Some market indicators aren't as bearish as you might think: Chart review

I'd like to share various charts below, to demonstrate that things aren't as bearish as you might think - at least through the end of this year. First, our year 2011 forecast in general is currently showing that, once we get past October (whatever turbulence it may bring), the markets should be up for a "Santa rally" into November and December, maybe beyond. Second, look at the Baltic Dry Index ($BDI) chart below - it made a huge move up recently (kinda reminds me of how Google ($GOOG) has powered up recently! The $BDI has gotten overbought but that doesn't mean it'll crest immediately, or that it won't rebound for a first retest from a pullback.

Below that are daily and monthly charts of the Dow Transports index ($TRAN). Along with the $BDI, these tend to track economic activity, and it's positive they've been rising to challenge the 2007 highs. They've dropped back, but notice now the daily chart's volume-by-price indicator (horizontal bars) show an "air pocket" above the current price, although heavier resistance by this year's highs. Even if the Transports can't move above the monthly chart's double top, there's room to rally up more for another effort.

Last, I've added the McClellan Oscillator chart for the Nasdaq (with its summation index in a lower indicator window), and the $TRIN Arms index. The McClellan Oacillator shows the market's near-term frothy, but can do a first retest after a pullback, and the longer-term indication from the rising summation index clues us in that the market has room to move higher when it's ready. Finally, the $TRIN similarly shows that the market is overbought, but the $TRIN's moving averages are high enough that they show the market has room on the upside before it finishes working off the bigger-picture oversold condition.

It's true that other breadth indicators (like the Nasdaq advance-decline data, shown in a long-term chart at bottom) show that market isn't running strong. But once we get past possible turbulence into later this month, the new-month new money plus seasonal influences are likely to afford swing and KI$$ traders a decent rally to ride, at least into the end of this year.

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

Transports are a train that's still chugging toward new highs

Ready for a Dow Theory bullish (buy) signal? Got IYT (ETF for the Dow Transports or $TRAN)?! There isn't enough buzz about the Nasdaq having exceeded its 2007 high, but it'll probably be different when the Transports index manages that feat, as it's poised now to do. That's because, unlike the Nasdaq, the $TRAN's 2007 high was higher than its 1999/2000 era peak. The Dow Transports reaching to all-time highs is a bullish Dow Theory signal that will be confirmed if - and when - the better-known Dow Industrials (DJIA or $INDU) do the same. On a simple wave basis (similar to a huge reverse (bullish) head-and-shoulders pattern), the $TRAN should gain an additional 10% to hit at least 6000. Notice that the point and figure (P&F) chart at bottom, below, indicates a bullish target about 6350.

As long as the Transports index doesn't violate recent swing lows (thus erasing the P&F chart warning), its apparent wave count and technicals look supportive for it to continue flying high. There are some who especially like the airline sector, by the way. Interestingly, Dow Theory is a very old theory (precursor to R.N. Elliott's Elliott Wave Theory) saying that when BOTH the Dow Industrials and the Dow Transports make new swing highs (or swing lows), it's bullish (or bearish) overall. When it's only one, then it's tentatively bullish (or bearish, if new lows), until it's "confirmed" by the other index doing likewise. So this won't be confirmed until the Industrials make new all-time highs. You can see from the Transports' higher highs and higher lows on the daily chart, the volume-price bars (showing good support that's being moved up from now), and technicals in the daily and monthly charts below, this index is going strong. Certainly the Transports' strength bodes well for the rest of the economy and markets. It shows that "something's moving"!

In that sense, this bullish indication is similar to that provided by the Baltic Dry Index ($BDI); something I addressed in a post last week. So for my readers who went long on Wednesday or Thursday last week on that (perhaps along with other things we've pointed out here) - how's that working out for you? Pretty well ... and with a stop just under last week's lows, it should be a good long-side swing for a while!

"Blue light special" for stocks on sale today? Technicals say it's possible but remain cautious

All that big scare this morning - as the yen popped nicely up testing our 111.49 (FXY / $XJY) pivot - and equities dropping ... only to rise from the lunch hour doldrums to start a short-covering rally! Anyone following my tweets - and I must disclaim, that I cannot guarantee I'm able to see or tweet about everything, every day - but still, I tweeted mid-day saying that the SPX could get support at 1090 and making something happen to the upside. Well it happened! So was this just a "fund manager's 'blue light special'" of sorts? Maybe - since fund managers often like to buy in the few days prior to the end of the trading month, in order to get better stock pricing, and get ready for the influx of new month in the new month. But the technicals, as I've marked onto the SPX daily chart (at right), show there's still strength in this market.

Surprising areas of strength included not just the transports - mentioned below - but also retail (with the RTH pushing over $95) and real estate (with the IYR closing at almost $46).

