Saturday, September 11, 2010

These pivot levels will define stock market's near-term trend over next week or so: Tony Caldaro's Objective Elliott Wave update

Investors and traders have plenty to ponder. Today's September 11, the 9th anniversary of 9/11/2001. The markets advanced this week on low volume; Terry Laundry has issued warnings of a high, but the market moved up past trendlines Andre Gratian has shown. We'll see where those analysts come out tomorrow. Meantime, the Dow stands just under its 200-day moving average, and Tony Caldaro has pivot levels to describe in his weekend update of the stock market ($SPX), as well as comments on currencies, commodities and bonds. Tony with his Objective Elliott Wave discusses his views including levels to watch for either resistance turns or breakthroughs. Recent strong movement 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 11, 2010

weekend update

The combination of a national holiday and religious holidays dropped the NYSE weekly volume to its lowest level of the year. Economic reports were sparse and the stock market traded the entire week in a narrow 20 SPX point range. On the economic front. Consumer credit contracted, but the weekly jobless claims, the trade deficit and wholesale inventories all improved. For the week the SPX/DOW were +0.3%, and the NDX/NAZ were +0.8%. Asian markets gained 1.4%, European markets gained 1.2%, and the Commodity equity group gained 0.3%. Bonds were -0.5%, Crude was +2.6%, Gold slipped 0.1%, and the USD gained 0.8%. Next week should be the first full participation market week since the summer vacation period began in late June. Economic reports will be plentiful and we even have the end of quarter Options expiration.
LONG TERM: bull market
When markets are quiet like this, it offers one the opportunity to take the laptop, go out into the serenity of nature, and review the charts and indicators. Remember, tracking the markets with the Elliott wave is actually the process of tracking mass investor psychology. To state it in other words, we are tracking the collective human consciousness. We have been doing this for quite a while now, and still see no reasons to change our views.
The long term trend is UP, which suggests a bull market is underway. The wave structure from the Mar09 SPX 667 low has unfolded in a clean bullish five waves up into the Apr10 SPX 1220 high. Our count: 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 Primary wave I of the five Primary waves bull market, that is underway. Weekly technical indicators like the MACD, and monthly indicators like the RSI and MACD remain in bull market modes.
After the Primary wave I high in April at SPX 1220 the market entered a multi-month correction. The first of this kind since the bull market began in March 2009. Previously, the corrections of Major waves 2 and 4 were only one month in duration. The correction into the early July low at SPX 1011 was a bit steep and somewhat complex as the market lost 17% of its value. Then from that low the market entered a new uptrend, which has thus far carried the market up to SPX 1129 in early August. After another unusual, for this market, pullback of 7.9% to SPX 1040 by the end of August. The market has again rallied over the 1100 level hitting 1110 at the close on friday. Rallying 70 SPX points in seven trading days. The OEW pivot at SPX 1041 was, if you have not noticed; the low for Major wave 4 (SPX 1045), the late May low (SPX 1041), the early Jun low (SPX 1042), and recently the late August low (SPX 1040). The only time the SPX has traded below this level, this year, was in late June to early July when it hit SPX 1011, the OEW 1007 pivot, and then snapped right back above the 1040 pivot. This is not what occurs in bear markets. When important pivots are broken in bear markets they stay broken for weeks/months, and then become resistance. They do not re-establish themselves as support weeks/months later. This is a bull market.
MEDIUM TERM: uptrend
After the early July SPX low at 1011 the market staged a fairly good rally to SPX 1099. During this rally we received our first of two WROC buy signals, suggesting an uptrend confirmation was ahead. After a normal pullback, for this market, of 3.8% the SPX again moved higher. During this next rally the market worked its way higher to SPX 1129 by early August. The uptrend was confirmed along the way. What followed was quite an unusual characteristic for this bull market. The market then pulled back 7.9% to retest the OEW 1041 pivot by the end of August. The previous largest pullback, during an uptrend, for the entire bull market had been 6.5% in Oct/Nov09. The market then hit this pivot four times over the next several days, and failing to break though it began to rally. This rally, as noted above, has traveled 70 SPX points in seven trading days. The largest pullback occurred from last friday to tuesday morning, 14 SPX points. After the tuesday low the market rallied early every day and then drifted for the rest of the day right into friday. Our short term OEW charts suggest this rally is all one wave from the SPX 1040 low.
When we review the technical indicators we see many positives. The NYAD, market breadth, has hit a new all time high. The market leaders, AAPL and GS, are in uptrends. Nearly all of the Foreign markets are in uptrends. However, there remain a few negatives that are holding this market back. The financial indices XLF, KBE and KRE are still in downtrends; and the semiconductor SOX index remains in a downtrend. The general market can continue to make upside progress despite these negatives. The progress, however, will not likely be like the dramatic type of uptrend surges of Major waves 1, 3 and 5. Plus, there's always the possibility that these downtrending indices will weaken further, which would almost certainly drag the market down again. We suggest that one continue to monitor these indices during the next several weeks.
While the US market remains in a medium term uptrend, it has not been that impressive nor impulsive over the past several weeks. It remains in the overall trading range established between the late May low at SPX 1040 and the mid-June high at SPX 1130. Until one or the other level is penetrated, convincingly, we can not be totally positive that the bull market has resumed (a breakout), or that the Primary wave II correction (a breakdown) is continuing. As a result of this dilemna we are maintaining two counts for the bull market; the obviously more bullish SPX count, and the slightly less bullish DOW count. Please review in the Charts link below.
Support for the SPX notched up to 1107 and then 1090 on friday, with resistance now at 1136 and then 1146. Short term momentum continues to display a negative divergence while it has remained above neutral for most of the week. Generally this is a positive sign. We are again keying the OEW 1090 pivot as the swing pivot for this uptrend. As long as the market remains above it, and above the 1007 pivot now, the market can work its way higher. A break below the 1090 pivot range would turn the short term OEW charts negative again which could lead to further downside pressure. We expect this dilemna to be resolved, one way or the other, in the next two weeks. The key period to watch would be from the last two days of the upcoming week into the first several days of the following week. Options expiration is this friday, and the FED meets on the following tuesday. Best to your trading!
The Asian markets were all higher on the week for an average gain of 1.4%. All remain in uptrends with the exception of Japan's NIKK.
The European markets were all higher on the week as well for an average gain of 1.2%. All five indices remain in uptrends.
The Commodity equity group were mostly higher on the week for an average gain of 0.3%. All remain in uptrends here as well.
Bonds lost 0.5% for the week and look like they may have topped medium term as noted by the divergences last week.
Crude gained 2.6% for the week in this very choppy and volatile market.
Gold slipped 0.1% on the week after making a new uptrend high at $1262 on wednesday. Negative divergences suggest a pullback may be underway.
The USD gained 0.8% on the week and is getting close to confirming a new uptrend. The Euro lost 1.4% on the week and is close to confirming a downtrend.
Busy week ahead. On monday at 2:00 we have the Treasury budget deficit. Tuesday we have Retail sales and Business inventories. Then on wednesday the NY FED, Export/Import prices, Industrial production and Capacity utilization. Thursday the weekly Jobless claims, the PPI, the Current accounts deficit and the Philly FED. Then on friday Options expiration, the CPI and the bi-weekly Consumer sentiment. On friday FED governor Tarullo gives a speech at the Brookings Institute in Wash, DC. Best to your weekend and week.


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