Weekend update on S&P 500 and markets by Tony Caldaro of Objective Elliott Wave

Folks, here's Tony's weekend update. As I've mentioned, I tend to keep my own views on Elliott Wave, but I certainly respect Tony's work with his Objective Elliott Wave. And he recently had mentioned that U.S. bonds were closing in on his target level, so that was very interesting in and of itself. So here's what he's posting this weekend (and for his charts and daily updates, with any more information on what he offers, you can check his website which is included in the "other sites of interest" list, right side of the page).

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February 14
weekend update
REVIEW

On Tuesday the US government went all-in. Treasury Secretary Geithner introduced a $1.5 tln bank bailout plan, FED chairman Bernanke expanded the TALF program from $200 bln to $1 tln, and President Obama pushed his $800 bln stimulus package through Congress. The new administration is doing what the old adminstration did, only with a few new faces and bigger numbers. The budget deficit continued to balloon, it's expected to be $1 tln this year. Weekly jobless claims remained over 600K, Consumer sentiment continued to wane, and surprisingly Retail sales were +1.0%, subject to revision of course. The general market had its worst week since November, SPX/DOW -5.0%, and the NDX/NAZ -3.4%. Asia fared much better +1.6% aided by the strong 6.0% gain in China. Europe and the Commodity equity markets ended about in the middle, -3.7% and -3.1% respectively. Bonds gained 1.7%, Crude added 4.5%, Gold rose 3.1% and the Euro lost 0.5%.

LONG TERM: bear market
From time to time during bear markets there is a period of consolidation. After months of chaos the market stalls and starts to self-organize. We have been in one of these periods for the past three weeks. As the consolidation unfolds it is often better to wait for signs of the next important move, rather than to make a determination with insufficent data. After a full review of the important indices both in the US and worldwide a potential scenario is starting to take hold. When the bear market started we expected three waves to unfold, Primary ABC. Primary wave A would create the first important low. Then an important 50% retracement rally would create Primary B. This would be followed by Primary wave C and the final low of the bear market. Nothing has changed. During Primary wave A, which has been ongoing since the October 2007 bull market high, we have maintained two counts. The SPX count displays a series of abc's into the November 2008 low, and the potential end of Primary wave A. The alternate DOW count displays a five wave decline into the March 2008 low, a three wave rally into May, and then another ongoing five wave decline still underway. At the November low the market rallied over 27% into January, stalled, and then started downtrending. This is not what we expected for a Primary wave B. So when the downtrend was confirmed we started to lean toward the alternate DOW count, which suggests one more new low before Primary wave A concludes. This continues to be the most probable count. The charts for both of these counts are posted in the chart link below (see at Tony's website, Elliott Wave Lives On).

MEDIUM TERM: downtrend
Markets around the world and indices within the US appear to be diverging. In the US, the general market and certain sectors continue to display weakness. Yet, the US Tech indices, the Baltic Dry index, and several foreign indices like China, India and Brazil are displaying signs of strength. What this suggests, while using the OEW counts as a guide, is that after the fall credit-freeze economies are starting to stabilize at these lower levels. What this means for traders/investors is that the previously mentioned indices, i.e. NDX/NAZ, BDI, SSEC etc., have probably seen their lows and ended their Primary wave A. The general market, however, still requires a series of new lows before ending its Primary wave A, and then synchronizing with the new leaders. Naturally all indices will likely experience a confirmed downtrend when the SPX/DOW are making new lows. But the leaders should hold up well, and above their November lows. As for a target for this new low in the SPX: We have reviewed all the waves for the bear market thus far for structure and their Fibonacci relationships. Based upon this review we are expecting only slightly lower lows in the next few weeks, and no major break. Fibonacci ratios suggest a low between SPX 680 and 725 to conclude Primary wave A. There are two long term OEW pivots in this area, SPX 696 and 717. Either one would satisfy the alternate count wave structure. With the market in a confirmed downtrend, and trading under the important 848 pivot, we expect these levels to occur within the next several weeks. After that, all the markets and indices should be prepared to synchronize and trend higher in a Primary wave B rally.

SHORT TERM
Support for the SPX remains at 789 and then 768, with resistance at 848 and then 912. The pivots below 768 are 734, 717 and then 696. Short term momentum ended around neutral on Friday after failing to get overbought. After the SPX rallied to 944 in early January it quickly sold off to 804 a couple of week later. Since then the market has gone sideways staying within a range of 804 and 878. On Thursday the SPX traded down to 808, then spiked 27 points in the last hour of trading. On Friday the market did manage to make a slightly higher high at SPX 839, but then tailed off at the end of the day to close at 827. Once SPX 804 is broken to the downside the next leg down of this downtrend should be underway. Something to keep in mind: The fifth wave down of Major wave A ended in a diagonal triangle. Since this appears to be the fifth wave down of Major wave C, it too may unfold in a diagonal triangle. This would explain the recent choppy activity in the SPX/DOW.

FOREIGN MARKETS
The Asian markets did much better than the western markets this week. China, Hong Kong and India are displaying relative strength. The European markets are mixed with the FTSE uptrending and the DAX downtrending. The Commodity equity markets are displaying relative strength as well, with Brazil certainly the leader.

COMMODITIES
After Bonds got off to a good start this week they gave back some on Friday. Expecting the recent lows to hold and a new uptrend to unfold. Crude had a choppy week and remains in a downtrend. Still expecting lower lows. Gold rallied to new uptrend highs hitting $954. There is some resistance at the upper $980 level. The Currencies were quite choppy this week, expecting the trends for the USD (up) and the Euro (down) to continue.

NEXT WEEK
With the Monday holiday in the states, Tuesday kicks off the week with the Empire State index and the Homebuilders index. On Wednesday we have Housing starts, Industrial production and Import prices. Thursday the weekly Jobless claims, the PPI, Leading indicators and the Philly FED. Then on Friday the CPI. As for the FED: On the Monday holiday there is a speech by FED governor Duke in AZ. Then on Wednesday FED chairman Bernanke speaks before the Natl Press Club at 1:00 pm, and the FOMC minutes are released at 2:00 pm. Should be an interesting short week with all this data. Best to your weekend!