Here's a very important analysis of the posture of the stock market affecting swing traders, position traders and longer-term investors. Let me tell you, the market is very close to a make-or-break of the bull versus bear market views. I know this just from the Fibonacci retracement levels. And if you haven't already read Tony Caldaro's analyses last weekend, go to his website (link below and at right in the sites list) to catch up. Fortunately, in this weekend's update (below), Tony also discusses his analysis and views including how he expects the market to rise and fall over the coming years, even decades; plus 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:
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the Elliott Wave Lives On
by Tony Caldaro
October 2, 2010
weekend update
REVIEW
In a week when economic reports were mostly positive, the market tried to rally, made new uptrend highs, but finished slightly lower in a week of consolidation. Economic reports were fairly good. First the negatives: consumer confidence declined, along with ISM manufacturing, and mortgage applications remained negative. On the postive side: Case-Shiller housing prices remained positive; along with personal income/spending, PCE prices, and the Q2 GDP. Improvements were found in the weekly jobless claims, the Chicago PMI, construction spending, auto sales, and consumer sentiment. For the week the SPX/DOW were -0.25%, and the NDX/NAZ were -0.90%. Asian markets gained 0.9%, European market lost 1.5%, and the Commodity equity group gained 2.4%. Bonds were +0.9%, Crude soared 6.8%, Gold gained 1.7% and the USD continued to slide losing 1.6%. This week's economic reports will be highlighted by ISM services, ADP, and the Payrolls report on friday.
LONG TERM: bull market
This past sunday we released a report projecting the potential path of the bull market from the recent July 2010 low at SPX 1011 into early 2012. This, of course, is a general roadmap of what we anticipate in the months ahead using the OEW pivots and the wave relationships that have unfolded, thus far, in this bull market. Our OEW mantra remains: anticipate, monitor, and adjust when necessary. We do this everyday in the markets and it applies to the long term as well. Yet, it is always good to have a general idea of what to expect. Even if the market takes a different course along the way.
Reviewing the charts this weekend we see nothing to change our long term bullish view of the equity markets. Some readers interpret this term "long term" differently. We'll explain what this means in basic terms. Short term lasts from days to weeks, medium term from weeks to months, and long term from months to years. Our long term view is that equities have been in a bull market since March 2009 and we expect a top around February 2012. If we expand the timeframe out a bit from years to decades we can add what is commonly termed as a secular view of the market. This term "secular" includes both bull and bear markets and is a general term. For example; a secular bear market would last for a decade or so when the market went sideways to down, a secular bull would also last for a decade or so but the market went up. Both periods of time include bull and bear markets, but it is the general trend that is in effect.
For the "secular" crowd, we have been in a secular bear market since the year 2000. This is likely to continue until around the year 2016. After the market bottoms then a secular bull market should unfold until around the year 2034. During the current secular bear market there has already been two long term bear markets, a long term bull market, and a long term bull market underway. The sequence has been as follows: bear market 2000-2002, bull market 2002-2007, bear market 2007-2009, bull market 2009-2012(?), then possibly another bear market 2012-2016. The first three are already in the books. During the 2000-2002 bear market the SPX declined from 1553-769. The 2002-2007 bull market rose from SPX 769-1576. The 2007-2009 bear market declined even more SPX 1576-667. Now, the 2009-2012(?) bull market should retrace nearly all of that decline, i.e. SPX 667-1576. The reason we have clarified this "secular" concept is that some get confused with the terms: long term and secular. One additional note. During every secular bear market the actual final low occurs somewhere in the middle of the decade time period. In the most recent completed secular bear market: 1967-1982, the actual price low came in December 1974. The first long term uptrend off that low was the beginning of the 1974-2000 Cycle wave bull market. Since this secular bear market is expected to last from 2000-2016. The low should have also occurred around mid-point, and we suggest it was March 2009.