If you're cynical (and ain't it fun to be!), you say that IRA and 401(k) money doesn't necessarily get the best deals with the new-month/new-money idea, as there's some evidence of a cycle of higher stock prices in the early part of a month and weak around the 26th (in normal months - this being February, tomorrow's Friday the 26th but then a weekend and presto, it's March). But it isn't a strong enough statistic for anything other than being aware of it and keeping it in mind. Of course that was partly on my mind with the remark about the SPX getting support at 1090. Another thing on my mind was that some Elliotticians are saying this can be part of a "wave 4" before a "wave 5" to finish a move up, perhaps to the .707 retrace level about 1114 SPX. I don't know if that is the right Elliott Wave count or not. I could also suggest that the recent decline on the hourly chart (below) shows a leading diagonal and that the SPX may drop down from it to re-test the 1030 level, either as a price level or as the area of the 200-day moving average. Traders may as well be prepared either to follow a move that pushes higher - even if short-lived (will address that in the next paragraph), or go bearish if the market cannot sustain this afternoon's rally.

The Bradley turn date that I posted about yesterday, is coming right up. Will it be a turn higher or a turn lower? Last year, the mid-summer turn date that was indicated to be a high, turned out to be more of a twisting type turn that pivoted the stock indices out of a turn down and into a strong trend move higher. Let me say up front, I'm not a huge Bradley fan - I guess because I haven't yet seen a Bradley chart that was "tradable" meaning that I could go long at an indicated low and short at an indicated high. Maybe it's because those turn dates are merely that - turn dates. But - it doesn't hurt to be aware of this!

KI$$ swing traders may as well keep in mind our overall plan for this year 2010 - the idea of high points January, maybe March, and then definitely May and perhaps August. Along with the idea of a low point in March that we will want to buy. Maybe we get an intermediate high and then a low (whether lower low or higher low) in the next two or three weeks - if so, that will meet our overall yearly plan. If I understand Terry Laundry's T Theory daily update this morning correctly (readers - check out his T Theory site in the sites list at right), this may be consistent with what he's seeing too. So KI$$ swing traders should not feel they should wade in here, especially not with the Bradley turn date. And especially not at a time when the euro MIGHT get support, but MIGHT NOT and might go into a wave (3) of 3 of C down to test $112 on the FXE / $XEU charts.

I've added the Dow Transports ($TRAN) chart at bottom, daily chart, with additional markings for it. If you've followed Tony Caldaro's updates you know that he's viewing the transports as having a bullish chart pattern (check out Tony's Elliott Wave Lives On site in the sites list at right). So, no real surprise then that it looks like the $TRAN got support at the February lows, at a possible uptrending parallel channel. If that channel doesn't give it support then traders who are long the transports may want to re-examine. But the markings I made on that chart suggest that it isn't really looking bearish, at least not yet. This may be part of what helps the overall stock indices remain positioned to make a high in May as Terry Laundry has been indicating in his T Theory charts.

Promise of continued rally into mid-January on track as market shows it isn't quite ready to crash

Today the equities markets looked like they made an "abc" corrective pullback rather than the prelude to a crash some EW(I) types are looking for. The pop up into the close (some will call a stick save) might be the first move up to complete a "wave (5) of 3" or just a small "b" wave of some level - I can see either possibility, and we'll just have to see if a cyclic pull downward tomorrow makes a lower level such as testing 1122 or 1117 (for the latter case), with the likelihood in any event that the SPX should remain above 1117 for now. Tony Caldaro has made his evening update of his Objective Elliott Wave (and I know Andre is updating to his subscribers. As for me, I'm happy to think that whatever low we may see tomorrow can lead up into year-end and then we may see a more choppy set of moves setting up for "the January high".

Meantime, notice the NYSE advance/decline was up again, supporting this view that the top isn't in yet. But there remains fraying and divergence. The banks were down, also semiconductors, and even the transports were weak. But it's just something to be aware of, as far as the broad indices are concerned. So either play for year-end games, or flatten out and enjoy the holiday season ... And start readying for the strategies we want to trade with in the new year. Currently that means expecting continuation higher into mid-January, even if it becomes choppy. Then a possible sharp drop for a couple of months, and then some real work in terms of whether or not we get higher or lower highs in May and August. That's about the best summary I can make right now. I know that Tony Caldaro is now counting the transports bullishly - so perhaps we'll see them make a large first wave top when the other indices are finally ready to call it a top.

Another sign I'll look forward to seeing in a few weeks will be some real low TRIN readings. Today it was rather high most of the day, as equities weakened, so that's another clue the markets aren't ready to roll over yet.

Meantime we'll also see whether the 50 dma is trouble for gold and oil, and whether the euro can make a higher retrace. And if bond yields will just march higher - as $TNX (10-year note yield) looks poised to do). Whereas the dollar has held the key for a long time, I'm getting the feeling that role will soon be played by interest rates. Meaning, if market rates force the Fed's hand and therefore throw cold water on the asset price rises. Something to keep in mind over the next few weeks.

