Saturday, September 4, 2010

If stocks are rocketing into third wave up, respect the momentum but watch these levels: Tony Caldaro's Objective Elliott Wave update

I posted recently expecting the stock market to roll over soon, and bonds and gold to resume higher. Wrong or right? Our year 2010 plan had been a high in May and possibly topping (or lower high) in August. Assuming the rally runs put of steam, do we then see down into October? That's what we have been thinking. But are we wrong and heading way up, either 1140 or even higher?? 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
September 4, 2010

weekend update

It was a bungee cord kind of week, with end of month selling and then beginning of month buying. The net result was quite positive after three weeks of negative numbers. On the economic front the economy did not fare as well. Indicators were aplenty but mixed. On the downside. The Chicago PMI, ISM services, auto sales, construction spending and the WLEI all declined. The Payrolls report displayed another job loss, as did the ADP report, the unemployment rate ticked up and the monetary base remained flat. On the plus side. Personal income/spending, PCE prices, home prices, consumer confidence, pending homes sales, ISM manufacturing, and factory orders all rose. While the weekly jobless claims remained flat but still quite negative. For the week the SPX.DOW gained 3.35%, and the NDX/NAZ rose 2.65%. Asian markets were +2.0%, European markets were +4.0%, and the Commodity equity group rose 2.3%. Bonds were -0.2%, Crude dropped 1.1%, Gold gained 0.7%, and the USD lost 1.1%. Next week we have a holiday on monday and a light economic calendar highlighted by the FED's Beige book, Consumer credit and Wholesale inventories.
LONG TERM: bull market
During the past couple of weekend updates we spent some time covering the much neglected long term trend. These trends drive the general direction of the markets over the months and years. They usually last about three to five years, with some significant exceptions, and can be quite costly to go against. Now back to our markets.

The long term trend in the US and most foreign equity markets is up. Some markets bottomed in late 2008, while most bottomed in Mar09. This mixed bottoming process is similar to the Oct02 and Mar03 bottoms before the last bull market. Bull market uptrends are characterized by impulsing wave patterns. Five wave patterns, that sometimes subdivide, followed by corrections. This is the type of pattern we have witnessed in the US and many of the world's markets during this long term/bull market uptrend.
In Mar09 the SPX bottomed at 667. Then, over the next thirteen months the SPX rallied in five waves: Major wave 1 SPX 956 Jun09, Major wave 2 SPX 869 Jly09, Major wave 3 SPX 1150 Jan10, Major wave 4 SPX 1045 Feb10, and Major wave 5 SPX 1220 Apr10. These five Major waves completed the first five wave sequence of this bull market and ended Primary wave I of this five Primary wave bull market.
After the Apr10 high at SPX 1220 the market entered a multi-month correction. The two previous corrections, Major wave 2 SPX 869 and Major wave 4 SPX 1045, were both only one month in duration and both declined about 9%. This correction, which we are labeling Primary wave II, appears to have ended after three months and a 17% decline. After the early July SPX 1011 low, and several oversold conditions in the market, we received two fairly reliable WROC buy signals prior to an OEW uptrend confirmation off that low. The market rallied for the month of July into early August to SPX 1129. During the rally it looked like an impulsive five wave pattern on two of three short OEW charts we track. We labeled that high Intermediate wave one of Major wave 1 of Primary wave III. The next bull market Primary wave. However, for the rest of August the short term trend was essentially down and the market corrected 7.9% to SPX 1040. This pullback exceeded the previous biggest uptrend decline of 6.5% in Oct/Nov09. While OEW did not confirm a downtrend during the decline we knew that holding the pivot at SPX 1041 was crucial for the uptrend. And it still is!

Should this uptrend fail to continue then our Primary wave II will be more complex in structure. The low at SPX 1011 would then be labeled a Major wave A, and the recent August high a Major wave B, with Major wave C forthcoming. Then a potential low could occur near the OEW 944 pivot in October. This alternate count is posted on the DOW charts. We were also expecting a 4 year presidential cycle low at the end of Primary wave II. The recent action in the market does not suggest that this low has occurred yet.
MEDIUM TERM: uptrend
The uptrend from the July low at SPX 1011 remains in place. We have removed the "in jeopardy" part as the market has cleared the swing pivot at 1090. As noted above, the OEW 1041 pivot was crucial to maintain the uptrend. The market held support after four attempts to break through it. Our preferrred count continues to be posted on the SPX charts. We continue to label the July low at SPX 1011 as the end of the three month Primary wave II. That correction retraced, almost precisely, a fibonacci 38.2% of the entire 13 month Primary wave I. We've been counting the advance from that low as five Minor waves into the SPX 1129 high to complete Intermediate wave one. Then the decline into the recent SPX 1040 low as Intermediate wave two. The three day rally from tuesday's SPX 1044 low, fourth test, has been a straight shot up. During the past three days: the market has remained overbought, the largest pullback was only 10 points, and the SPX hit 1105 on friday and closed there. The rally looks implusive but there is too little data as this time to know with some certainly. As long as the OEW 1090 pivot holds support then we should assume that Intermediate wave three is underway. Certainly a rally above SPX 1129 would help to confirm. Should the market begin to pullback again, break through the 1090 pivot, and start heading lower. The OEW 1041 pivot again comes into play. Remember, this market has remained in a SPX 1040 to 1130 trading range, spare about one week, for over three months. A breakout of this range, in either direction, will be important for the medium term.
Support for the SPX is back up to 1090 and then 1058, with resistance at 1107 and then 1136. A familar area. Short term momentum has remained overbought now for three days. An unfamilar situation. The last time this has occurred was at the beginning of the July uptrend, which also included a few gap up openings. The market hit an extremely overbought condition very early friday, but only pulled back 10 points before closing back at the high. This is typical uptrend activity. Pullbacks around 10 points or so are quite normal during surging markets. They are quite inconsequential as pullbacks of nearly 20 points or more create more important waves. This rally, from the SPX 1044 low is being counted as just one wave. Best to your trading and extended weekend!
Asian market were all higher for the week with an average gain of 2.0%. All remain in uptrends except Japan's NIKK.
European markets were all higher as well and outperformed with a 4.0% average gain. All remain in uptrends.
The Commodity equity group were all higher and gained 2.3%. All remain in uptrends.
Bonds lost 0.2% as the extended uptrend in bond prices continues. There are, however, divergences on both price and yield charts.
Crude had a volatile week losing another 1.1% during its downtrend. A review of the weekly chart displays a trading range for the past year.
Gold continued to move higher, during its uptrend, gaining 0.7% on the week. Silver has surged about 10% in the past two weeks alone.
The USD pulled back this week for a 1.1% loss, giving back about half of its recent gain. It still looks like it can rally from around these levels.
Monday is a holiday. Wednesday kicks off the economic week the FED's beige book and Consumer Credit. On thursday, weekly Jobless claims and the Trade deficit. Then on friday Wholesale inventories. The FED has nothing else scheduled at this time. Best to you and yours!

Love oneself, or love oneself and all others. It's a choice.
Your future depends on it. Time is short. Make the choice!     

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