weekend update

REVIEW: a very good week.

With the FED ending its incremental series of short term rate increases last week, the economy slowing, a cease fire in the Middle East and a negative core PPI number, the market just roared higher. This week the NAZ posted its largest weekly point gain since May 2002. For the week the cyclical SPX/DOW were up 3% and the technical NDX/NAZ up close to 6%. A nice kickoff to Minor wave 1 of Intermediate wave iii.

LONG TERM: bullish, and still targeting SPX 1383 for this medium term uptrend.

The bull market, from the lows established in Oct. 2002 continues; as Intermediate wave iii, of Major wave 3, of Primary wave V begins to get recognized. The recent correction, which was the steepest in over a year, forced many of the weak bulls to turn bearish and the bears to become more aggressive in their selling. During an ongoing bull market, this type of sentiment shift is required from time to time. For the most part, we side stepped the entire correction and started buying near the lows. The negative SPX/NDX divergences signaled an impending medium term top in early May, just as, the positive SPX/NDX divergences signalled a potential medium term bottom in mid July. Our derivative driven market continues. At the recent July lows all of the major indices: SPX/DOW/NDX/NAZ, all realigned into the same wave pattern after getting fragmented during the first part of 2006. With all the majors moving in the same direction, the upward thrust of this medium term advance should be strong and swift, as it is already demonstrating. The technical sector was quite oversold at the lows, and should provide the largest percentage gains, especially in some of the semiconductor stocks. Three techs that I continue to monitor and own are GOOG, AAPL and AMD. Their charts are at the last page of the chart link.

MEDIUM TERM: SPX/DOW/SOX uptrending, NDX/NAZ impulsing higher.

At the recent correction lows, the NDX/NAZ both completed zigzags and the DOW completed a flat. The SPX. however, completed a very positive failed flat. This occurs when the final ‘c’ wave down fails to reach a new low; compare the daily charts of the DOW and SPX in chart link. This positive EW divergence, the positive SPX/NDX derivative divergence, the triple positive RSI divergences and the extreme MACD oversold levels created enough buying interest to reverse the downtrend. The SPX/DOW were the first indcies to establish an impulse wave. Then after a small correction the rest of the market joined in. From the mid July lows the SPX/DOW has risen 6%, the NAZ 7.5% and the NDX 9.5%. The NDX led the market lower during the correction, and is now taking charge and leading the market higher during this uptrend. Expecting more of the same as the NDX is still over 10% below its January highs. Typically the techs (NDX/NAZ) outperform the cyclicals (SPX/DOW) two to one in percentage terms during both rising and declining markets. They are simply more volatile. With our sights set on the SPX reaching 1383, the next EW pivot point, during this advance. Let’s do a rough calculation. SPX 1383 represents a 6% advance from fridays closing level. If the NDX rallies at twice the rate, a 12% advance would push the index close to its previous highs. and of course, this should represent all time new highs for the DOW. Therefore I would expect SPX 1383, a retest of the NDX January high and all time new highs for the DOW before this medium term advance ends.

SHORT TERM: close to a short term top, and another buying opportunity.

Last weekend a cease fire was agreed upon between Israel and Lebanon. The market spiked up monday, but lost some momentum late in the day as the cyclicals pulled back. Tuesday morning, the core PPI was reported to be negative, and the market rallied strongly. Late thursday into friday morning there was a bit of consolidation, probably options expiration related, but the market turned higher into the close on friday. On the SPX 15min chart below there appears to be five waves up from the July 11th low, with the fifth wave still ongoing. Let’s keep an eye on this, as it should provide another buying opportunity.

FOREIGN MARKETS: uptrending

The Asian markets continue to move higher, with China’s SEC the only exception. European markets are rising as well, but curious as to why the FTSE seems to be stuck at 5900.

COMMODITIES:

Crude: Completed its uptrend and is now correcting, support $68.

Gold: Completed what appears to be a ‘b’ wave rally, with a ‘c’ wave underway, support $540: chart below.

Bonds: Continue to rally as short term rates edge lower, but expecting a medium term top soon.

Dollar: Remains in consolidation near its lows in a very choppy market.