Brazil, China & Hong Kong (& Dow Transports) in bull markets - but US equities still in bear-rally malaise: Tony Caldaro's OEW update

While some Elliott Wave prognosticators are adjusting with triple zigzag ideas (which of themselves are understandable, I'll say) and then talking about this soon topping the markets before a whopper third wave down (which doesn't make mathematical sense as I've pointed out before) - Tony Caldaro's on the beat with his Objective Elliott Wave; that's why we keep his site always in the list at right. He had outlined rally objectives long ago that included 1122 and 1179. And we appreciate being able to refer to his updates. Especially given the wow! market movements this past week! The title to this post mentions malaise, but the uptrend is not over yet .... Let's see what Tony's thinking now:
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the ELLIOTT WAVE lives on
Market analysis using proprietary Objective Elliott Wave techniques
by Tony Caldaro

December 05
weekend update

REVIEW

The SPX breaks through the long term 1107 OEW pivot and moves higher. The big surprise this week was the monthly Payroll report: -11K v -111K jobs lost, and the Unemployment rate slipped to 10.0% from 10.2%. The weekly jobless claims improved as did the ADP employment index. Also on the positive side were construction spending, pending home sales, factory orders and the Chicago PMI. ISM manufacturing reported as expanding, but at a slower rate, and ISM services were reported contracting. All in all another positive week. The markets, however, were quite volatile, especially on friday. For the week the SPX/DOW gained 1.3% and the NDX/NAZ added 2.1%. Asian markets soared +5.9%, Europe gained 2.3% and the Commodity equity market were +1.5%. Bonds lost 1.6% for the week, Crude was -0.8%, Gold -1.3% and the USD gained +1.1%. This upcoming week is highlighted by the twin deficits on thursday, and retail sales on friday.

LONG TERM: bear market rally
When attempting to cover a massive amount of stock markets, indices, sectors and asset classes. It helps to lump together, for the purposes of labeling the waves, those that are in similar categories. Otherwise the task would be monumental. One of the major advantages of OEW is that it quantitiatively defines the significant waves, whether or not the labeling is correct. This is where the rule of anticipate, observe and adjust comes into play. After most of the world's stock markets generally topped in 2007, they collapsed together into the 2009 lows. OEW identified the topping process and confirmed a bear market in the second week of January 2008. As the bear market unfolded, OEW continued to quantify the significant waves right into the March 2009 low, when a completed zigzag was observed. Then based upon historical analysis of bear market rallies of this degree, we projected a 50% retracement rally. We initially expected most of the world's stock markets would follow this scenario. Which they did. Some even bottomed a bit earlier in late 2008.

As this bear market rally unfolded we noted some very strong foreign stock markets and asset classes. We commented about these from time to time. However, we generally left them with a bear market rally labeling, except for Gold, Silver and most of the Currencies. Over the past few months, as upside impulsive wave structures started to form, we gradually shifted the entire commodity sector to a bull market labeling. While this was occurring Brazil and the US Transports were also upgraded to bull markets. This week, based upon OEW analysis, we are upgrading China and Hong Kong to bull market counts. We are making a special comment about this shift because several other foreign markets are also displaying potential impulse wave structures. This does not imply that these stock markets will go straight up from their current lofty levels. What it does imply is that neither Brazil, China nor Hong Kong will revisit their bear market lows. If, and when, some of the other foreign markets are upgraded to bullish counts, we will make note of it on the blog.

While two of the BRIC nations and HK appear to be in bull markets, the older western nations do not. This is not unusual during a general worldwide bear market. Fast growing economies usually recover more quickly that slow growing economies after downturns. For example, during the last general bear market (2000-2003) Russia remained in a bull market; India bottomed in 2001; Brazil, Canada, Spain and the US bottomed in 2002; and the rest bottomed in 2003. Now to the US indices.

We continue to anticipate a retesting of the Mar 09 lows in 2010, or in 2012 if some extraordinary events unfold. The year 2010 is not only a time period for the very consistent four year cycle low. It is also consistent with the average duration of a US Cycle/Supercycle bear market. From Oct 07 to Mar 09, OEW counted a completed (5-3-5) zigzag. The labeling of this zigzag is on the SPX/DOW weekly charts, (link below). After a completed wave pattern, in this case Primary wave A, the market should enter a counter-trend rally, or Primary wave B. Historically, these types of counter-trend rallies, in Cycle/Supercycle waves, are often quite explosive and often mistaken for new bull markets. At the Mar 09 lows we suggested a 50% retracement (SPX 1122) Primary wave B rally should now be underway. This projection appeared outrageous to most at the time. However since it was based upon historical references to similar wave structure events. It nevertheless unfolded as originally projected. Naturally, not all bear markets are exactly the same. However, all bear market wave structures unfold in three larger wave patterns: an ABC. Now, after a 50% retracement counter-trend rally, in both the SPX and DOW. It again appears outrageous to most that a retest of the Mar 09 lows is in the near future. When Primary wave B completes, that retest should be underway.

