Elliott Wave alternatives must reflect more bearish possibilities: Tony Caldaro's OEW update 7/30/11

Sure enough, once 1333 $SPX didn't hold, investors backed off. Whether it's our stars or ourselves dimming bullish potential, the Elliott Wave analysis is tracking that things are much more bearish now for stocks. We turn to Tony Caldaro for his excellent feel for the pulse of various indices (even Google as it's looking more bearish too), as well as gold, oil and other commodities, bonds, currencies, and economic indicators (thanks again Tony!). Keep up with his posts and, via his link, public charts shared from his website (always in the links list at right, and you can find his updates via his tweets as @OEWtony on Twitter, or right here on the OEW feed at lower right side of the page), at http://caldaro.wordpress.com/:
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the ELLIOTT WAVE lives on

July 30, 2011
weekend update

by Tony Caldaro

REVIEW

Equities declined throughout the week right from the gap down open on monday into the close on friday. In the end US equities experienced the worse weekly loss since the Primary wave II bottom in July 2010. The monthly economic reports were mostly negative, outpacing positive reports by 2:1. On the positive side: Case-Shiller, consumer confidence, and the WLEI all improved, while weekly jobless claims dropped. On the negative: new/pending home sales declined, along with, durable goods orders, the Chicago PMI, consumer sentiment, the monetary base, PCE prices and Q2 GDP was lower than expected. The SPX/DOW lost 4.05%, and the NDX/NAZ lost 3.20% even though the NDX made a new bull market high on tuesday. Asian markets were -2.4%, European markets were -3.3%, the Commodity equity group was -2.3%, and the DJ World index lost 2.9%. Next week we have the ISM reports, Auto sales and the monthly Payrolls report.

LONG TERM: bull market remains at inflection point

For the past several months we have been reporting this market was deviating from our projected expectations. The July 2010 uptrend lasted a month longer than expected and ended above 1313 pivot, and uncharacteriscally in between two pivots. The February 2011 correction that followed ended above expectations, but it led to a shorter than expected and weak March 2011 uptrend. Then in June the market become quite oversold, for a bull market, on the weekly RSI. Nevertheless we stayed the course of a subdividing Primary III. We posted a couple of bearish SPX alternate counts on the NDX/NAZ charts. Then one on the DOW charts. During the month of July, however, the market stalled in its long term upward trend offering a variety of potential counts. We call this type of event an inflection point. Some are resolved to the upside, like 2005 and 2010. Others are resolved to the downside like in 2007. This one is leaning to the downside, but none of the five potential counts have been eliminated yet.

When we review the foreign markets, (which continue to be weak), the long term technical indicators, (six of the eight are displaying negative divergences), and the potential OEW chart patterns, (one has the bull market completed, two have it in the process of completing, and the other two suggest it will continue), we sense there are just too many negatives at this time for the bull market to continue much longer. If it has not already ended. We noted this week the SPX/DOW could have peaked in May and the NDX/NAZ recently in July. These counts are gaining in probability. We continue to employ a defensive investment strategy.

MEDIUM TERM: uptrend in jeopardy

The uptrend from the SPX 1258 June low had barely travelled 100 points (1356), and is now already in danger of confirming a downtrend. Unless the market rallies strongly in the next few days a downtrend confirmation is all but assured. Should this occur some of the potential counts will begin to get eliminated. The market is at a point in time is determining its own future path. Currently the SPX/NAZ counts, charts above, hold the highest probability.

When we review the internal waves of the current uptrend in the four major indices. We see a clear five waves up in the NDX to new highs, a nearly clear five up in the DOW with no new high, and either a failed fifth or three wave advance in the SPX/NAZ. The recent selloff has already retraced most of the uptrend in the SPX/DOW. Should the OEW 1291 pivot fail to hold support a downtrend confirmation is next.

Currently, three of the nine SPX sectors are already in confirmed downtrends, the VIX is uptrending, six of the fifteen world indices are in confirmed downtrends, and four of the five Commodity sectors are in confirmed uptrends. This suggests equity markets around the world are weakening, volatility is increasing, and the commodity bull market is re-establishing itself. Investors may now be shifting from paper assets to something more tangible; like crude oil, basic metals, livestock and of course precious metals. What is also disconcerting is the potential longer term diagonal triangles in the economically sensitive FDX, and one of the tech leaders GOOG.

