Market analysis using proprietary Objective Elliott Wave techniques
May 09
weekend update
REVIEW
For the week economic reports were better than expected, a bottoming or pause. Pending home sales rose 3.2% v 2.0%, ISM services was 43.7% v 40.8%, and Non-farm payrolls were -539K v -699K. The Unemployment rate hit 8.9%, a 25 year high, and Consumer credit declined $11.1 billion, a 65 year low. The bank stress test, that resulted in banks needing to raise another $75 billion, was a stock market success, as bank stocks rose 35% on the week. The general market SPX/DOW were +5.2%, but the NDX/NAZ were mixed. The Asian markets rose 6.5% led by Hong Kong's 12% advance. The European markets were +4.1% and the Commodity equity markets were +7.9%. The US uptrend has now risen 39%, Europe +35% and Asia +40%.
LONG TERM: bear market
With the biggest rally since the bear market began in October 2007 many are turning bullish. We warned of this in early March when this uptrend was just beginning. Since we anticipated that Primary wave B was finally underway, and either a 50% rally or 50% bear market retracement was about to unfold. We expected bullishness to come back into vogue and the financials would lead. Now two months later, and the stock market only 11% from what appeared to be an outrageous call at the time, the bulls are again roaming Wall Street. To put things in the proper perspective a review is in order. Our current bear market is at minimum Cyclical in nature, and likely Supercyclical. In the past century three cyclical type bear markets occurred: 1929, 1937 and 1973. Each on of them unfolded in an ABC pattern consisting of three Primary waves. In each instance, after the first decline Primary wave A ended a Primary wave B rallied/retraced 50%, before a Primary wave C decline ended the bear market. From the Oct 2007 high into the Mar 2009 low we counted a completed 5-3-5 zigzag structure. We labeled this Primary wave A, and then based upon these historical relationships projected the current uptrend. "History does indeed repeat itself, but never exactly in the same way."
MEDIUM TERM: uptrend
The uptrend just completed its ninth week with the SPX +39% and the DOW +35%. Since all of our historical references are based on the DOW, all appears in order. During this SPX 263 point uptrend there have only been two significant pullbacks. One in late March of 53 points, and the other in mid-April of 49 points. Thus far, we have labeled the SPX 833 high as Intermediate wave A, and the SPX 780 low (53 point pullback) as Intermediate wave B. From there the SPX rallied to 876, which we labeled Minor A, pulled back to 827 (49 points) which we have labeled Minor wave B. Since then the market has rallied to 930 and this should be Minor wave C of Intermediate wave C. When this rally ends we are expecting to label it Major wave A.
The SPX hourly chart is posted below. Earlier in the week we posted two Fibonacci relationships to these waves: Minor C equals Minor A @ SPX 923, and Intermediate C equals Intermediate A @ SPX 946. Since there is an OEW pivot at 935, this area should offer some short term resistance. On Thursday the market rallied to SPX 930, then dropped 29 points for its biggest pullback since the 49 point drop in mid-April. Then on Friday the market gapped up, hit 930 again, and closed at 929. The 935 pivot, as all pivots, provides an actual price range of 14 points. Therefore the resistance range is between SPX 928 - 942, which is in line with the Fibonacci relationships. This is the same pivot that ended the January uptrend. Should the market break through this range the next pivot is at 961. Should the market drop below SPX 900, Major wave A would have most likely ended.
SHORT TERM: Support for the SPX is at 912 and then 848, with resistance at 935 and then 961. Short term momentum is still displaying a negative RSI divergence after getting extremely overbought. Also the daily RSI is now as overbought as it was at the end on Intermediate wave A, and the weekly RSI is the most overbought it has been since the bear market began in October 2007. The early leader Tech stocks started to display some weakness on Thursday, but Bank stocks continue to carry the market higher. Our upside target for this uptrend remains between two OEW pivots: SPX 1041 (50+% rally), and SPX 1107 (50% bear market retracement).
FOREIGN MARKETS: The Asian market all remain in uptrends with India (+52%) and Hong Kong (+54%) leading this uptrend. The European markets remain in uptrends with the DAX (+39%) leading. The Commodity equity markets Brazil and Canada are uptrending +42%, with Brazil (+46%) leading during this uptrend, and +77% from its Oct 2008 low.
COMMODITIES: Bonds are downtrending and lost 0.3% on the week. We need to make a review of this market, and will advise [later].
Crude boomed higher +12.3% on the week as its uptrend continues. It is now in an important resistance area. Gold gained 3.4% as it tries to confirm an uptrend. Silver (+12%) confirmed a new uptrend earlier in the week.
Currencies: The USD lost 2.5% as its downtrend continues. The Euro gained 2.8% and is in a confirmed uptrend. The Yen gained 0.7% but still downtrending.
NEXT WEEK
Another busy week ahead. On Tuesday the US reports its Trade and Budget deficits. Wednesday we have Retail sales and Inventories. Thursday the weekly Jobless claims and the PPI. Then on Friday the CPI, Industrial production and Options expiration. As for the FED we now enter the twilight zone. On Monday FED chairman Bernanke returns to where the concept of the Federal Reserve System was originated. I quote WTP; "In 1910, a group of the world's most powerful financiers traveled incognito by train one night from New Jersey to Jekyll Island, Georgia to covertly design the strategic, political and legislative foundation needed to install the privately-owned banking cartel that we now know as the "Federal Reserve System." Bernanke will address the Atlanta FED that evening in Jekyll Island. Then he, Geithner and/or others will wisk off to Vouliagmeni, Greece for the annual Bilderberg meeting.
In case you are unfamilar with the Bilderberg meetings: This is a secretive (no press coverage) annual event that started in 1954 at the Bilderberg hotel in Holland. It is by invitation only. Around 125 of the most influential people on the planet meet to privately discuss world events and political/economic strategy for the upcoming year. This year the event is being held between May 14th and 16th. Last year it was held in Chantilly Virginia, USA between June 5th and 7th. As an example of the potential market impact. Last year the hot market was Crude oil. Between Thursday June 5th and Friday June 6th 2008 it surged 14% to $138/bbl before topping a few weeks later. We all know what happened next. This year the hot market right now is equities. Personally I find it absolutely incredible that Bernanke/Geithner addressed the CFR in March, and now Bernanke is going to be at Jekyll Island too. Bernanke, then Treasury secretary Paulson, now secretary Geithner, Rockefeller, Kissinger, Rice C., Summers, Daschle, Johnson J., Schultz G., Wolowitz and Rubin were among the attendees of Bilderberg last year. Should be an interesting week. Best to your trading!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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