MEDIUM TERM: uptrend makes new high
After the Primary wave A zigzag bottomed in Mar 09 at SPX 667, Primary wave B has progressed in three significant waves. If these three waves were a simple 5-3-5 structure, it would have been easy to identify its end. However, right from the first uptrend which was seven short term waves, into the current uptrend which may already be eleven short term waves, it has been a difficult count. What has certainly helped has been the OEW pivots. These pivots have acted as support and resistance throughout this bear market counter-trend rally. This week, after six daily attempts trading over SPX 1110, and over six weeks of market activity, the SPX finally broke through the long term OEW 1107 pivot on wednesday. As we have been noting for several weeks. A penetration through the range of the 1107 long term pivot suggests higher prices medium term. The next short term pivot is at SPX 1133. This is followed by SPX 1168 and then the long term pivot at 1179.

We posted two interesting fibonacci wave relationships, for the DOW, during the week. At DOW 10,495 Major wave C = Major wave A, and at DOW 10,795 Int. C = Int. A. The high for the DOW thus far is 10,517. After reviewing the SPX price action for this week. We have opted to modify the short term count just a bit, aligning it somewhat with the DOW. While the two counts are labeled a bit differently, the intent of this current short term rally is present in both. Two interesting fibonacci wave relationships in the SPX are now also noted. At SPX 1158 Major C = Major A, and at SPX 1162 Int. C = Int. A. These two fibonacci relationships provide a tighter targeting range for the SPX than the DOW, and both are in line with the 1168 OEW pivot. While uptrend momentum has been weak in recent weeks. Several of the US sectors have reversed downtrends, as well as, several foreign indices. This uptrend does not appear to be done yet.

SHORT TERM
Support for the SPX is at 1090 and then 1061, with resistance at 1107 and then 1133. Short term momentum stayed around neutral for most of friday's trading. Breaking the sunday/monday pattern of the past three weeks: USD down sharply sunday night, SPX gaps up sharply on monday. This monday displayed a strong upward move in the Asian markets, but flat to lower in the western markets, with little USD selling. On tuesday, however, the SPX gapped up and also had strong openings on wednesday through friday. When the long term OEW 1107 pivot range was penetrated on wednesday, SPX 1116, the market immediately sold off 1%. On thursday the SPX made a slightly higher high, 1117, and the market immediately sold off 1% again. On friday another early new uptrend high, 1119, was met with immediate selling, but this time the market dropped 2% lower. The market closed the week at SPX 1106. The 1107 OEW pivot continues to be a difficult area to exceed, as it has been since mid-October. Once cleared we could expect another 80 point rally from the recent Minute wave b 1084 low. The last three rallies have been just over 80 points. This would suggest this rally would end around SPX 1164. This aligns perfectly with the fibonacci ratios noted earlier, (at SPX 1158 Major C = Major A, and at SPX 1162 Int. C = Int. A), and the OEW 1168 pivot. Quite a cluster of numbers between SPX 1158 and 1168.

On the downside, the OEW 1090 pivot remains support, as it has for over a month. A break below this pivot would suggest caution short term. A break below the 1061 pivot would suggest caution medium term. And, a break below the 1041 pivot would suggest that Primary wave B has likely ended. Best to your trading!

FOREIGN MARKETS
Asian markets soared this week +5.9%. The biggest gainers were Japan (+10.4%), China (+7.1%) and Hong Kong (+6.5%). India remains in a marginal downtrend.
European markets rose 2.3% this week. The indices were fairly even, and only the STOX 50 remains in a marginal downtrend.
Commodity equity markets gained 1.3% on the week. The big gainer was Russia (+3.4%). All indices are in uptrends.

COMMODITIES
Bonds weakened considerably this week -1.6%, dropping four days in a row. The 1YR jumped 10 basis points, and the 10YR 25 basis points to 3.48%.
Crude weakened this week an additional -0.8% in its downtrend. It looks like it should start moving higher soon.
Gold made new all time highs at $1226, but due to friday's selloff it ended -1.3% on the week. The uptrends, in both Gold and Silver, may have ended on thursday as both approached their fibonacci price targets for this multi-month uptrend. Once confirmed, support appears at the previous fourth wave. This would represent another good buying opportunity in this eight year bull market.
The USD had its best week since the end of October +1.1%. The EUR (-0.7%) and the JPY (-4.2%) lost ground verses the USD. Trend reversals may be underway.

NEXT WEEK
A quieter economic week ahead. Monday we have the Consumer credit report at 3:00. Then tuesday the NFIB small business index, and wednesday Wholesale inventories. Thursday, the weekly Jobless claims and twin deficits Budget/Trade. Then on friday, Retail sales, Import prices, business Inventories and Consumer sentiment. The FED reports in with several speeches this week. On monday FED chairman Bernanke speaks in Wash. DC at 12:45. Then FED governor Duke speaks in MD on wednesday morning, and in IL on thursday afternoon. It appears this market may be ready to exit its trading range (1090 pivot to 1107 pivot) of the past month. Best to your trading!