SHORT TERM

Support for the SPX is now at 1291 and then 1261, with resistance at 1303 and then 1313. Short term momentum created a positive divergence at friday's SPX 1283 low and the market rallied to 1304. The best rally since this decline began on monday. Every day this past week was met with a lower low than the day before. And, overnight selling created gap down openings, breaking through support levels, on three of the five days. Until this pattern changes the market will remain under selling pressure. Short term support is at the 1291 pivot, the mid-1280′s and then the 1261 pivot range. Overhead resistance is at the 1303 and 1313 pivot ranges.

Should this market continue to decline, breaking through the OEW 1261 and 1240 pivots. Then three of the potential counts will be eliminated and we will be left with two bear market counts: SPX/DOW peak in May and a NDX/NAZ peak in July. Support, longer term, under a bear market scenario is around SPX 1000. Should the market hold the OEW 1261 pivot the bull market still has a change to reassert itself.

To sum it up, objectively. If the OEW 1291 pivot fails we're in a medium term downtrend. If the OEW 1261 pivot fails the bull market is certainly in serious trouble. Then if the OEW 1240 pivot fails a bear market is probably underway. Best to your trading/investing.

FOREIGN MARKETS

Asian markets were mostly lower on the week losing 2.4%. Australia and Hong Kong remain in downtrends. China and Japan in bear markets.

European markets were all lower for a net loss of 3.3%. Spain, Switzerland and the Stox are in downtrends. Spain and Switzerland in bear markets.

The Commodity equity group were all lower for a net loss of 2.3%. Brazil is in a downtrend, and very likely a bear market.

The DJ World remains in a weakening uptrend losing 2.9% on the week.

COMMODITIES

Bonds rallied strongly on friday +1.1% on the week. Bond prices are uptrending and rates downtrending. The 10YR is now at 2.8%.

Crude is again uptrending, but lost 2.6% on the week. This has been a choppy market lately.

Gold made new all time highs again this week, gaining 2.0% and hitting $1638. Silver is uptrending but ended the week -0.5%.

The USD is downtrending again, losing 0.4% on the week, and also quite choppy. The EUR gained 0.3%, the JPY gained 2.2% to all time new highs along with the CHF.

NEXT WEEK

A busy economic week starts on monday with ISM manufacturing and Construction spending at 10:00. On tuesday Personal income/spending and monthly Auto sales. Wednesday we have the ADP index, Factory orders and ISM services. Then on thursday weekly Jobless claims. Friday we have the monthly Payrolls report and Consumer credit. The FED has nothing scheduled ahead of the FOMC meeting on Aug 9th. Unless, of course, the political circus in Wash, DC fails to extend the debt limit. Interesting week ahead. Best to you and yours!

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

Cube's back as QQQ and Google reestablish bullish potential

The "cubes" are back! so use QQQ again, not the QQQQ anymore, for your ETF tracking the Nasdaq 100 index ($NDX). The change back to QQQ happened March 23, just as the market reestablished bullish potential with the push up. Some components look quite good, and check out Google ($GOOG) below (bottom chart). First I show the QQQ hourly chart on which the candles moved above the 200-hour MA (moving average). Then Friday afternoon saw a retest of that level. Sure, it could drop below that again, along with a pullback from the 50-day MA indicated on the QQQ daily chart (middle chart below). But there's reason to see this bullishly positioned, so KI$$ position swing traders should be positioning long with a stop loss just under the lows of the prior week. Notice that Google ($GOOG) bounced from its 200-day MA test. That makes it a classic bullish long play.

Around the holidays I featured charts on Google showing that it should be a great long-term position that may double as its next big move. I also explained then that it would most likely rise and fall first, and we should really buy that dip. Guess what? It's time now! Because that scenario did play out perfectly. The buy signal for Google as it bounced from its 200-day MA also helps cast the QQQ, Nasdaq and even broader indices in a favorable light.

We may not always know at the buy-signal time exactly what fundamental reason will turn out to provide the rationale for the next big leg up. But we can read charts. And they're saying that these markets are ready for the bulls to show what they can do.

