the downside. Asia finished the week -2.1%, Europe fell 2.1% and the Commodity equity group fell 0.2%. Bonds were -0.5%, Crude gained 0.5%, Gold was +1.8%, and the USD was +0.8%. Next week the FED meets on tues/wed for its regularly scheduled FOMC meeting, and on friday we'll have the first estimate for Q1 GDP.
COMMENT
We have received lots of emails asking how we can be bullish while most, if not all, of the major EW pundits remain bearish. The simplest answer we can offer is that we do not try to the make the market fit our views, but allow the markets to create our views. The price is the final determining factor not our opinion. OEW is a time-tested technique that allows us to track the markets in real time as they unfold. When certain observable events occur, that have historical importance, the market is effectively signaling its future intentions. Market psychology cycles create the markets. This is the basis of R N Elliott's wave theory. What OEW does is quantify all of the significant waves, filtering out the noise, and this makes the long term pattern clearly recognizable in basic EW terms. Every significant wave determines its own beginning and end. They essentially quantify themselves. This is exactly what makes OEW objective. We make note of these waves on the weekly charts and then sort out the patterns and label them. Most of these waves should have certain characteristics as a bull or bear market unfolds. We use a focused set of technical indicators to confirm that the appropriate chartacteristics, for the anticipated wave count, are unfolding. Recently we have added quantified economic data to assist and enhance in the confirmation of the completion of the market psychology cycles - the bull and bear markets. When we apply all the aspects of OEW it not only allows us to track the markets as they unfold, but also to anticipate how they will unfold in the months and often years ahead. We anticipate, monitor and adjust. We simply allow the market to tell us what it is doing rather than create an opinion on what it should be doing. This is Objective Elliott Wave analysis.
LONG TERM: bull market
The Mar09 bull market made new highs this week in all four major US indices. The NDX/NAZ have doubled in the past year and are at levels not seen since the spring of 2008. The SPX/DOW are at the summer 2008 levels. The massive fall 2008 liquidation has been fully retraced. From the Mar09 low at SPX 667 we have labeled the waves as a Primary wave I bull market kickoff to SPX 956 in Jun09 and then a Primary wave II to SPX 869 in July09. From the SPX 869 low we labeled the next uptrend (wave) as Major wave 1 to SPX 1150 in Jan10 and then Major wave 2 to SPX 1045 in Feb10. Next, from the SPX 1045 low we anticipated a 3 to 6 month Major wave 3 would unfold with a minimum target of SPX 1219 (1222 pivot), a maximum target of SPX 1326 (1313 pivot), and the characteristics of a third wave. On friday the market hit the minimum target range when it closed at the high for the day at SPX 1217. Technically we are indeed observing the characteristics of a third wave. The weekly RSI is the most overbought it has been since the Major wave 3 of the 2002-2007 bull market. In March the daily RSI hit its most overbought reading since 1997. Weekly A/D market breadth is also displaying the most overbought reading since the previous bull market. Also, the largest pullback of this entire eleven week uptrend (2.5%) has been less than all of the noticable pullbacks during the first two uptrends of this bull market. This uptrend is certainly displaying wave three characteristics. Major wave 3 characteristics.
With the current count in place the absolute minimum we can expect for this bull market is two more uptrends after this one concludes. The next uptrend could complete Major wave 5/Primary III, then a Primary wave IV correction, and finally a Primary wave V high. Remember, this is the bare minimum. Anyone of the next two uptrends, or even this uptrend, can quantitatively subdivide into waves of a lesser degree. This would then imply more and more uptrends before the bull market concludes. If you review the SPX weekly chart (link below) you can observe how Major wave 5 of the 2002-2007 bull market subdivided into waves of three lesser degrees, extending a simple bull market structure into a five year bull market. The corrections during bull markets determine the wave structure. If you recall, the Jan10-Feb10 correction was very similar to the Jun09-July09 correction. This tipped us off that the first two uptrends of this bull market were not of the same degree. This observation led us to our Primary I - II, Major 1 - 2 count at the Feb10 low. We then anticipated Major wave 3 would be next, monitored the uptrend day by day as it unfolded, and see no need for any adjustments at this time. This is how OEW works.
