weekend update

REVIEW

The US equity markets six week winning streak came to an end this week. But the market fought back from the monday/tuesday pullback to end the week only slightly lower. For the week the SPX/DOW were -0.55% and the NDX/NAZ were +1.35%. The Asian markets were -1.1%, Europe was +0.7%, and the Commodity equity markets were +1.75%. Economic reports were sparce and displayed a low level of economic activity or continuing weakness. Much attention was given to the so called "bank stress test". The results were discussed with bank CEO’s on friday, and the "spin" version of the results will be announced on May 4th. An unverified source claims that 16 of the 19 banks tested are technically insolvent. Keep this in mind in the weeks and months ahead.

LONG TERM: bear market

We restate, as we have since the March 6th lows, that this is a bear market rally. We expected the financials to lead for most of the uptrend. But didn’t expect them to resort to fantasy accounting methods to raise more capital. We also expected bullishness to increase during the uptrend, and it’s likely to increase even further in the weeks ahead. This is not a new bull market. At best, the March 2009 lows will need to be retested in the months ahead. At worse, the March 2009 lows will be broken in the months ahead. When this bear market rally nears its end, it’s time to sell. Technically, the October 2007 bear market has declined in three Major waves: ABC. Major waves A and C subdivided into five Intermediate waves i-ii-iii-iv-v. The low in March 2009 completed this zigzag pattern and we labeled it Primary wave A. From that low a Primary wave B bear market rally has been unfolding. Historically, these types of bear market rallies usually retrace 50% of the entire decline. This suggests an upside target in the SPX 1120′s. Since we have a long term OEW pivot at 1107 this has been our target for Primary wave B. The current bear market and previous bull market labeling is posted below.

MEDIUM TERM: uptrend

The current uptrend has been the strongest, in terms of points (209) and percentage gain (31.3%), since the bear market began. Technically it has done everything expected and more, as demonstrated by its resilience in the latter part of this week. This Primary wave B uptrend should unfold in three Major waves: ABC. Each of the Major waves should subdivide into three Intermediate waves: abc. Thus far we labeled the first set of Intermediate waves: a (SPX 834), b (SPX 780), and c (SPX 876). This should have completed Major wave A, and Major wave B should be currently underway. When the diagonal triangle ended Major wave A (SPX 876) we expected a sharp selloff for Major wave B. The parameters were noted in last weeks report. The market sold off on monday, but bottomed on tuesday at SPX 827 and spent the rest of the week rallying up to SPX 872 on friday. Currently we see no reason to change our labeling for Major wave B. From the SPX 876 high we have been labeling the low at SPX 827 as Minor wave A, and the current rally as Minor wave B. Minor wave C of Intermediate wave A should follow. Then we should get an Intermediate wave B rally followed by an Intermediate wave C decline to complete Major wave B. The entire uptrend is posted on the SPXhourly chart in the chart link below.

SHORT TERM

Support remains at 848 then 789, with resistance at 912 and then 935. Short term momentum was extremely overbought on friday and ended the day with a slight negative divergence. The current Minor B wave rally may have ended friday. The SPX did get extremely overbought on both the hourly and shorter timeframe charts. As a result of this rally we will probably need to raise our downside targets for Major wave B. And Major wave B may unfold a lot quicker than expected. For now, we’ll remain with the parameters set in last weekends report, and adjust accordingly as the market unfolds.

FOREIGN MARKETS

The Asian markets were mostly lower on the week with only India’s BSE displaying a gain. Uptrends remain in force.

The European markets were mixed with the FTSE up and the DAX slightly lower. Both still uptrending with the DAX leading.

The Commodity equity markets performed the best on the week +1.75%. The BSVP is leading these uptrends.

COMMODITIES

Bonds lost 0.6% on the week as the downtrend in Bond prices continues, with a developing positive divergence.

Crude dropped 1.8% on the week but it’s still uptrending.

Gold rallied 5.1% off the $865 low. An uptrend is not confirmed yet, but it is getting close.

The Currencies took advantage of USD weakness (-1.5%) and the Euro rallied (+1.7%) as did the Yen (+1.9%).

NEXT WEEK

Busy week. The action starts on tuesday with Case-Shiller home prices and a Consumer confidence reading. Then wednesday Q1 GDP will be reported, estimates are around -5.0%, but we’ve heard estimates as low as -9.9%. Thursday then provides the weekly Jobless claims, the core PCE index, Consumer spending and the Chicago PMI. Then on friday ISM, Factory orders and Auto sales. On tuesday the FED starts its regular two day FOMC meeting, and will announce their findings wednesday afternoon. This certainly provides the ingredients for a volatile week. Best to your trading!

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

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