Google's potential huge wave 3 of three of 3 worth investors' attention in 2011: Review of Tony Caldaro's OEW count

Think Google's blazing performance is a thing of the past? Think again! There's a great forecast showing that, after some more rise and a little consolidation, Google should make another fantastic huge advance past the $740's to new, very high all-time new highs. This could make Google stock a great last-minute holiday present for anyone on your list (your broker can even deliver the stock certificate, but within a brokerage account is so much easier), and should rise well during 2011 and beyond. Why am I recommending this? It's a great stock setup based on its chart pattern, not to mention its predominance in the still-growing technology industries. I've browsed Tony Caldaro's Objective Elliott Wave counts on individual stocks and chose to feature this one today (thanks again Tony!). You can follow it anytime in his public charts list, using the link in each of his updates (featured here each weekend, and daily at his own "the Elliott Wave Lives On" site - see his feed, and link in the sites list, at the right side of the page anytime here). Let's take a more detailed look.

Tony has it marked as making a wave 3 of III of [3]. If you don't know how Elliott Wave works, I'll explain a few things. First and most important: Google should have made an important low and not revisit $440 again. For KI$$ purposes, just place a stop under $440 and don't worry about it. Once Google has made additional important swing lows, the stop can be moved up depending on your investment time horizon (and keep an eye on Tony's wave counts as the weeks and months roll by). Looks to me like Google will test a bit higher, then probably consolidate - maybe a rise into January and correction into March, we'll see. That correction, if it happens, will be another buying opportunity so long as price remains above $440. So accumulate on such dips. Because at some point Google will start hitting new all-time highs above the $740's and the recognition will help drive a massive wave 3 of III (three) of [3].

Stock price pattern analysts will also appreciate that, since its prior peak, Google has made a bullish reverse head-and-shoulders pattern (or some may see a traditional cup-and-handle pattern). On that basis, the Google price could tack on almost $400 additional per share. That's the kind of gift that keeps on giving!

Thanks to Tony once again - here are his daily and weekly charts of Google:

GOOG technical weakening should bring good pullback soon; prepare for that AND the next buy point

Google's stock price (GOOG) has continued upward as a stalwart of the Internet sector and even the S&P 500 index. However, it's now experiencing negative divergence as its technical indicators weaken. This is shown by the first chart below. It's also already met a default P&F target of $544 (bottom chart). This portends a pullback at least, so it's a good idea to be on guard and start considering hedging or other strategies. There's certainly a rising 200-day moving average to provide support in the $400's. And it could get there - I also checked Tony Caldaro's public charts at his OEW site (see in sites list at right - thanks again, Tony!), daily and weekly below. Despite an extended fifth wave move, it should be nearing the crest of what would be wave I in Objective Elliott Wave terms. A trend reversal to move down in wave II must be confirmed by a reversal pattern. But if my wave counting is anywhere near right, that wave I crest should be very close.

There's also price resistance as you can see in this area, looking at the prior swing high before the panic low. It's another reason to be alert for a reversal.

A price target for a wave II down can be in the $400's and coincide with testing the 200-day moving average. It's true it could go deeper, since second waves often retrace about 62% or 70.7% of the first wave move. But that doesn't always hold true, especially in a strongly trending move. This particular wave I and II are within the context of a larger wave [3] according to Tony's view - which looks right to me. This implies a strong uptrend, so the wave II may not go as low as bears might wish. Although note, the psychology of second waves is they make you feel their movement is a return to the prior trend (i.e., in this case, a return to the big bearish downtrend). At any rate, consider looking at a move toward the 200-day MA, along with what the P&F objective is showing by then.

Once the wave II pullback shows up and completes after some weeks, then GOOG should provide its best swing long yet, because a wave III of [3] should vault well above the old wave [1] already notched. (Third waves often travel at least 1.618 the length of the first wave - that's one of the reasons I focused on $1192 in gold.). So by the time GOOG completes its wave II pullback, which might be in a couple of months, get ready to put some of your KI$$ portfolio in it (wonder if they'll finally do a stock split by then? not that it would make any difference!).

