Objective Elliott Wave commentary on the S&P 500 and equities, bonds, oil, gold, the dollar and other markets - Tony Caldaro's weekend update

Dear readers, I know enough about Elliott Wave to be confident that it's a very good technical analysis method, but (despite certain advertisements to the contrary) it can be exceedingly challenging. I'm glad to be able to look to Tony Caldaro as a great technician in this method. His method of wave counting and labeling are a little different from what I learned, but I find them understandable and helpful. Here's hoping you will too. (By the way, take note of his comments about oil - I haven't updated that in a while, and it looks like it may have a good move up in the second leg of a rally higher.)
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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques

May 03
weekend update
REVIEW
Economic reports for the week came in scraping along the current lows. Case-Shiller reported home sale prices -18.6% v -19.0%, Q1 GDP was -6.1% v -6.3%, the weekly Jobless claims were 631K v 645K, Factory orders were -0.9% v +0.7%, but ISM was reported a rising 40.1% v 36.3%. Also Auto sales were generally down 30%+ v 40%+ last month. Yet for the fifth week in a row the market rallied after some early week selling to close near the highs. For the week the SPX/DOW were +1.5%, and the NDX/NAZ were +1.6%. The Asian markets were +1.7%, Europe was +2.1% and the Commodity equity markets were mixed. Bonds lost 0.7%, Crude rallied 3.2%, Gold dropped 2.9% and the Euro was flat.

LONG TERM: bear market
From the October 2007 bull market high at SPX 1576 we have experienced two sets of five waves down into the recent March 2009 low at SPX 667. The first set of five waves ended in March 2008 at SPX 1257. A rally to SPX 1440 followed topping in May 2008 before the second set of five waves down. We have been labeling these significant moves as three Major waves to complete Primary wave A of the bear market. Each of the five wave declines were labeled by Intermediate waves. See SPX weekly chart below. Notice the positive RSI divergences at both the March 2008 and 2009 lows. From the SPX 667 low the market has rallied 33%, its best uptrend in points and percentage terms of the entire bear market. This helps to confirm that Primary wave B is indeed underway. However, also notice that the market is now about as overbought as it has been during the entire bear market. Ideally, the market should pullback some soon and then set up a negative RSI divergence like it did in May 2008 before this uptrends ends. Next, using the chart link below go the the 4th chart down on the page SPX monthly. There you will observe that the RSI is rising from an extremely oversold level, but still well below the level set in March 2008 (50%). We're expecting this market to reach that overbought reading before this Primary wave B concludes.

MEDIUM TERM: uptrend
Historically bear markets of this degree contain three Primary waves. Primary wave A makes the first low, then a 50% retracement Primary wave B follows before the final leg down Primary wave C unfolds. This is a bear market pattern, not a bull market. These Primary B waves take time to unfold and start to look like new bull markets after a while. They are often impressive rallies due to the level of volatility associated with bear markets. A 50% retracement of the bear market suggests a rally to SPX 1122. And, we have an OEW pivot at SPX 1107 which fits. However, on closer examination of the historical Primary B waves we noticed that in all three cases the market dropped about 50% during Primary wave A, and then rallied (retraced) 50% of that decline. In 1929-30 the decline was 49%, 1937-38 50% and 1973-74 47%. Therefore a 50% retracement or a rally of 50% would be about equal. During our bear market, however, Primary wave A has declined 58%. As a result a 50% retracement (SPX 1122) is not equal to a 50% rally (SPX 1001). This may prove to be a very important difference. In review of some of the other OEW technical charts we follow, an uptrend concluding at a lower level than SPX 1122/OEW 1107 would appear to be more in line with the characteristics of this bear market. After sorting out all this technical data we have decided to lower the minimum upside target to the SPX 1041 pivot. And now expect Primary wave B to conclude between OEW pivots SPX 1041 and 1107. This lower level still suggests another 18% to the upside from Friday's close at SPX 878.

SHORT TERM
Support for the SPX remains at 848 and then 789, with resistance at 912 and then 935. Short term momentum is rising and finished just above neutral on Friday. The uptrend from the SPX 667 low started impulsing until it hit around 820 in late March. Since then the impulsive activity has turned into a series of rising corrective waves. We accepted the rally into late March as an Intermediate wave A ending in a diagonal triangle. However, the selloff to SPX 780, Intermediate wave B, was relatively short for this type of formation. The market then rallied to SPX 876 in what appears to be another diagonal triangle. We marked this as the end of Major wave A of a three Major wave Primary wave B. Again, however, the sell-off was short as the SPX bottomed at 827 and has since chopped its way higher to the uptrend high of SPX 889 on Thursday. We marked the SPX 827 low as the end of Intermediate wave A of Major wave B, and are expecting Intermediate wave B to conclude shortly. This should lead to an Intermediate wave C decline, ending Major wave B. After this concludes another Intermediate degree ABC rally should take the market to its eventual end of Primary wave B, between the OEW 1041 and 1107 pivots. The market remains on a short term negative RSI divergence at the SPX 889 high. Best to your trading in this choppy market.

FOREIGN MARKETS
The Asian markets were all higher on the week and rallied 1.7%. China and India continue to lead.
The European market s rose as well and were up 2.1% on the week. The DAX is clearly leading.
The Commodity equity markets were mixed as Canada slipped 0.6%, and Brazil rallied 1.1%.

COMMODITIES
Bonds were down 0.7% on the week, but something unexpected occurred. As you are aware we prefer to track yield rather than price, but post both 10YR charts. The yield on the 10YR confirmed an unexpected uptrend his week. This suggests that the bear market low in yields at 2.038% may have occurred in December. This is not confirmed yet, and we will observe this market a bit closer in the coming months.
Crude rallied 3.2% on the week as its uptrend continues. Resistance in the $55 - $60 range.
Gold dropped 2.9% this week after last weeks 5.1% rally. Some have mentioned that an inverse head and shoulders has formed. No confirmed uptrend yet.
Currencies were relatively quiet except for the 2.0% drop in the Yen. The dollar (USD) is very close to confirming another downtrend.

NEXT WEEK
Monday kicks off another busy week with Pending home sales and Construction spending at 10:00. Tuesday ISM services are reported, and Wednesday the ADP employment index. Thursday the weekly Jobless claims, Productivity and Consumer credit. Then on Friday the monthly Non-farm payrolls, Unemployment rate and Wholesale inventories. FED chairman Bernanke gives economic outlook testimony to Congress on Tuesday. Then on Thursday Bernanke speaks before the FED in Chicago. Best to your week.

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987


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Folks, you can always find Tony's Objective Elliott Wave analysis and public charts covering numerous markets, indicators, and individual company stocks, at Elliott Wave Lives On (included in the "other sites of interest" listed at the right side of the page here).