REVIEW
Markets worldwide just had their best week since the beginning of November 2010. The SPX/DOW gained 2.9%, and the NDX/NAZ was +4.2%. Asian markets gained 3.5%, European markets were +4.0%, the Commodity equity group gained 2.4%, and the DJ World index was +3.2%. US economic reports, for the first time in months, were mostly on the negative side. Existing/new home sales declined, along with, FHFA housing prices, durable goods orders, public sentiment, and the WLEI. On the positive side, Q4 GDP rose along with the monetary base, and weekly jobless claims declined. Next week will be highlighted by Case-Shiller, the Chicago PMI and the monthly Payrolls report.
LONG TERM: bull market
The bull market of March 2009 is about to officially enter its third year on friday and there are still some calling it a bear market rally. From an OEW perspective, there has not been one bear market rally lasting more than two years during the entire 125 year documented history of the US stock market.
Our weekly SPX chart continues to display the bull market characteristics we have discussed from time to time. The MACD remaining above neutral during bull markets and below neutral during bear. The RSI getting extremely overbought and barely oversold during bull markets, and exactly the opposite during bear. The price action thus far is quite typical as well. Strong rallies followed by minor corrections, and then a larger correction after five waves.
Notice the five Major wave advance from SPX 667 to 1220 to complete Primary wave I in Apr10. Then the Primary wave II correction to SPX 1011 by July10. Next the Major wave 1 uptrend into Feb11 at SPX 1344. And, recently the Major wave 2 correction which may have bottomed this month at SPX 1249. Notice the Major wave corrections have been short and swift: M2/PI – 87 points one month, M4/PI – 105 points one month, M2/PIII – 95 points one month. When we do get an OEW uptrend confirmation, completing Major wave 2 and confirming that Major wave 3 is underway. We’ll be expecting the uptrend to last about three months with an upside target between SPX 1440 and 1460.
MEDIUM TERM: downtrend likely bottomed
When the SPX topped in Feb11 at SPX 1344 and then dropped 50 points to 1294 in a few days we anticipated that Major wave 1 had completed, and the Major wave 2 downtrend was then underway. The market spent the next couple of weeks rallying back to SPX 1332 and inviting a multitude of alternate counts. Eventually the downtrend took hold and OEW confirmed Major wave 2 was indeed underway.
We expected the downtrend to last about one month and correct about 9% to SPX 1222. Thus far, the timeframe was correct but the correction appears to be only 7.1% to SPX 1249. At that low, we noted the market had become sufficiently oversold on all timeframes up to and including the weekly. Then this monday the market gapped up and completed its best rally since the downtrend began: 52 points vs 38 points. When the market pulled back on tuesday/wednesday, and still held the 1291 pivot range, it looked as though the bottom was in for the downtrend and a new uptrend was underway. The market then rallied even higher, to SPX 1319, to end the week. No uptrend confirmation yet, but this market is certainly impulsing higher.
SHORT TERM
Support for the SPX is back to 1313 and then 1303, with resistance at 1363 and then 1372. This is exactly where the support/resistance pivots were when the Major wave 1 uptrend topped. Short term momentum hit extremely overbought on friday before declining to around neutral to end the week. This market has climbed the OEW pivots one at a time since the SPX 1249 low. We labeled the rally from SPX 1249 to 1301 as Minor wave 1 of Intermediate wave one. Then the pullback to SPX 1284 as Minor 2. Minor 3 has been underway since then. There is some short term overhead resistance at SPX 1332 and then 1344, prior to the 1363 pivot. We’re likely to see an Intermediate wave one top around one of these levels. Support is at 1313, 1303 and then the 1291 pivot range. SPX 1284 appears to be an important support level for the potential uptrend scenario. Best to your trading!
FOREIGN MARKETS
Asian markets were all higher on the week for a net gain of 3.5%. Currently India’s BSE and China’s SSEC are in confirmed uptrends.
European markets were all higher on the week as well for a net gain of 4.0%. None of these five indices have confirmed an uptrend yet.
The Commodity equity group were all higher and gained 2.4% on the week. Both Brazil’s BVSP and Russia’s RTSI remain in uptrends.
The DJ World index gained 3.2% this week.
COMMODITIES
Bonds had quite a slide this week losing 2.3%. 10 YR yields did not rise as dramatically as the Bond price decline would suggest: 3.28% to 3.44%, suggesting it was auction related.
Crude remains in an uptrend and gained 3.3% on the week. After pulling back to $97 a week ago Crude made it back to $107 thursday before ending the week at $105. We’re still expecting a $111 target during this uptrend. And, we have just posted a $175 long term bull market target.
Gold continues its uptrend, making new highs and gaining 0.8% on the week. Uptrending Silver (+5.8%) continues to lead the precious metals sector.
The downtrending USD gained 0.6% on the week, as profit taking hit the EUR (-0.7%) and Central Bank intervention impacted the JPY (-0.9%).