A look at GOOG: Some stocks go up, even if dip occurs that should be bought

Google (GOOG) actually is in a - gasp! - bull market uptrend, even if it falls back before uptrending again. Just because we're preparing for a rally crest to top out in a few trading days for broad stock indices, doesn't mean all stocks are in bear markets. GOOG is an example of one that completed its big wave [2] pullback at the low and working on higher waves to higher highs. So a stock market correction (even if broad indices make new lows) can simply coincide with a moderate correction in Google. Below are daily and monthly charts of Google. And I've also borrowed from Tony Caldaro's Objective Elliott Wave, from his public charts, specifically his weekly chart of GOOG (at page 18 in his charts - thanks Tony!). These show what I'm talking about. As for its point and figure (P&F) chart, it already met its $544 projection, but made a breakout move on November 10 to the low $570's which might be indicative of probing for a wave I top.

Assuming that GOOG goes into a correction - either from here, or after another push upward - then one possible level to look for a pullback would be in the $400's. Here's the deal - GOOG is marked as nearing a wave I top, after which there should be a substantial wave II correction. Often those will retrace 62% of the rise - which obviously would be very deep - but since this will be a wave II within a larger-level third wave up, it might not be that deep. Hence my mention of the $400's as a place where it might get pullback support (based on prior price consolidation area). The P&F chart support currently sits at $420 too. For fine-tuning it will also help to see where the 50 and 200 day moving averages are sitting at that time (plus the Bollinger Bands' midline on the monthly chart should help provide good support in that area).

The bigger take-away, so to speak, is this: whenever it tops the wave I, it can be tradable for the wave II drop. But even better, once it finishes that wave II pullback, it should make a fantastic buy for a wave III of [3] up. Granted this will take months to play out. Just remember these wave pattern ideas so that once GOOG goes into a pullback, you won't think it's headed to new lows. Instead, even if you play a wave II pullback from the short side, you'll want to be ready to get long once the wave II finishes.

To "B" or not "B" topped out in equities? Checking for clues

Scared bulls yesterday, scared bears today - just a couple of reasons why it's good to be not bullish - not bearish - and not biased! Let's look at a couple of sectors and the ETF for the Dow Jones Industrial Average (DIA) for clues on whether the "B" wave has topped out. First a general comment - as you'll remember I've said including this morning, the wave count is provisionally marked as having completed "B" but hasn't yet confirmed. Want an easy way to know if it does? Well, aside from violating the recent swing lows, we'll know once sector after sector - and the broad indices - drop under their swing lows of early this month. The biotech sector ($BTK, not shown below) almost did that but struggled higher today to suggest it might pull off a bullish double bottom - will see. As for the banks, they actually staged a recovery today too but as you can see from the KBE chart below (main banks ETF), they've created a range in recent weeks just above support from the May high. They'll either break above that range, or below it - simple enough. The KRE (regional banks ETF) has created a different but essentially similar pattern, a contracting triangle over the same time period (since they couldn't manage a new high when KBE recently did). This is one sector that means a lot for the rest of the markets.

I've included the HHH (Internet sector ETF) also, given the interest in Amazon tonight. It's obviously been stronger, but sports the same kind of negative divergences that are plaguing other equities indices lately. The Internet sector may not make a new low, but they also look too weak to play a major role propping up the broad equities indices.

Also below is the DIA - it did well today, but let's allow it to prove that it can muster another new high. Otherwise, its wave pattern and technical weakness aren't great arguments to be bullish on it right now. My guess is we'll close out the week tomorrow without a definitive answer - but that's typical for a Friday anyway!

How about Terry Laundry's T Theory? If you go to his T Theory site (always in the list at right), you'll see that he's spruced it up with a pointer to his other T Theory Foundation site, where you'll find T Theory Foundation: T Theory Calculations, Daily Updates, Charts and Data at http://www.ttheoryfoundation.org/t-theory-calculations.html. This is the statement he posted this evening - but do drop in at his site links to see his charts and other work.

Oct 22th Comment: No change to mid Oct top. Just had a long Skype video with Peter Eliades. The small red AD T formed out of the early October low in todays chart has expired but the high ARMS Ratio of the past few days is just causing more topping. Terry

Bottom line: don't get too excited either way. As I pointed out this morning, trend reversal patterns - which I do believe we're seeing now - can have surprises before they confirm. Since we don't have confirmation yet - don't be too surprised if you're surprised by the volatility (in both directions)! Going much above that SPX 1095 level would say it isn't quite topped out yet. But unless and until that happens, today's sharp rise merely tested that broken 1095 support - so I'll give the coin toss to the "bearish" camp, and let the "bulls" see if they can prove otherwise when the games resume.