MEDIUM TERM: uptrend
We continue to label this bull market as five Major waves up from Mar09 to Apr10. This completed, in thirteen months, Primary wave I. We then experienced the biggest correction of the bull market with a three month 17% decline into early July 2010. We labeled this the completion of Primary wave II. From that low the market started uptrending for the beginning of Major wave 1 of Primary wave III. This Primary wave should unfold in five detailed Major waves just like Primary wave I. This uptrend has had a bit of trouble in its upside progress as the economy softened and the rise has run into overhead resistance. The first resistance was at the June10 wave B high of Primary wave II at SPX 1130. The current resistance is at the Jan10 Major wave 3 high at SPX 1150. Once this uptrend clears this level the next resistance will be at the Apr10 Major wave 5/Primary wave I high at SPX 1220. After that the market will run into the Aug08 high at SPX 1313, where this uptrend will likely stop sometime around Jan11.
Internal technical indicators continue to improve. The weekly RSI, which usually puts in a negative divergence at tops, just reached slightly overbought. The weekly MACD has turned positive after dipping below neutral during the Primary wave II correction. The monthly RSI/MACD are both rising. Recently all nine of the SPX sectors confirmed uptrends for the first time since the Feb-April uptrend. The NYAD, (market breadth) is hitting all time new highs, and the VIX (market volatility) continues to downtrend in its long term downtrend. Also, we had been trackly closely the KBE (banking) and SOX (semiconductor) sectors. They are currently both in confirmed uptrends, along with the XLF (SPX financial) and KRE (regional bank) sectors. Again, this is the first time this has occurred since the last uptrend. Foreign markets continue to do well also: 10 of the 14 indices we follow are in confirmed uptrends, and the other four are close to uptrending again. The only thing we see in review that could side track this uptrend is Europe. We suggest keeping an eye on the DAX, IBEX, SMI and STOX 50. Also, STD (Banco Santander) would be a good stock to monitor Europe's credit stability, and naturally LIBOR and the TED spread. You can find charts of all these assets in the link below. Other than this the market should start moving higher soon.
SHORT TERM
Support for the SPX is at 1146 and then 1136, with resistance at 1168 and then 1176. Short term momentum has remained around neutral for the past couple of days. During this uptrend from the July10 low at SPX 1011, we've had two rallies thus far. The first was from the low to SPX 1129 by mid-August, we labeled that Intermediate wave one. Next we had a sharp correction the SPX 1040 by the end of August, we labeled that Intermediate wave two. The current rally, from that low, has already made a higher high at SPX 1157. This is part of Intermediate wave three. Currently the wave structure suggests that Minor wave 1 of this Intermediate wave three ended at SPX 1149. Then a quick pullback to SPX 1123 ended Minor wave 2. Minor wave 3 began at the low. Remember, Intermediate waves unfold in five Minor waves. The legend and the color coding we use for wave labeling is at the beginning of the chart link below. Minor wave 3 started off fine, rallying to SPX 1150, but then turned choppy for most of this week. The SPX 1150 level is offering resistance as noted above. Once the market closes above 1150 it should move to the next pivot at SPX 1168. Important support remains at the 1090 and 1107 pivots. A drop below the 1136 pivot, with the current wave pattern, would create some concern short term. And, a further drop to the two lower pivots would create concerm medium term. Best to your weekend!
FOREIGN MARKETS
The Asian markets were mostly higher on the week for an average gain of 0.9%. All five are in confirmed uptrends.
The European market were all lower on the week for a net loss of 1.5%. Some concern here as only the FTSE is in a confirmed uptrend, but the other 4 are close.
The Commodity equity group were all higher on the week for an average gain of 2.4%. All three are in confirmed uptrends.
The Dow Jones world index gained 0.7% and remains in an uptrend.
COMMODITIES
Bonds were +0.9% on the week as its uptrend (prices), downtrend (rates) continue. The Bernanke put.
Crude came alive this week rallying 6.8% and uptrending. We're giving this sector another bullish chance, updated the charts.
Gold continues its uptrend to new highs at $1,321/oz., gaining 1.7% on the week. In 2001 Gold was $255/oz.
The USD extended its downtrend losing 1.6% on the week. The EUR gained 2.1% and the JPY gained 1.2%
NEXT WEEK
Monday kicks off the economic reports with Factory orders and Pending home sales at 10:00. On tuesday ISM services, and on wednesday MBA mortgage applications and the ADP employment report. Then on thursday, the weekly Jobless claims and Consumer credit. On friday the monthly Payrolls report with the Unemployment rate, and later in the morning Wholesale inventories. The FED has nothing else scheduled at this time. Best to you and yours this weekend.
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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