Maybe I'm not the only one who received financial advisory emails in recent days warning of the possibility of another big equities market drop, a "Hindenburg Omen", or similar dire warnings, even as other analysts have argued that the green shoots really are taking root, or at least that an Elliott wave 2 upward should take us much higher. What's the truth about the Elliott Wave indications for the markets? Folks, we're fortunate to feature Tony Caldaro's Objective Elliott Wave updates from his site where, as he puts it, the Elliott Wave Lives On. His weekend comments are below, and you can locate his charts of equities and other markets using the charts link he always provides with his comments:
=============the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
July 03
weekend update
REVIEW
The main driver of economic news this week was the monthly payrolls report. The unemployment rate nudged up to 9.5%, monthly Job losses increased from 322K to 467K, and the average Workweek dropped to 33.0 hours. Weekly unemployment claims remained over 600K: 614K v 630K. Consumer confidence dropped to 49.3% v 54.8%, Construction spending dropped to -0.9% v +0.6%, Pending home sales dropped +0.1% v +0.7% and Case-Shiller home prices were -18.1% v -18.7% year over year. Chicago PMI improved, as did the ISM index and Factory orders, and Auto sales continued to decline between 30% to 40%, but Ford was only down about 10%. The equity market started the week on the upside, but then gave it all back after the payrolls report. For the week the SPX/DOW were -2.2%, and the NDX/NAZ were -2.3%. Bonds gained 0.4%, Crude dropped 3.5%, Gold lost 1.1%, and the Euro slid 0.4%.
LONG TERM: bear market
We have arrived at an interesting juncture in the worldwide equity markets. After more than a year dominated by downtrends many markets have surged: India (+94%), Brazil (+87%), China (+86%), and Hong Kong (+69%), while the SPX has rallied 43%. Most market pundits have become bullish, claiming a new bull market. While others have remained skeptical, suggesting fundamentals do not support sustainable economic growth at this time. We are beginning to see some technical evidence that both may be right, depending upon which equity market one is observing. The four foreign markets mentioned above may have seen their bear market lows. Yet, none of the other markets we follow; Australia, Canada, Germany, Japan, the UK, or the US, display any technical evidence of having reached their bear market lows yet. An OEW technical review of the US bear market displays why we maintain this view.
At the October 2007 high the US stock market completed a multi-decade Supercycle bull market, (1932-2007). Our bear market, thus far (Oct 2007-Mar 2009), has been only seventeen months. Even if the 2007 high completed only a Cyclical bull (1974-2007) market, historically the subsequent bear market would take between two and five years to complete. From the SPX 1576 high we counted three Major waves: Mar 2008 (SPX 1257), May 2008 (SPX 1440) and Mar 2009 (SPX 667). This 58% drop in the SPX represents only Primary wave A, of a Primary ABC bear market. All bear markets unfold in three waves. A few days after the SPX 667 low we projected that Primary wave B was underway. The market then rallied to the high of SPX 956 in just three months, a 43% gain. When the end Primary wave B is confirmed, then Primary wave C will take the market to its eventual bear market lows. The wave structure of Primary C will determine if the SPX holds the 667 low, or breaks lower into the 400 area to end the bear market. With the SPX closing just under 900 this week, the long term risk remains to the downside.
MEDIUM TERM: DOW downtrending, SPX yet to be confirmed
The uptrend from SPX 667 to 956 continues to be counted as a zigzag. Wave A concluded at SPX 833, then wave B at SPX 780, and wave C unfolded in five waves concluding at SPX 956. At the highs many negative divergences appeared on all timeframes, and the longer term charts were the most overbought they had been for the entire bear market. This is typical of a Primary wave B high. On June 12th the SPX started to decline. The decline ended on June 23rd when the SPX hit 889. This 67 point drop was the largest downwave since the uptrend began on March 6th. During this decline the Housing index (HGX) confirmed a downtrend. Then the regional banking index (KRE), three of the sectors in the nine sector SPX, and the DAX and FTSE all confirmed downtrends. The technicals definitely began to deteriorate.
After that low the market rallied until July 1st, when the SPX hit 932, slightly more than a Fibonacci 61.8% retracement. We have counted the decline as Minor wave 1 (SPX 889) and the rally as Minor wave 2 (SPX 932) of the next downtrend. On Thursday the DOW was the first of the four major US indices to confirm a downtrend. Expecting this next wave of selling to be Minor wave 3. All the counts mentioned are noted on the charts in the link below.
SHORT TERM
Support for the SPX is at 848 and then 789, with resistance at 912 and then 935. Short term momentum is extremely oversold as of the close on Thursday. The decline Wednesday/Thursday from SPX 932 to the close 896 is displaying signs of a third wave. This fits with our short term count of Minor wave 3. This initial decline would be the first wave of a Minor third wave. Typically the market will try to rebound at some point, possibly to the OEW pivot at 912, before entering the third wave of Minor wave 3. Observe the pattern of the hourly RSI during the first decline, and this should give you a good idea of what to expect. Best to your trading!
FOREIGN MARKETS
The Asian markets averaged a 0.4% gain for the week. India and China rallied while the others declined.
The European markets were -0.75%, as both the FTSE/DAX declined in their confirmed downtrends.
The Commodity Equity markets were -1.2%, as both Canada and Brazil were lower.
COMMODITIES
Bonds (bear market) gained 0.4% on the week as they rally in a potential uptrend.
Crude (bear market) lost 3.5% on the week. Crude is very close to confirming a downtrend.
Gold (bull market) lost 1.1% on the week, and is also close to confirming a downtrend joining Silver which has already done so. Support now appears around $875.
The Euro (-0.4%) appears to be downtrending, the USD (dollar, +0.5%) appears to be uptrending, and the Yen (-0.8%) remains in a downtrend.
NEXT WEEK
Monday starts the economic week with ISM services at 10:00. Then Wednesday the Consumer credit report. Thursday, the weekly Jobless claims. Then on Friday the Trade deficit, Import prices index, and Consumer sentiment. The FED again is quiet. Best to your weekend and week!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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