The volatility in the markets has triggered the question among many whether the bullish uptrend is over. Tomorrow I'll post Andre Gratian's weekend Turning Points report addressing that. As for me, as I tweeted late last week, above SPX 1060 I'll still give the market the benefit of the doubt. Friday's opex movements tested that level early but vaulted back over, thus holding it. This was also a retest of those prior week swing lows; plus it tested the 200-day moving average in the heavily-traded QQQQ (NASDAQ 100 tracking ETF). As I stated last weekend: The big question for investors is whether the stock market is basically still bullish, or turning bearish? Tony Caldaro with his Objective Elliott Wave discusses his wave count fine-tuning, and reminds us that pullbacks in bull markets can be sickeningly vicious but still not cause a downtrend. The past week's volatility helps remind traders of the importance of pivot levels for understanding support and resistance. 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 in this weekend's update:
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the Elliott Wave Lives On
by Tony Caldaro
May 23, 2010

weekend update

REVIEW

The world's equity markets had another rough week. The second large decline in the last three weeks, and third declining week since the April uptrend high. The SPX/DOW were -4.1%, and the NDX/NAZ were -4.7%. Asian markets were -4.5%, Europe was -2.5% and the Commodity equity markets were -6.3%. US bonds gained 1.0%, Crude was -4.6%, Gold lost 4.5%, and the USD was -1.0%. Economic reports for the week were mixed. The PPI/CPI turned slightly negative along with the leading indicators. The Empire index softened and weekly jobless claims rose. On a positive note housing starts and the home builders index improved, along with the Philly FED. The weekly LEI declined to 59.0% from 62.2% and is still in the economic expansionary mode. Next week will be highlighted by housing, the first Q1 GDP revision, and consumer income/spending.

LONG TERM: bull market
We have been operating with three potential long term counts from the Mar 09 SPX 667 low. With this week's decline in the market the count posted on the SPX has dropped in probability, and the count posted on the DOW/NDX has risen significantly. The DOW/NDX count suggests the five waves up from the Mar 09 lows were Major waves concluding a Primary wave one at the recent Apr 10 highs. This suggests, and fits with many foreign indices, that the current downtrend is Primary wave two. Primary wave corrections during Cycle wave bull markets are quite normal. However, they can be quite steep in percentage terms depending upon the extent of the previous Primary wave advance. Primary wave one advanced from SPX 667 Mar 09 to 1220 Apr 10, or 553 points. Primary wave two, therefore, will usually retrace anywhere from 23.6% to 61.8% of the advance. These fibonacci percentages relate to the following levels: 23.6% SPX 1089 (1090 pivot), 38.2% SPX 1009 (1007 pivot), 50.0% SPX 944 (944 pivot), and 61.8% SPX 878 (876 pivot).

With the SPX trading as low as 1056 this week the 23.6% (SPX 1089) retracement level has already been exceeded, and can be disregarded. The next two levels, 38.2% SPX 1009 and 50.0% SPX 944, are the typical retracement levels for most bull market corrections after five wave advances. Another area that usually provides support is the previous 4th wave. Major wave 4 occurred in Feb 10 at SPX 1045 (1041 pivot). In descending order we have potential Primary wave two support at SPX 1045, SPX 1009 and SPX 944, with a worse case SPX 878. With the market closing at SPX 1088 on friday the risk to the downside is high while this correction is underway. After it concludes, however, OEW suggests another five wave advance to higher bull market highs.

MEDIUM TERM: downtrend hit SPX 1056
The recent uptrend from Feb 5th at SPX 1045 topped on April 26th at SPX 1220, an advance of 175 points. Since then the market has declined 13.4% into friday's SPX 1056 low or 164 points. This is nearly a full retracement. Full retracements do not occur with waves of similar degree. This is the reason we have shifted the primary count from the SPX to the DOW/NDX wave structure. Also of note. The two corrections that occurred during the five wave advance both lasted about one month and their declines were both 9.1%. This correction, still one month old, has already declined 13.4%. This also fits the Primary wave one scenario - larger percentage corrections usually occur during larger wave structures.

Typically during corrections the hourly/daily RSI readings get quite oversold - which they have. Also, the weekly RSI gets oversold as well - it's there already but could move lower. Then when the market hits a key support level and completes a correctional pattern it bottoms and reverses the downtrend to the upside. Currently there is a potential completed wave pattern at friday's SPX 1056 low. However, none of our short term OEW charts have turned to a positive bias yet. Also, despite the rally on friday, big moves on option expirations are often fully retraced over the next few days. When we consider that both Major wave corrections were only one month long, this Primary wave correction should need more time to unfold.

SHORT TERM
Support for the SPX remains at 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum was quite oversold on friday before turning higher and moving above neutral during the day. We have labeled the correction thus far with a wave A to SPX 1066, a wave B to SPX 1174, and a wave C underway. This may be the entire correction or only part of the correction. It's too early to tell. One indicator we are observing for a clue to the end of this downtrend is the weekly MACD. Typically, during steep corrections in bull markets, it drops down to neutral. It is currently declining but still around 30. This also suggests that this correction will continue for a while. Be careful on the long side, and best to your trading!

FOREIGN MARKETS
The Asian markets lost 4.5% on the week. All remain in downtrends, and all but India's BSE have dropped below their Feb 10 lows.
The European markets lost 2.5% on the week. All remain in downtrends as well, and all but Germany's DAX have already dropped below their Feb 10 lows.
The Commodity equity markets lost 6.3% on the week. All downtrends here again, and all but Canada's TSX have dropped below their Feb 10 lows.

COMMODITIES
Bonds gained 1.0% on the week as their uptrend continues.
Crude lost 4.6% on the week. This downtrend has been stronger than anything we have seen in quite a while. But it's quite oversold.
Gold lost 4.5% on the week. Despite the pullback the uptrend remains in place and expecting higher highs soon.
The USD lost 1.0% on the week. The Euro (+1.7%) spiked off the 121.74 low and the JPY (+2.8%) uptrend continues.

NEXT WEEK
Monday at 10:00 we have Existing home sales. Then tuesday the Case-Shiller home prices and Consumer confidence. Wednesday, we have Durable goods orders and New home sales. Then on thursday the weekly Jobless claims and the first Q1 GDP revision. On friday, Personal income/spending, Consumer confidence and the Chicago PMI. The only thing on the FED's schedule is a speech by FED chairman Bernanke in Japan on tuesday. Best to your week!

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987