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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Dow Theory confirmation by transports of industrials' new high is buy signal, but indicators continue to warn

A reader asked a day or so ago about Dow Theory giving a confirmation buy and I've finally looked into it. Below you'll see the transports' daily chart using line style (not candlesticks) making it easier to see with day-closing data that it edged a slightly higher high at the beginning of this week. Tim Wood is the Dow Theory expert I pay attention to - he's the technician whose "Cycles News and Views" site is in the other sites of interest listed at the right side of the page here. Here's what he's said about it:

The price action on Monday carried the Transports to a closing high of 4,046.50, which surpasses the previous closing high of October 20th at 4,045.11. As a result, the short-term Dow theory non-confirmation has been mended and on Tuesday the Transports made yet another recovery closing high. From a Dow theory perspective the averages are again in gear with each other to the upside.

So it's possible to view the confirmation as a "buy" for the continued move up. I'm okay if anyone wants to buy these indices on this basis. Just keep a close stop to protect against losing support. Because the past two days were weaker, though can be just consolidation before another push up. But again, will the signal have lasting effect? Anyone buying on the signal won't want to see today's lows violated. The other technical backdrop indicators have been weakening, so whether or not buying or adding to longs, you want to remain cautious here. If you're following the posts about indicators here lately, you know that the indicators such as the advance/decline data haven't yet confirmed the indices are ready to sustain the rally longer.

For that matter, despite the transports' daily chart indicators currently in synch with the move up from early November, look at the weekly chart's negative divergence in the StochRSI indicator. And if the transports push much higher, there's substantial overhead price resistance from the 2007/208 lows.

So, I'm not poo-pooing the Dow Theory confirmation. Just saying it confirms the rally isn't over yet - and doesn't change the fact that we're at a juncture where equities may turn quite soon as suggested by market internals as well as Dow Theory's younger brother, Elliott Wave theory.

Equities slip to re-ignite bearish views, but halt at support allows remaining rally potential

Stock markets dropped today, some more than others, in a probable initial reaction to those Fibonacci levels that were being tested yesterday. However, they descended toward support levels like the SPX 1087 area. Interestingly, the SPX hourly 34-ema was rising to that level as the SPX descended to it, closing close by that support test. This leaves alive the potential that this was a small 4th wave correction that allows more rally potential higher. What are some levels we want to watch? If the SPX dropped under 1082, that would be a real bearish break that might say it's done. But the dollar index didn't solidly test on or under the 74.75 level, and it remains possible for it to do one more "c"-wave type plunge there. So even though there are signs of deterioration, we shouldn't pretend that there's been confirmation the top is in ... because we don't have that yet.

Below are daily and monthly charts of the transports, one of the indices that made a lower low and didn't yet make a higher high. I'm not expecting a higher high (but if it did, that could be bullish). It's an example of the divergence among indices that helps remind us that, once we get confirmation of the B wave top, we can be prepared to be more defensive.

Transports weakening further and likely to test 3250-3430 area

The transports index is relatively weaker as it's already below the swing low comparable in time to the S&P 500 index's key 1050 support. In fact, the transports are challenging their early October lows with bearish-looking indicators. You can tell from the charts below that there's price and volume support, and prior broken Fibonacci on the monthly chart, around 3430. Add in the 200-day moving average plus even more volume support as shown by the volume-by-price bars, and the support zone looks like the range from 3250 to 3430. Its P&F chart at bottom shows that it hasn't yet triggered a breakdown from support. But it won't take much more price weakness to make that happen - so keep an eye on for whether it breaks under its early October low.

Postcards from the ledge, post-Bradley as stocks falter

Here are a few "postcards from the ledge" of what may be a "B" wave top in equities that completed on Wednesday, with yesterday having been the Bradley model "turn date" that had stock markets gyrating. While the S&P 500 didn't break under yesterday's 1074.31 intraday low, some other sectors and indices did. I'm not even posting the biotech sector ($BTK), last month's darling which today actually moved under its early October lows. Today, last week's darling the semiconductors (SMH), and the NYSE ($NYA) and Transports ($TRAN), poked under yesterday's low. So - is it confirmed bearish? Well, these seem more along the way at least! There was an interesting potential wedge down at end of day that could be interpreted to provide a boost upward. Conversely, if we're really moving along the C wave down, there's potential for a gap down 3rd wave) on Monday. The market likes to keep some secrets going into the close. So we'll allow for some ambiguity.

But I made the point recently here that to know when the B wave is done, we'll start seeing sectors and indices turning down. That means these charts below may be the precursor of what's to come.

Tale of two transports: AMR, FedEx and the Transports index

Best of times or worst of times? Today, AMR Corp. (AMR) is "flying" after it outlined spending plans for $2.9 billion in additional revenue and financing. The company plans to use the funding to consolidate its hub systems in Dallas/Fort Worth, Chicago, Miami, and New York. The $2.9 billion consists of $1 billion in cash from the advance sale of AAdvantage frequent flyer miles to Citigroup (C) and $280 million in cash under a loan facility from GE Capital Aviation Services; also $1.6 billion in sale-leaseback financing commitments from a unit of GE.

