Saturday, August 14, 2010

Traders and investors need to figure out whether the weakness we've seen is a harbinger of more to come. Our year 2010 plan had been a high in May and possibly topping (or lower high) in August. So far it's looking unlike to have a higher high by opex this coming Friday! Assuming we then see down into October, Elliott Wave traders will want to know if the decline will be simply an extended pullback or something more bearish. I'm still a little busy with my boat, move of residence plus guests this weekend. But we can still chart the markets! - and continue to benefit from those who allow us to share their analytical insights, such as Tony Caldaro. Tony Caldaro with his Objective Elliott Wave discusses his views including levels to watch for either resistance turns or breakthroughs. Recent 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:

the Elliott Wave Lives On
by Tony Caldaro
August 14, 2010

weekend update


After retesting the uptrend high on monday, (the SPX had rallied 11.7% from the early July low), overseas selling in Asia/Europe monday night through wednesday night led to the largest weekly decline since the last week in June. For the week the SPX/DOW were -3.6%, and the NDX/NAZ were -4.7%. Asian markets lost 2.3%, European markets lost 1.9%, and the Commodity equity group lost 3.2%. Bonds were +0.8%, Crude -6.5%, Gold +0.9%, and the USD +3.2%. On the economic front, the FED stated that it will be maintaining its $2+ tln balance sheet and extending the term of its debt purchases. Economic indicators were mixed on the week, an improvement over the past many weeks. Export/Import prices, wholesale inventories and productivity declined; while the trade deficit expanded and jobless claims rose. On a positive note; the CPI, retail sales, consumer sentiment, the WLEI and business inventories rose; while the budget deficit declined. Next week will be highlighted by housing, the PPI and leading indicators.
LONG TERM: bull market
We continue to track the market's upside progress from the Mar09 SPX 667 low as an ongoing bull market. This advance was a clear five wave structure, and the waves unfolded as follows: Major 1 SPX 956 Jun09, Major 2 SPX 869 Jly09, Major 3 SPX 1150 Jan10, Major 4 SPX 1045 Feb10 and Major 5 SPX 1220 Apr10. These five Major waves completed Primary wave I of an ongoing five Primary wave bull market. After the five waves completed the market went into its longest and deepest correction since the Mar 09 bear market low. Notice both corrections during the five waves up were only one month and about a 9% decline. The recent correction was three months, (Apr10 - Jly10), and about a 17% decline, (SPX 1220 - 1011). This three month correction should have completed Primary wave II.
With the economy weakening in the past few months, and our economic indicators turning negative or stalling. We are carrying an alternate count for Primary wave II on the DOW hourly chart. This alternate count suggests that the recent July low was only wave A of a larger ABC Primary wave II correction. This could stretch out this correction process until around October. Lately, the economic indicators have been ticking up from recent lows.  
MEDIUM TERM: uptrend
The uptrend from the early July low at SPX 1011 started off quite impulsively. It rallied in five waves to SPX 1099 in a couple of weeks, but then ran into resistance at that level during options expiration week, and then declined to SPX 1057 (3.8%). Another advance followed over the next three weeks. This advance started off impulsively and then became a bit choppy as the market ran into resistance at SPX 1129. This week the market declined to SPX 1077, (4.6% from the high), and closed near the low. This decline, however, is occurring heading into options expiration week.
When reviewing the charts this weekend we arrived at three potential counts from the SPX 1011 low. First is the count we had posted: Intermediate waves i-ii, followed by Minor waves 1-2. Second is the count posted on the DOW hourly chart: Intermediate waves ABC to complete Major B. Third is the upgraded count we now have posted on the SPX hourly chart. After closer examination we can count five waves up from the SPX 1011 low: Minor 1 SPX 1099, Minor 2 SPX 1057, Minor 3 SPX 1129, Minor 4 SPX 1107 and Minor 5 SPX 1129. This count would suggest that the market just completed Intermediate wave one of this uptrend and is now in Intermediate wave two. The majority of our short term OEW charts suggest this count is unfolding.
If we look at the entire advance from SPX 1011 to SPX 1129 as one completed five wave advance, Intermediate wave one. Then a pullback to SPX 1070 (50%) or SPX 1056 (61.8%) for Intermediate wave two would be nothing out of the ordinary. The next important support is at the OEW 1058 pivot.
Support for the SPX is at 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum was extremely oversold on thursday, then rallied to neutral on friday before ending at slightly oversold. Typically, during these types of pullbacks, we would be looking for a positive divergence on the hourly RSI on the next series of lows. Key support is the at the OEW 1058 pivot. If this pivot does not hold we are likely dealing with an extended Primary wave II correction. To turn the market positive again the SPX needs to recapture the OEW 1090 pivot. The market traded under this pivot during thursday and friday. Best to your trading!
Asian markets were all lower on the week for an average loss of 2.3%. Four of the five indices remain in uptrends.
European markets were all lower on the week for an average loss of 1.9%. All five indices remain in uptrends.
The Commodity equity group were also all lower on the week for an average loss of 3.2%. All three indices remain in uptrends.
Bonds gained 0.8% on the week as its extended uptrend continues. The 10YR yield has dropped to 2.67%.
Crude lost 6.5% on the week as its uptrend is now under pressure.
Gold gained 0.9% on the week and is now uptrending.
The USD soared 3.2% on the week and may have started an uptrend after a positive divergence.
Another busy week ahead. On monday, the NY FED at 8:30 and the NAHB index at 10:00. Tuesday, we have Housing starts, Building permits, the PPI and Capacity utilization. Then on thursday, the weekly Jobless claims, Leading indicators and the Philly FED. Nothing scheduled for the FED at this time. Best to your week!


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