Elliott Wave points traders in the right direction WHEN it's Objective: Holiday week OEW update by Tony Caldaro

Last week I noticed several traders saying Elliott Wave isn't very useful. I really agree, but only IF it's coming out of a certain perma-bear Georgia organization that seems to make their money by selling alarmist fantasies rather than actually trading experience of their own. Sure, they get some things right. But why not get on the right track with Objective Elliott Wave (OEW)? As Tony Caldaro practices it, OEW is a useful technique for teasing out market price probabilities. If course it helps to use it with indicators too, which Tony Caldaro does with his "the ELLIOTT WAVE lives on" analysis. We appreciate referring to his updates from his http://caldaroew.spaces.live.com/ site to get his objective insight into the markets' path.

I find Tony's approach insightful, well-considered, and helpful for real trading. So let's see what he's seeing this weekend for the upcoming holiday week and beyond:

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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
by Tony Caldaro

December 19
weekend update
REVIEW

Interesting week. The FED had their regularly scheduled FOMC meeting and left the Fed Funds Rate unchanged at 0.0% to 0.25%. The meeting concluded exactly one year after these historic rates were set: Dec 16th 2008. The SPX reacted by dropping about 2% into friday and then bounced into the options expiration close. Economic reports on the week were mixed. Industrial production rose, as well as, housing starts, leading indicators and the Philly FED. The Empire state index dropped along with the home builders index. Weekly jobless claims rose, the current account deficit expanded, and both the PPI and CPI moved higher. Inflation is on the rise. For the week equity prices, worldwide, were mixed. The SPX/DOW were -0.7%, and the NDX/NAZ were +1.0%. Asian markets (-1.8%) were mixed, European markets (+0.3%) were mostly higher, and the Commodity equity markets (+0.2%) were mostly higher as well. Bonds rose 0.1%, Crude gained 3.4%, Gold slipped -0.2%, and the USD rose 1.6% for its third week in a row of 1% gains. The upcoming week is highlighted by the Christmas holiday on friday and an early close on thursday. Happy holidays!

LONG TERM: bear market rally
Historically, holidays are often accompanied by trend changes in the equity markets. The most noticeable of these is the year end holidays. Trends that remain in place past November's Thanksgiving holiday usually continue until the beginning of the new year. Then in the first or second week of January the trend ends. This phenomenon was clearly observable in 2008 and 2009, and in four of the past five years. This also fits well with the weekend market analysis we have provided over the past few weeks. A quick review.

Cyclical/supercycle bear markets unfold in three Primary waves, an ABC, and last from 23 to 61 months. Three have occurred since the supercycle high in 1929: 1929-1932, 1937-1942 and 1973-1974. From the Oct 07 high we counted three waves into the Mar 09 low. We labeled this Primary wave A, and then projected a Primary wave B rally. The two down waves during that decline were about 300 and 800 SPX points. Since then the market has rallied in three waves up to the recent SPX 1119 high. This Primary wave B rally has been about 500 points. The numbers 3, 5 and 8 are sequential numbers in the fibonacci series: 1, 1, 2, 3, 5, 8, 13, etc. This rally is also about a 50% retracement of the initial bear market decline. This is typical of Primary wave B rallies. Oddly enough, Primary wave B appears to be tracking the early stages of the 2002-2007 bull market. During that bull market the first Major wave topped at SPX 954, and the third Major wave topped at SPX 1163. Primary wave B topped at SPX 956 during its first Major wave, and its third Major wave which is still uptrending has reached SPX 1119 thus far. When we examine Primary wave B's internal structure we observe that Major C = Major A at SPX 1158, and during Major C Int. wave C = Int. A at SPX 1162. Therefore, from a wave structure and price viewpoint this uptrend should extend into the SPX 1160's area before topping.

When we examine Primary wave A we observe that Major wave C was 10 months long and Major wave A was 5 months long: a 2 to 1 relationship. During Primary wave B Major wave A was 3 months long and Major wave C will be 6 months long in January: another 2 to 1 relationship. We already noted the holiday phenomenon above, which suggests a trend change in the first few weeks of January. In addition, during this bear market all uptrends have ended at long term OEW pivots. The current long term pivot was at SPX 1107. It was exceeded when the SPX rallied to 1119. The next long term pivot is at 1168 and then 1179. Finally, with a SPX rally into the 1160's area RSI momentum will display negative divergences on the weekly chart, and the highest overbought condition on the monthly chart since the Oct 07 bull market top. It is certainly rare to observe such a synchronicity of technical factors all pointing to the same conclusion: a Primary wave B high in January at the SPX 1160's area.