Meanwhile, FedEx Corp. (FDX) said that first-quarter earnings came in at $181 million, or 58 cents per share, down from $384 million, or $1.23 per share, last year. Revenue fell to $8.01 billion from $9.97 billion a year ago. Chief Executive Fred Smith said that "better-than-expected FedEx International Priority volume, decisive management actions, and our dedicated team members helped drive financial performance above our initial expectations in the first quarter."

The above info is via Schaeffer's site (site link in list at right) - I don't separately track these companies, but like to keep an eye on the transports index. Some of AMR's "good earnings news" looks non-recurring, non-operational to me - but we don't argue with price. I actually feel more positive on the transports index compared to the industrials. Yet there's resistance above on the monthly chart, and from wave pattern the rally from the lows also shares the corrective zigzag shape that warns the bear market isn't over yet.

Negative divergence with the Baltic Dry Index as an indicator supports bearish equities view

Thanks to Trader Brian who pointed out the negative divergence between the drooping Baltic Dry Index ($BDI) against equities, that can be charted as I've prepared and posted below (using the S&P 500 ($SPX). This was one of the reasons Tony Caldaro gave recently for considering the rally most likely complete. I added a 20-period exponential moving average (ema) to the $BDI in the bottom indicator window which helps accentuate its weakness as it's fallen under this ema.

Since the use of the Baltic Dry Index in his weekend update made me think of the transports, I've also added my basic daily-bars chart of the Dow Transports. Talk about weak-looking indicators! Assuming we get a bounce in equities tomorrow, I can understand many may take the chance to sell, and I'll probably be doing it too ...! I've thought some more about Bernie Schaeffer's comment that there may not be enought optimism, i.e. that stocks may be able to climb a "wall of worry". I also know that in Elliott Wave theory, "c"-wave (and third-wave) movements are accompanied by awareness that the news is bad. Given that Elliott Wave analysts are charting that the markets' next move is a "c" (or alternatively 3rd wave, or even a 5th wave that will include its own internal third wave (and besides, fifth waves are capitulation moves) - we actually can expect any drastic drop ahead to be accompanied by bad news and very bearish attitudes soon enough. Just remember that on Tuesday on any intraday rally.

S&P 500 continued consolidation before trying for another straw on the camel's back

Equities moved well (and promptly) as indicated by today's ChartsEdge map (thanks again, Mike and ChartsEdge!). And a nice little bonus that the low was at 1022, the high at 1032 - looking like that "string" of numbers like that, still "works"! We'll see if that can lead the SPX to 1042 to really ring the bell on Tony Caldaro's 1041 pivot, and I believe Andre Gratian has projection numbers in that neighborhood; if the strength can manage it. I'm leaning to the view that this consolidation paves the way for a small-level fifth-wave move up. Assuming that's right, there could be a good move up even overnight and tomorrow (which the ChartsEdge weekly forecast suggested too). But it's also possible for another dig to start from lower tomorrow morning, and then have the fifth-wave movement zigzagging up. It's also possible to see a fifth-wave move up become rather choppy.

The other reason to be very, very cautious is what's at stake. This move up is most likely topping out the whole bear-market rally from the March lows. It can extend to reach much higher, or it can theoretically be finished already. I kinda think we'll get a fifth-wave push higher. But no guarantees - so it's getting rather more exciting, really! For what it's worth, today the QQQQ's poked under yesterday's low. Yesterday being the first day the QQQQ's spent the whole day above their 50% retrace level of 39.82. We'll see if this becomes more significant, because it can be a clue that this retrace level can still affect the market.

Under the hourly SPX chart below, I've added my monthly chart of the Transports ($TRAN), mainly because I like to keep an eye on the big picture including its Fibonacci levels. It certainly does look like a large zigzag - including, that it can be topping out the B of a large ABC zigzag. It's a very sobering scenario, if that's the way it plays.

S&P 500 reaching to extend price above near-term support as the dollar stayed back (but bonds rose)

The S&P 500 chopped back and forth today, very nicely following the ChartsEdge daily map which helped daytraders get some visibility into the intraday cycles. Put together with our numbers (and I believe Andre and others must have similar numbers in these areas), and it was easy enough for daytraders. Swing traders are still sizing this up to see whether and when the SPX is going to roll over from the test around 1012/1014 on Fibonacci and 1018 on Tony Caldaros OEW pivot. Speaking of Tony's Objective Elliott Wave, below is his hourly SPX chart (thank you Tony). His markings are the horizontal light blue lines, and the red and green lines marking the StochRSI indicator. Mine are the rest of the blue lines and circles. Just trying to give some definition to what we are seeing. The drop Tuesday to the 34-hour exponential moving average (EMA) went under a line I marked from the "wave 4" point, but the subsequent rally has kissed back along that line. Either price is giving a good imitation of trying to get back to the 1018 pivot and try higher, or otherwise that StochRSI "triangle" I marked may break to the downside and send price under the lower "trendline" I'm hypothesizing as well as below the 34-hour EMA.