NEXT WEEK
Busy week ahead economically. On monday Personal income/spending at 8:30, along with PCE prices. Then at 10:00 Pending home sales. On tuesday, Case-Shiller at 9:00 then Consumer Confidence at 10:00. Wednesday we have the ADP index at 8:15. Then on thursday, weekly Jobless claims at 8:30, Chicago PMI at 9:45, and Factory orders at 10:00. Friday is the monthly Payrolls data at 8:30, ISM services and Construction spending at 10:00. Then monthly Auto sales in the afternoon. The only things currently scheduled for the FED is a speech from FED governor Tarullo on thursday, and then the Foreign exchange rates on friday. Best to your week!
CHARTS:
http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
ESM year low to high 1315 = 76.40 %
Worth a shot ….cheap short GL
ZCK
717.75 – 608
676 = .382 U guys can see the support just below there..
stops are under 674 I think
2 days consolidating above 1313 pivot….. yikes
Tony
Great analysis and insight.
Something has been bugging me about the ew count. You have SC1 ending in 2007, started in 1932. That’s 75 years.
SC2 took only 17 months but clearly did ALOT of damage.
Fine.
But is it feasible that cycle 1 of SC3 only lasts 3 or so years?
Doesn’t seem to make sense.
Welcome Jason, Cycle [1] of SC1 lasted five years. Three years does appear to be short in relative terms, but the commodity cycle is the major influence. cheers, and thanks!
Tony,
Can you explain what is needed to confirm the uptrend?
Thanks!
bob
Hi Bob, Not exactly, proprietary. Only OEW students have that info.
Tony, do you think that the Chinese market will outperform the U.S. market in the coming year? I’ve been interested in some Chineses stocks like YUII. I’m a little concerned about the low PE’s on many of these. It tells me that the market is saying that there is more risk to these stocks than you may think.
No, I do not. Like US, ASX, BSE, BVSP, RTSI, TSX, DAX and FTSE.
“WASHINGTON (MarketWatch) – The Federal Reserve should hike interest rates from current range near zero to 2.5% within a year under a plan unveiled Friday by Charles Plosser, the president of the Philadelphia Federal Reserve Bank. Plosser did not give a specific time when this exit would begin but said it would have to start in the “not-too-distant future.” In a speech to economists from the monetarist school on Friday, Plosser laid out an aggressive plan where the Fed would sell $125 billion of assets for each 25 basis point increase in the funds rate. A slower approach could last 18 months rather than a year, he said. This would require only $67 billion of conditional sales between meetings but the funds rate would rise to 3.5%. Plosser, a voting FOMC member this year, said he did not think this strategy would disrupt markets”
What do you think, Tony ?
Think the FED is trying to talk down commodity prices.
Tony,
I read your blog from time to time, and although I think we are still in a bear market rally, I’m always open minded to other ideas. I see another move down, and then a rally to about 1388 spx before putting in a top for the year.
After that, I think we will resume the bear market and eventually take out March 2009 low. I base that on a little bit of everything, not just elliottwave. But, I also like to see both sides of the market… both bullish and bearish.
Keep up the good work Tony, and by the way… I’m pretty good with wordpress. If you need any advice or have any questions with it, let me know. It’s a lot more flexible then most other blogging platforms and you really can do a lot with it. There are tons of cool themes and plugin’s out there to “pimp it up”. I created my own header image on my site, and would be glad to assist you with yours too… if interested? (for free of course… just one blogger helping out another).
Red
appreciate your views red dragon
Tony, makes sense to me. We rally to the late summer to 14xx , which is 15% for the year and a typical presidential cycle return. Then sell off in the autumn (perhaps 5-8%), and complete the bull market in 2012 when commodities will put end to the rally. 1250+330=1600 +/- target for 2012 before we run out of gas? All speculation but a broad potential roadmap. thanks.
That’s the overall picture …
Tony do you not see a substantial dip in mid June after the end of Q2 Before we resume the horrendous this fall?
Hi GD, Not sure QE 2 will actually end in June. FED has said they will buy $600bln by June, but did not put a limit on how much they would buy overall.
Excellent Tony! Thank you.
Impressive Fibology here! http://eminiaddict.com/?p=3391
Go WILDCATS!
Hi Tony,
First, thank you for your excellent work and analysis.
I am a little surprised that your S&P 500 projection to major wave 3 to end at 1440-1460 because if Major 1 (1344 – 1011 = 333 points). Then if Major 3 is going to go to 1460 then it’s going to be (1460-1249 = 211 points). And I think you are expecting that major 5 to be (1313 – 1552 = 239). This makes major 3 the smallest.
Don’t take me wrong, I am not an alliott wave guru but I thought wave 3 can’t be the shortest.
Maybe major 2 never finished and we are still going below 1200 and then up to 1460 but the trend already gaining momentum to the upside. Anything is possible.
Thank you for your comments.
Thank you
Welcome EEID, Correct wave three can not be the smallest. It is likely that wave five will be, just like Primary wave I: 289, 281, 175. When a new uptrend is confirmed we will update the SPX forecast. cheers!