the ELLIOTT WAVE lives on
The market rebounded this week retracing all of last week's loss. Foreign markets recovered as well. On the economic front reports came in 6 : 2 to the good. On the negative side: weekly jobless claims rose and existing home sales fell. On the positive side: housing starts, building permits, the NAHB housing index rose, as did the FHFA housing price index. The Philly FED swung from negative to positive, and leading indicators were positive as well. The SPX/DOW gained 1.9%, and the NDX/NAZ gained 2.8% with the NDX making new bull market highs. Asian markets were +1.2%, European markets +2.9%, the Commodity equity group was +1.6%, and the DJ World gained 2.5%. Next week we have Case-Shiller, durable goods, the FED's beige book and the first look at Q2 GDP.
LONG TERM: bull market at inflection point
In case you missed it we posted three special reports this week:http://caldaro.wordpress.com/2011/07/18/remaining-objective/http://caldaro.wordpress.com/2011/07/20/ndxnaz-and-aapl/ http://caldaro.wordpress.com/2011/07/21/inflection-point-and-long-term-view-update%e2%80%8f/. The first discussed a potential completed five wave pattern at the May 2011 high. The second, a potentially final Primary wave V uptrend in the tech sector, including AAPL. The last, described five potential long term counts with four of them using the Feb 2011 high as the end of Primary wave III. It has been an interesting few weeks to say the least. Let's try to explain all these counts.
The above SPX weekly chart displays two of the alternate counts for the market. These, we may add, are not the preferred counts. The first count, which is closer to the price labels, displays a Primary III high in Feb11 and an ongoing contracting Primary IV triangle, (blue lines). The Mar11 low forms wave A, the May11 high wave B, the Jun11 low wave C, and the current uptrend wave D. This count suggests there will be another downtrend to complete wave E and Primary IV before Primary V begins. This is a bullish count, which still allows for the bull market to end near the all time highs. This count will be eliminated if the SPX reaches about 1380, or DOW 13,000 during this uptrend. The second count posted above/below the first count suggests Primary III again ended in Feb11, Primary IV concluded in Mar11 and Primary V ended at the May11 high. The bull market is over. This count will be eliminated if the SPX or DOW make new highs.
The above DOW weekly chart displays the preferred alternate counts for the market. The first, again closest to the price labels, is our ongoing count: Major wave 1 ended in Feb11, Major 2 in Mar11, Intermediate wave one ended in May11, Intermediate two ended in June11, and we now currently in Intermediate wave three possibly heading to SPX 1440 by Sept11. This is a bullish count suggesting a retest of the all time highs next year. The count will be eliminated if the SPX drops below 1250, or DOW 11,800. The second count, posted above/below the first, suggests Primary III again ended in Feb11, Primary IV in Mar11, and Primary V is taking the form of a diagonal triangle. Wave A of the diagonal ended in May11, wave B in Jun11, and wave C is currently underway. This count suggests the market will move higher but struggle to do so in a choppy fashion. The count will be eliminated if the next downtrend fails to overlap the May11 high, or if the SPX drops below 1250 or DOW 11,800.
The last alternate count for the market is posted on the NAZ weekly chart above. This count suggests Primary III ended in Feb11, Primary IV ended with an irregular flat in Jun11, and Primary wave V is underway now. The count suggests the bull market is probably in its last uptrend. Since Primary I subdivided into five Major waves, and Primary III did not. It is highly unlikely that Primary V would now subdivide. In the entire 125 year history of the US stock market I do not recall ever seeing that occur. This count will be eliminated if the next uptrend makes higher highs.
There you have it. This summarizes the three reports with some parameters for eliminating each of the counts as this market progresses in time. It may be a bit confusing since there are a lot of variables at work. The thing to remember is that the DOW charts carry the preferred counts, not the SPX charts. In time, the market will display its actual count and this is the reason for calling this an inflection point.
MEDIUM TERM: uptrend high SPX 1356
This past monday the SPX declined to 1296 overlapping our 1299 June 22nd high. This created some wave structure problems in the SPX. The other three major indices, the NDX/NAZ/DOW, did not experience this overlap. Since we always default to the bellwether DOW this overlap did not create a wave structure problem for the market. But it certainly was a signal that some other potential longer term patterns were at work. The three special reports followed. The DOW charts now display our ongoing count.
As you can clearly observe our Minor wave 4 and Minor wave 1 did not overlap. Therefore our original, and ongoing count, remains in place. Should we now be in the anticipated very strong Minor wave 5, the market should rally to the OEW 1440 pivot to complete Intermediate wave three. This would allow enough price space on the downside to prevent overlapping the SPX 1371 Intermediate wave one high during the next correction, (see SPX chart). If the foreign markets were doing a lot better we would assign this count the highest probability. Unfortunately that is not currently the case.
Support for the SPX remains at 1313 and then 1303, with resistance at 1363 and then 1372. Short term momentum ended the week just under overbought. As noted above the internal waves structure displays a completed Minor waves 1 – 4, and Minor wave 5 underway now. The DOW nearly posted a new uptrend high on thursday, but fell a few points short. The NDX, however, posted one on friday.
Short term OEW charts remain positive as long as the SPX remains above 1333. Short term support below that is at the 1313 and 1291 pivot ranges. Overhead resistance remains around the SPX 1344 area, then the 1363 pivot range starting with 1356. Despite the strong showing in the market: a rally from SPX 1296 to 1347 with only one 10 point pullback. We would like to see the market reach new bull market highs so we can start eliminating some of these alternates counts. The NYAD has not made higher highs during this recent rally. But we do not see any negative divergences on the hourly charts yet. This news sensitive market will probably continue to react overnight to overseas economic news. Best to your trading!
Asian markets were mostly higher for a net gain of 1.2%. Australia and Hong Kong remain in downtrends. China (potentially bottomed) and Japan remain in bear markets.
European markets were all higher on the week for a net gain of 2.9%. Spain, Switzerland and the STOX index remain in downtrends. Spain and Switzerland are in bear markets.
The Commodity equity group were all higher for a net gain of 1.6%. Brazil remains in a downtrend, and is close to confirming a bear market.
The DJ World index continues to uptrend gaining 2.5% on the week.
Bonds lost 0.4% on the week as they appear to be in another uptrend. 10 YR yields are hovering around 3%.
Crude gained 2% on the week, and is quite close to confirming an uptrend from the mid-June (release strategic reserves) $90 low.
Gold continues to uptrend gaining 0.7% on the week and hitting record highs at $1611.
The USD lost 1.2% on the week, and is getting close to confirming another downtrend. The EUR gained 1.2%, and the uptrending JPY gained 0.8%.
The economic week kicks off on tuesday with Case-Shiller, Consumer confidence and New home sales. On wednesday Durable goods orders and the FED's beige book. Thursday we have the stagnant weekly Jobless report and Pending home sales. Then on friday Q2 GDP (est. +1.6% to +2.1%), the Chicago PMI and Consumer sentiment. The FED has nothing on its schedule at this time. Best to your weekend and week!