I realize silver went higher today - figures it would do that right after I posted about a head and shoulders pattern forming in the SLV chart - but that head and shoulders possibility remains valid because it's on the weekly chart and price didn't go higher enough today to rule that out. Naturally we can expect whatever happens there to be in tandem with gold and the dollar - will we see the dollar roll over and go lower again, giving a great boost to gold and silver? As much as I'm not expecting that based on the charts, I'll obviously go with it if it happens. Too soon to say yet as the dollar remains in contention - for now.

Bonds rose after a successful auction today - we could make arguments either way whether that's good for equities ... it certainly kept bonds away from the potential next leg down they were threatening since they almost lost support in the past few days!

I believe the Dow Transports may have a higher price level to reach for their Fibonacci retrace to their highs, but since they march to a different drummer in price and time, I am not looking for that to be the element that dictates whether and when the broader indices engage in any movement down.

Equities markets as shown on these charts aren't giving much hope of avoiding H&S neckline break

Dow 8000 anyone? and will that be enough to satisfy the bears and finish a head and shoulders low, allowing the bulls to take the market higher? Perhaps, but there are a lot of eyes on this, and certainly many wondering just where this market will go. If you've been trying to following the twists and turns of the ChartsEdge swing-trading (weekly) forecasts, especially since they've issued some comments that have gone one way and then the next - it's obvious there are some real cross-currents in these markets! My best advice is to take it easy, keep an eye on the big picture, and use the Elliott Wave counts, Fibonacci, and other inputs you may be receiving from great analysts like Andre Gratian or Tony Caldaro. (Yes, I tweet intraday, but I don't hold myself out as on a par with those guys! - I just use what I perceive based on EW, Fibonacci, moving averages, and keeping an eye across the market sectors intraday - nothing very intense.) You can look back at the ChartsEdge weekly forecast in this post from the weekend, ChartsEdge week-ahead cycle forecasts for S&P 500 (U.S. equities markets) and gold. I'll look forward to checking out Tony Caldaro's Objective Elliott Wave update, and then keeping up with what Andre Gratian is circulating to his subscribers as well. For myself, I posted a chart intraday of the Dow Transports showing a way to view a head and shoulders neckline. Then just a few minutes ago, I saw someone suggest there is a triangle in the transports. I made some notes about that in my bigger Dow Transports chart, below. The only way I can see it as a valid EW triangle would be in a "B" wave position, but the indicators and the overall larger pattern doesn't suggest to me that's what it is. I won't absolutely reject it, but I would not adopt it as my primary count either. If it were in a "B" wave position suggesting a "C" wave up, there would be more positive divergence in the indicators. Well, what if it's a 4th wave triangle? The structure of the rally up from March doesn't suggest to me that it completed a wave 1,2 and 3 that would place this as a 4th wave triangle, especially given the dimensions of it at this point. But hey, we don't need to argue about it - we can just observe how it acts with respect to these trendlines, they're clear enough! Also, below, I've placed how my SPX daily chart looks now, and added a Dow Industrials chart with markings. Notice that 3 of these major indices is at trendline support for a head and shoulders.... ooops, did I say all 3? Actually more like 2 out of 3, as the Industrials moved underneat that. As for the Nasdaq, it moved under prior swing low support but may not have violated H&S neckline support quite yet. But all in all, the market movements are suggesting that the targets now are to the downside, and with some more breaking of support we'll be focusing more on whether we see only the H&S targets, or something more bearish in the weeks ahead.

Indices searching for support intraday as many eyes are on the bearish "head and shoulder"

There are so many eyes on the possibility of a bearish "head and shoulders" pattern but it almost seems to be taking a very long time for that pattern to materialize. Granted, it may not ... but it seems more likely than not. At the right, I did mark a potential temporary support line in the Dow Transports, but I do not think it is a valid trendline that should provide more than temporary support. It can be a price channel to keep in mind in watching the transports index price. The transports, like many other indices, is below moving average support and also testing toward its lower Bollinger Bands. That may take it underneath the lower line I marked, which will be an early signal of breaking the head and shoulders neckline in this index.

Quick review of financial markets' action today

Many of the markets we follow moved toward, and in some cases underneath their 50-day moving averages. Equally bearish, or perhaps more so, both the Dow Jones Industrial Average ($INDU) and the S&P 500 ($SPX) equity indices moved under not only their 50-day moving averages but also their 200-day moving averages. As I "tweeted" during the day on Twitter, the P&F charts for these two indices as well as the Nasdaq 100 ($NDX) are showing bearish targets. In the case of the $INDU, it points to that round number, 8000.

**Update note (6:20 pm) - For all who noticed that today's ChartsEdge forecast "map" didn't exactly match the action today - this is a great time to remind you that we use these for intraday cycle timing. These maps are not to be relied on for intraday relative price levels. Sometimes they point rather well to intraday price levels, but not always, and especially not when there is an intraday bias that "skews" them. So for example today, you saw relative high and low points that synched up rather well in terms of timing with the map, but they didn't express with relative higher/lower price levels due to the intraday bearish-trending bias. (More information about these maps is at the ChartsEdge site, and I've also included much of that information at my "No Bull No Bear No Bias" site - see links for both, at the right side of the page.)