MEDIUM TERM: uptrend makes new high at SPX 1217
This uptrend from Feb 5th at SPX 1045 to friday's high has been quite relentless. We have observed ten pullbacks of 10 SPX points or more, during this eleven week period and all of them minor. The largest, 30 points and 2.5%, occurred recently and the second largest occurred way back at the end of February, 26 points and 2.3%. Neither of these two pullbacks has been enough to trigger a confirmed short term wave of importance. Therefore we continue to count this entire uptrend, thus far, as Intermediate wave one of Major wave 3. When we finally do get a short term wave confirmation we can then be more certain of the internal count. Thus far, we have still managed to do fairly well with the count using just the very short term charts and the technicals.
Speaking of technicals. We have been monitoring and commenting on the daily RSI now for a week or so. The peak in March is quite normal for a third wave of some lesser degree. The one that is important at the moment is the peak in mid-April when the SPX hit 1214, a day before the opex selloff. Typically, just before a significant pullback we will get a negative divergence on the daily RSI. The last uptrend was quite choppy so not many of these divergences appeared. Yet they were clearly present on the hourly charts, as they have been during this uptrend as well. Right now a negative divergence is starting tp appear as the SPX made a higher high on friday without a higher momentum high. We'll continue to monitor this development.
SHORT TERM
Support for the SPX remains at 1187 and then 1176, with resistance at 1222 and then 1240. Short term momentum is currently overbought. We have maintained the short term count from the Feb10 low with few changes. This uptrend should now be in Minute wave v of Minor wave 5 of Intermediate wave one. Minor wave 4 bottomed in late March and Minute wave iv bottomed on the opex selloff this past monday. The internal structure of Minute wave v also appears that it could be five waves. From monday's SPX 1184 low; wednesday wave 1 SPX 1211, thursday wave 2 SPX 1190, and wave 3 thus far at SPX 1217 on friday. The hourly RSI appears to confirm this count as well as the lesser timeframe charts. Since SPX 1219 equals a 0.618 relationship to Major wave 1 it could offer some siginificant resistance. Also the OEW pivot at 1222 should offer some resistance as well. Therefore if Intermediate wave one is to top shortly the market is certainly reaching an area of significant resistance to end the wave. Should this unfold in the next few days, we could see the most significant pullback of the entire uptrend. Pullbacks of this degree have been in the 3.5% to 6.5% range. Counting from the OEW 1222 pivot, a 3.5% pullback would be met at the OEW 1176 pivot, and a 6.5% pullback at the OEW 1146 pivot. Also these types of pullbacks usually take only a few days to unfold. The key level to observe is the OEW 1187 pivot. Should the SPX break below its seven point range the pullback is already underway. The 1187 pivot was first resistance and then support for the entire month of April. Best to your trading!
FOREIGN MARKETS
Asian markets were mostly lower this week (-2.1%) despite the rally in the US. India's BSE (+0.6%) led and China's SSEC (-4.7%) lagged. China has been seriously lagging world markets for months and remains weak.
European markets were mostly lower as well (-2.2%). Germany's DAX (+1.3%) led and Spain's IBEX (-3.9%) lagged. The Swiss SMI is in a downtrend.
Commodity equity markets were mostly higher but with an average loss of 0.2%. Canada's TSX (+1.3%) led and Russia's RTSI (-2.1%) lagged.
COMMODITIES
Bonds lost 0.5% on the week and remain in a downtrend. The 10YR remains below 4% yield, but the 1YR and 3M bill rates have been uptrending since January. Nevertheless, do not see the FED making any FED fund changes at this week's FOMC meeting.
Crude gained 0.5% on the week as its uptrend continues. NatGAS is starting to show some life after a multi-month downtrend.
Gold resumed its uptrend this week gaining 1.8%, most of it on friday. Silver is leading as usual after getting slightly oversold on monday.
The USD gained 0.8% on the week as its uptrend continues. Both the EUR (-0.9%) and JPY (-1.9%) lost ground to the USD. We covered the currencies on friday.
NEXT WEEK
Another fairly light economic week. On tuesday Consumer confidence will be reported. Then on thursday weekly Jobless claims. On friday Q1 GDP will be reported, along with the Employment cost index, the Chicago PMI and the final on Consumer sentiment. As for the FED. Chairman Bernanke gives Congressional testimony on tuesday and the two day FOMC meeting also starts on tuesday, with a statement to be released wednesday afternoon. Best to your weekend and week!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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