After a two week rebound in Europe it headed lower again this week. This downward pressure, along with some disappointing economic reports, took its toll on the US markets. For the week the SPX/DOW were -1.90%, and the NDX/NAZ were -3.75%. Asian indices managed a modest gain of 0.4%, European indices lost 3.4%, and the DJ World index lost 2.3%. Negative economic reports outnumbered positive ones by a two to one ratio. On the uptick: personal income, PCE prices, ISM manufacturing, construction spending, plus both the unemployment rate and weekly jobless claims declined. On the downtick: personal spending, Chicago PMI, auto sales, ADP, factory orders, productivity, ISM services, payrolls, investor sentiment, the M1-multiplier and monetary base, plus the WLEI. Next week we get a look at the twin deficits, Consumer sentiment and the PPI.
LONG TERM: bull market
We continue to observe a bull market unfolding in the US stock market. With an accommodative FED, and a public that has yet to embrace this bull market, it probably has another year to go before it tops in 2013. Price appreciation, however, would appear to be somewhat limited as we continue to project a bull market high between SPX 1545 and 1586, at this time.
Our OEW count continues to suggest this bull market is Cycle wave  of a new five wave Supercycle bull market. Primary waves I and II have concluded at SPX 1371 and SPX 1075, respectively in 2011. Primary wave III has been underway since that October 2011 low. Primary wave III appears to be a simple five Major wave structure. Major waves 1 and 2 completed at SPX 1293 in Oct11 and SPX 1159 in Nov11, respectively. Major wave 3 should have concluded at the recent April12 high of SPX 1422. We continue to await an OEW downtrend confirmation in the SPX. This could come as early as next week.
The stock market has been a bit tricky recently with the four major indices moving in different trends during the month of April. With this in mind we posted three potential scenarios last week, with three different probabilities. The two least likely, 20% each, were posted on the SPX and NAZ daily charts. The SPX count suggested the uptrend was continuing and the SPX would make news highs. The NAZ count suggested the April decline ended Major wave 4 and the NAZ would make new highs. The highest probability count, 60%, was posted on the DOW daily chart. It suggested Major wave 3 ended in early April. The decline into mid-April was Intermediate wave A of Major wave 4. Then the expected rally, the DOW did make new highs, would end Intermediate wave B of Major 4. When it concluded, a declining Intermediate wave C would take all four major indices into a Major wave 4 low. This scenario appears to be currently unfolding in the stock market. Please review last weekend’s update for those charts.
When Major wave 4 concludes, probably this month, Major wave 5 will take the stock market to new bull market highs to complete Primary wave III. After that the market will experience a fairly steep correction for Primary IV. Then Primary wave V will conclude the bull market.
MEDIUM TERM: SPX/DOW uptrends weakening, NDX/NAZ downtrending
This week the NDX confirmed a downtrend. With the NAZ remaining in a downtrend, they currently confirm the most probable Major wave 4 scenario noted above. Their charts have been updated to display this count. The 20% probability Major wave 4 low in mid-April has been eliminated.
The DOW, which is the bellwether of the US market, started to display this scenario when it started downtrending in early April while the SPX/NDX/NAZ remained in uptrends. This kind of event is quite unusual, and had not happened in more than six years. In the past, after a lengthy uptrend, an isolated downtrend in the DOW has always suggested relative weakness and an upcoming downtrend in the other indices. It also suggested the DOW would experienced a well defined ABC Major wave 4 correction. The first downtrend was Int. wave A. This week the DOW confirmed an uptrend, while none of the other indices made new highs. This was Int. wave B. Next we would expect the DOW to confirm another downtrend, Int. wave C, to end the Major wave 4 correction. When that arrives the market should be close to its low.
The SPX is the traders index. It is a futures driven index just like the NDX. We modified the count slightly last week, to display one of the scenarios and allow for a new high. Since that did not occur, and the index is close to confirming a downtrend of its own, we have reverted back to the original count.
As the market was topping in late March we offered several potential price relationships for Major wave 4. The typical correction for this bull market has been between 95 and 105 SPX points. This suggests a range of SPX 1317-1327. The typical correction during this bull market is 9.1%. This suggests a low around SPX 1293. Fibonacci retracements suggest the following: SPX 1322 (38.2%) and SPX 1291 (50%). Now we can add another. At SPX 1350 Int C = Int A, at SPX 1318 Int C = 1.5 Int A, and at SPX 1310 Int C = 1.618 Int A. If we eliminate the extremes of all these numbers we arrive at a range between SPX 1317 and 1322. From friday’s close this would represent about a 3.5% decline. A like decline of 3%+ in the DOW should be sufficient to confirm the downtrend we are expecting. Also this level would be within the upper range of the OEW 1313 pivot. Therefore, to sum up all these calculations we will just state Major wave 4 should end within the range of the OEW 1313 pivot this month.
Support is now at the OEW 1363 and 1313 pivots, with resistance at the 1372 and 1386 pivots. Short term momentum was extremely oversold on friday, and remained so at the close. After the uptrend topped at SPX 1422 the market immediately dropped 65 points, to SPX 1357, in only five days. During the decline there were only three small rallies between 8 and 9 points. After that the market got quite choppy: rallying to SPX 1393, declining to SPX 1359, and then rallying to SPX 1415. The decline to SPX 1359 could be counted as a failed flat Int. wave A: 1357-1393-1359. The strong rally that followed suggests that count is correct.
The rally to 1415 was an abc: 1407-1394-1415, and could be counted as Int. wave B. The decline from that high has only had one small rally of 9 points and the market hit a low of SPX 1369 on friday. This would suggest the market is close to completing Minor wave A of an expected three minor wave Int. wave C decline. Should Int. C follow the Int. A pattern, it should continue to decline with only 8-9 point rallies along the way.
Short term support would be at the OEW 1363 pivot range, and then SPX 1340. Short term resistance is clearly at the OEW 1372 and 1386 pivots. With short term momentum so oversold we would expect at least a small rally shortly. OEW short term charts remain with a negative bias from SPX 1395, with 1390 the current swing point. Best to your trading!
The Asian markets were mostly higher on the week for a net gain of 0.4%. Australia, China, Hong Kong and Indonesia are in uptrends.
The European markets were all lower for a net loss of 3.4%. None of the seven indices are in uptrends.
The Commodity equity group were also all lower losing 3.4%. All three indices are in downtrends.
The DJ World index is downtrending and lost 2.3% on the week.
Bonds continue to uptrend gaining 0.4% on the week. 10 year yields ended the week at 1.88%.
Crude, uptrending-downtrending, all in a matter of days lost 5.7% on the week. Quite volatile, especially the last two days of the week, as the weekly range was $106.43 to 97.51.
Gold is still trying to get an uptrend underway, but lost 1.3% on the week. Silver, -3.2%, made new downtrend lows.
The downtrending USD, +1.0%, has remained in a 3 point trading range for more than three months. The EUR, -1.3%, has been in a five point trading range for the same period of time. The uptrending JPY gained 0.5% on the week.
A relatively quiet week ahead on the economic front. On monday Consumer credit at 3:00. On wednesday Wholesale inventories. Thursday we’ll get reports on weekly Jobless claims, Trade/Budget deficits, and Export/Import prices. On friday the PPI and Consumer sentiment. FED chairman Bernanke gives a speech on thursday on Banking. Best to you and yours this weekend and week!