From an Elliott Wave perspective it will be important to see whether this drop down is equal to, or greater than the drop into Wednesday's low from the prior week's high. This is because we are thinking of this as a third wave movement following that initial drop as a first wave and the upward movement late last week as its second wave. Even if we are right, there are a couple of things to remember - one is that this would still be the third wave of a larger wave 1. The other is that it also depends on whether the markets are rolling over to new lows, or merely to the pullback down to a right shoulder of a bullish inverse head and shoulders that many are talking about nowadays.

So we can just focus for now on whether the current drop will reach to, perhaps 1.618 of the length of that initial first wave into last Wednesday's lows. The 1.618 measurement is common for third waves (not an absolute rule).

In other things we like to keep an eye on - the Dow Transports ($TRAN) fell 4.67%, well under the 50-day moving average. The semiconductor index, about which I warned in a post here recently (saying that it's more likely to lead the markets down than up), fell about 3% although not violating 50-day moving average support yet.

Oil as measured by USO fell under its 20-day moving average - and remember, NYMEX futures expiring today make it interesting to ponder whether and when the speculation that's been driving the oil price up, will "catch up" with the realities of supply/demand and perhaps act as a drag on the market when the speculation needs to unwind. Which reminds me of natural gas - I know a lot of people have waded in on this recently, which concerns me. Maybe that long-side speculation will work out, but it fell over 3% today. UNG fell under but then rose again to close at its 20 and 50-day moving averages - still down net 3.36% today, but maybe it gets support there. If not, then I would be concerned about seeing new lows around $11/$12 or less in that ETF.

Financials - yuck - the XLF (common ETF for the financials) fell under its 50-day moving average too. As did the banking index ($BKX), and it's looking like the BKX 20-day moving average may cross under its 50-day moving average very soon (maybe tomorrow).

In currencies, it was interesting to see not much intraday range, but the dollar and FXY (yen) were higher, the euro lower. (You see, Tyler? you didn't need to worry about the dollar, when it dropped on Friday it was only to support!) The dollar's 50-day moving average has swooped down by the 200 dma, so we've still got to keep an eye on it. And the bond ETF tracking US Treasury bonds, TLT, moved above Friday's high, closing up 0.97%.

Gold as represented by GLD also had little intraday range, but this ETF closed down 1.48% and moved under its 50-day moving average. This means that the continuous contract, $GOLD that I chart, will have fallen under the support trendline on my daily chart.

Gold stocks also were down, among some of the biggest stock losers today (along with stocks of basic materials and energy companies).

Did I mention that real estate as measured by IYR was down over 5% and also under its 50-day moving average? And, is anyone surprised?!!

Retail was down, with the ETF called RTH closing down 1.33%, and I'm just surprised it didn't move under last Wednesday's low - which helped stave off its 20-day moving average from crossing under its 50-day moving average, quite yet.

Emerging markets were down also, some of those apparently tied to drops in commodities prices.

Apparently the only stock sector positive for the day were the utilities, not exactly a bullish sign.

But of couse, one day doesn't make a market. So we won't let this get us "married" to either alternative, the "new lows come next" camp or the "not dead yet, merely a pullback before new rally high" camp. It's okay to harbor a preference, just don't get locked in yet as it's too soon. Even the bearish P&F projections I mentioned earlier for the major U.S. indices are only to P&F support levels that can be consistent with that second, "pullback" alternative. We'll let this continue to play out for a few more days and see what the wave action and technicals are saying.

(click image to see larger)

Reports of a Dow Theory non-confirmation are wrong - actually it's even more bearish than that

Some information for my readers to clarify a point about Dow Theory: I've seen an article this evening claiming that there is a Dow Theory (bearish) non-confirmation because the Dow Industrials have gone positive for the year, while the Dow Transports have not. I'd like to tell my readers that I've learned enough about Dow Theory from the expert, Tim Wood, to assure you that it's even more bearish than that - neither of these indices has risen above their most recent secondary closing highs. Those levels are 9034.69 for the Dow Industrials, and 3717.26 for the Dow Transports, and neither has been exceeded on this rally. So it does not even rise to the level of a non-confirmation.

Below are charts of the Dow Industrials and the Dow Transports using line charts rather than candlesticks. This will make it easier for you to see the important levels that are counted using daily closes in Dow Theory. (But the point is actually the same with candlesticks since the intraday highs haven't been exceeded either.)

Of course, if either index does rise above its important prior swing high level, then we can talk about confirmations whether bearish or bullish. The more objective way to put it would be that one index may exceed its level, and then it would not be confirmed (and therefore remain bearish) unless and until the other confirmed which would then cause the picture to be deemed bullish. But for now, I want to make sure my readers are not misled - neither index has exceeded the important level for Dow Theory purposes.