Some Elliott Wave sites sell their services based on fear and the excitement of believing you could short the market down to catastrophic levels virtually overnight. The reality is bearish but not as terrible as they want you to think. While we've turned more bearish again, expecting another swift slide lower, we're not expecting much deeper than SPX 960/980 near-term (my personal guess, that might complete either wave 3 of the first wave, or the entire first wave, of C down)(so far we just did the wave 1 down and looking for wave 2 up to be done, then on down for that wave 3 of C's first wave). But what does Tony think? We're fortunate to reference Tony Caldaro's weekend update from his Objective Elliott Wave site (links here and below, and always at right). Let's see what illumination he brings to the markets today - it's very helpful for making sense of the action we've been seeing!
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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
November 07
weekend update
REVIEW
The world's markets rebounded this week after the previous weeks selling pressure. Australia raised rates another 0.25%, but the US and Europe remained unchanged. Most of the economic reports displayed improvement: ISM, construction spending, factory orders, auto sales, ADP, the weekly jobless claims, productivity and even non-farm payrolls. Yet on friday, the unemployment rate was reported at 10.2%, plus wholesale inventories and consumer credit continue to decline. For the week the SPX/DOW were +3.2%, and the NDX/NAZ were +3.6%. The Asian markets were mixed but rose 0.9%, Europe rose 1.3%, and the Commodity equity markets rose 2.3%. Bonds lost 0.2%, Crude was +0.6%, Gold +4.7%, and the USD (-0.8%) lost ground to the EUR (+0.9%) and JPY (+0.3%). Next week the economic reports are sparse and the markets should trade on technicals alone.
LONG TERM: bear market
As we enter the month of November we also enter the 25th month of the bear market in OEW terms. In some circles this 65% rally, over the previous seven months, is considered a bull market. Considering that the SPX took five years, in the previous bull market, to gain 105%. One could say, in percentage terms, they are correct. Percentage terms, however, do not define long term trends. These trends are defined by the wave patterns. And the patterns continue to suggest that this big rally was a rally within an overall bear market. In early January 2008 OEW confirmed a bear market. We tracked the waves down from Oct 07 SPX 1576 to Mar 09 SPX 667. At that low OEW identified a potential completed pattern, a detailed zigzag, that we labeled Primary wave A. Then based upon historical wave relationships, detailed in the previous weekend update, we projected a five month rally to SPX 1122. Recently, after seven months, the SPX hit 1101. This is within the range of the 50% bear market retracement (SPX 1122) we had anticipated. Recently OEW identified another potential completed pattern, a Primary wave B zigzag. In order to confirm this pattern the SPX/DOW will have to enter a confirmed downtrend. This has yet to occur. We are, however, observing confirmed downtrends in seven of the thirteen foreign markets we follow: the ASX, BSE, DAX, Euro50, IBEX, NIKK and TSX. Often, especially in Asia and Europe, these indices lead the US. Therefore, we continue to believe a potential Primary wave B high has occurred, and Primary wave C should be underway. When confirmed, the two potential scenarios we anticipate are either a retest of the 2009 lows, or a break of those lows into the SPX 400's area. Since Primary wave A took seventeen months to unfold, Primary wave C will also take many months to unfold as well. As it unfolds we'll get a better idea of what to expect longer term.
MEDIUM TERM: uptrend in jeopardy
During the Primary wave B rally we observed a basic ABC pattern. We labeled this structure as three Major waves: A SPX 956, B SPX 869 and C SPX 1101. Each of these three Major waves also subdivided into zigzag patterns of their own. Major wave B was a simple abc, but the two others were more complex. Major wave A took the form of a double zigzig, and we separated each zigzag with Intermediate waves: A SPX 876, B SPX 827 and C SPX 956. Major wave C also took the same form and we have again separated each zigzag with Intermediate waves: A SPX 1039, B SPX 992 and C SPX 1101. Supporting this potential Primary wave B top scenario are fibonacci relationships, momentum and the OEW pivots.
Within the larger Primary wave B structure we observe that during both Major wave A and wave C: Int. wave C equalled 0.618 Int. wave A, a common fibonacci relationship. In momentum, at the completion of each Intermediate wave there was a negative RSI divergence on the daily charts. And, at the completion of each Major wave there was a negative RSI divergence on the weekly charts. In regard to the OEW pivots, every uptrend during the entire bear market has ended at a long term pivot. The current long term pivot is SPX 1107, and SPX 1101 is within range. Finally, the recent decline from SPX 1101 to SPX 1029 appears to be five waves on the hourly charts. This is the first detailed five wave structure to the downside since Primary wave B began in March 09. And, the rally from SPX 1029 to fridays SPX 1071 high looks choppy and corrective. This is exactly what should be observed during a counter-trend rally in a downtrend.
SHORT TERM
Support for the SPX is at 1061 and then 1041, with resistance at 1090 and then 1107. Short term momentum is displaying a negative RSI divergence at friday's high. With the decline from SPX 1101 to SPX 1029 appearing as an implusive five waves, and the rally to SPX 1071 appearing to be a corrective three waves, with a 61.8% relationship. We should now expect the market to turn over at any time. Once the OEW 1061 pivot is broken to the downside the next wave down should be underway. If, by chance, the market continues to rally and hits the 1090 pivot, an extension to the uptrend is probably underway. Bear market patterns are not as easy to decipher as bull market patterns. Corrective waves can subdivide, just like impulse waves. With these parameters set, best to your trading!
FOREIGN MARKETS
Asian markets were mixed but gained 0.9% overall. The ASX (-0.9%) and NIKK (-2.5%) were lower on the week. These two, plus the BSE (+1.7%) are in confirmed downtrends.
European markets were all higher gaining 1.3% on the week. The DAX (+1.4%), Euro 50 (+1.9%) and IBEX (+1.2%) are also in confirmed downtrends.
Commodity equity markets were mixed but gained 2.3% overall. The TSX (+3.1%) is the only one in a confirmed downtrend in this group.
COMMODITIES
Bonds slipped 0.2% on the week. Rates remain in an uptrend but unconfirmed by bond prices as of yet. Another big Treasury auction in the week ahead.
Crude gained 0.6% on the week even with a sharp decline on friday. Still expecting a bit more selling before the uptrend resumes.
Gold has had its biggest rally in a month +4.7% and hit $1100. The uptrend extended, but Silver will need to make new highs to extend its uptrend. Our original target for this Gold uptrend was $1119. It's now getting close.
The USD (-0.8%) pulled back after getting overbought. The EUR (+0.9%) and the JPY (+0.3%) gained against the USD. Expecting the DXY to head higher shortly.
NEXT WEEK
A quiet week ahead, economically. Nothing on the economic agenda until thursday, when the weekly Jobless claims will be reported. Then on friday, the Trade deficit, Import prices and Consumer sentiment. The FED is also relatively quiet this week. FED governor Tarullo gives two speeches. The first on monday night at NYU. The second at the IBBC on tuesday in late afternoon. Wednesday is a federal holiday, Veterans day, but most markets will be open. We salute fellow veterans worldwide.
Best to your week!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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