MEDIUM TERM: uptrend
The current uptrend, Major wave C, has been quite choppy in its rise from the July SPX 869 low. The first uptrend of Primary wave B, Major wave A, from the Mar SPX 667 low was much simpler. Yet both waves are approaching equality in the amount of SPX points gained. The upside momentum of Primary B has been waning for a few months. This is clearly displayed by the MACD on the SPX weekly chart. While the SPX daily chart appears quite difficult to read with all those abc's. The DOW daily chart displays a clearer pattern. It suggests that the current uptrend, Major C, is also unfolding as a double zigzag like Major A. Both of these uptrends remained in alignment until the early Oct. low. Then instead of Minor C, of Int. C, concluding at its next rally high like it did during Major wave A. Minor wave C started to subdivide into five waves of its own. Remember all of the uptrend rallies since the March low have been five wave structures.

When the SPX hit 1101 in October it also hit the long term OEW 1107 pivot. If the wave structure had remained the same the uptrend would have ended, and the selloff into the early Nov. to SPX 1029 would have been the first wave down of Primary B. During the decline Q3 GDP was reported +3.5%. It has been revised lower since then. Reviewing the charts we observed that the SPX had retraced about 50% of that Oct-Nov decline by Nov 6th. That weekend the G-20 concluded its meeting without a word about the declining USD. That sunday night the USD dropped dramatically (-1%) on the Forex. As a result, stocks rallied around the world and the US markets gapped up quite strongly at the open. Markets continue to rally that week, and the SPX made a new uptrend high. The following two sunday nights the USD was heavily sold again on the Forex. By this time the market had entered its recent high level trading range. Then the day before the US holiday Thanksgiving, the USD bottomed and started uptrending. The market, however, was now in the detailed (subdividing) Minor wave C. Quite an interesting series of events right at a critical point in the wave structure.

SHORT TERM
Support for the SPX remains at 1090 and then 1061, with resistance at 1107 and then 1133. Short term momentum is rising off a positive divergence at friday's SPX 1094 low. We could count the rally from SPX 1086 to 1116 as the first wave up of the final rally for Primary wave B. However, the DOW pulled back quite a bit during the SPX 1116 to 1094 pullback. Making that count somewhat questionable. The SPX has remained in its OEW pivot trading range since Nov 9th. That's the first trading day after the G-20 meeting and the heavy USD selling.

Since the USD Thanksgiving downtrend low it has rallied 1% or more for three straight weeks. Yet, the SPX/DOW have remained in their six week trading range. Heading into this shorten trading week we continue to monitor the pivots. The OEW 1090 pivot has provided support for over a month. Should the SPX break to the next pivot at 1061 it will certainly be a warning that change is in the air. A further break to the OEW 1041 pivot would likely confirm that the uptrend has ended. On the upside the SPX needs to finally clear the 1107 pivot and then challenge the 1133 pivot before it can reach long term resistance again at the 1168 pivot. Volume should be quite light for the next couple of weeks until the first week in January. Best to your trading!

FOREIGN MARKETS: The Asian markets (-1.8%) were mixed this week. China and Hong Kong are both getting close to confirming downtrends.
The European markets (+0.3%) were mostly higher on the week. All five indices remain in uptrends.
The Commodity equity markets (+0.2%) were mostly higher as well. All three indices remain in uptrends.

COMMODITIES: Bonds prices nudged up 0.1% on the week. Yet bond yields and 1YR yields are in uptrends.
Crude rallied 3.4% on the week after a two month downtrend. The extremely oversold $70 level might have been the low of the downtrend.
Gold was up 4 of 5 days on the week, but thursdays selling created a 0.2% loss for the week out. Correction continues.
The uptrending USD gained 1.6% for the week. The EUR lost 1.9%, and the JPY lost 1.4% versus the USD. The DXY is close to entering the 78.33 - 81.47 uptrend resistance zone.

NEXT WEEK: Little on the agenda in this holiday shortened week. On tuesday the next revision to Q3 GDP and Existing home sales. Wednesday we have Consumer income/spending, Consumer sentiment and New home sales. Then thursday the weekly Jobless claims and Durable goods orders.

Hope you all had a profitable year. We've experienced some wild swings over the past couple years. Expecting more the same in 2010.
Best wishes to you and yours!

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