wednesday update

Grand SuperCycle, SuperCycle and Cycle waves

Now that markets worldwide have declined anywhere from 22% (SPX/FTSE) to 43% (RTSI), we thought we would review the current market and place it into the proper historical perspective. In February 2010 we published this piece on the GSC: http://caldaro.wordpress.com/2010/02/14/grand-super-cycle-revisited%e2%80%8f/. We see no reason to change this view.

A quick recap. A multi-century Grand Supercycle topped in 1929 and ended with the Great depression and an 89% stock market collapse by 1932. After that a new multi-century GSC began. Each GSC bull market consists of five SuperCycle waves. The bull market SC’s are multi-decade events. The first of these SC bull markets ran from 1932-2007. This we labeled SC1. The two year bear market that followed, when the market lost over 55% of its value, we labeled SC2. At the March 2009, SPX 667 low, SuperCycle 3 began its multi-decade bull market. Notice the bear markets cycles take very little time to do major damage, i.e. 1929-1932 89% market loss, and 2007-2009 55% market loss.

Each SuperCycle bull market consists of five Cycle waves. During SC1, 1932-2007, the bull market Cycle waves lasted from five years (1932-1937) to 31 years (1942-1973) and 33 years (1974-2007). Notice the shortest was five years. Within each bull market Cycle wave there are five Primary waves. These Primary waves can last anywhere from two months (Jly32-Sept32) and five months (Feb33-July33), to 17 (1949-1966) and 18 years (1982-2000). You may already see where I’m heading with this.

When we review the 15 world market indices we track we find 9 have OEW confirmed bear markets, and the rest came close to confirming at the recent lows. The wave counts for their previous bull markets display seven with Primary wave I highs, followed by a Primary II bear market. The other eight display five wave structures, counted as a completed Cycle wave [1] into their bull market high, and then their bear markets. When we compare the historical bull market time relationships of Cycle waves (5 to 33 years) and Primary waves (2 months – 18 years), to these eight 2 year bull markets we find they are historically too short to be counted as completed Cycle waves. They look more like Primary waves. As a result of this analysis, all the world indices must have had a Primary wave I high to end their bull markets and then a Primary wave II bear market. We will be downgrading the current counts, by one degree, on all eight of these world indices. The ramifications of this “project, monitor, adjust” event will prove to be quite interesting. We will cover this at another time.

SHORT TERM: market consolidates after yesterday’s rally, DOW -72

Overnight the Asian markets were mostly higher. Europe opened higher and closed +0.70%. US index futures were lower overnight. At 8:30 the CPI was reported slightly lower: +0.3% vs +0.4%, Building permits were reported lower: 594K vs 620K, but Housing starts were reported higher: 658K vs 571K. The market opened slightly lower at SPX 1223. The SPX had closed at 1225 yesterday. Within the opening minutes the market bounced to SPX 1226 and then pulled back to 1220 by 10:00. A quick rally to SPX 1230 followed, but the market started to head lower, in 5 point swings, after that. By 2:00 the SPX retested its low for the day at 1220, and the FED released the beige book: http://www.federalreserve.gov/fomc/beigebook/2011/20111019/default.htm.  After that the dropped further, hitting SPX 1206 around 3:30, and then closed at 1210.

For the day the SPX/DOW were -0.80%, and the NDX/NAZ were -0.95%. Bonds were flat, Crude slid $2.20, Gold dropped $13.00, and the USD was lower as well. Support for the SPX slips back to 1187 and then 1176, with resistance again at 1222 and then 1240. Short term momentum rolled over again today after hitting quite overbought yesterday. Tomorrow, weekly Jobless claims at 8:30. At 10:00 the Philly FED, Leading indicators and Existing home sales. Then at 6 PM FED governor Tarullo gives a speech in NYC.

Today the market opened relatively flat after yesterdays 42 SPX point midday reversal to 1233. Technically, the market went from quite oversold short term to quite overbought in just 5 hours. Today’s pullback, mostly after the FED’s Beige book was released, sent the market into another 20+ point pullback. The rally from SPX 1075 to 1233 has been a difficult one to count. We see four pullbacks of 20+ points right into yesterday’s 1233 high. This suggests an impulsive five wave advance. Our short term OEW charts, however, suggest a wave A to the SPX 1225 high, then a B to 1191, and now a C to SPX 1233 thus far. This market needs to make a definite move in either direction; i.e. a drop to SPX 1191 or lower, or rally to or above 1233, to clear this count.

Short term support drops back to the low 1200′s, and the 1187/1176 pivots. Short term resisitance is again at the 1222 pivot, the low 1230′s and the 1240 pivot. Short term momentum is approaching slightly oversold with today’s pullback. Best to your trading!

MEDIUM TERM: uptrend high SPX 1233

LONG TERM: bear market highly probable

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