weekend update

REVIEW

The markets were quiet this week heading into the FOMC/GCM central bank 24 hour double header. Then the volatility began. A quick pullback followed the FOMC meeting, and the market closed near the lows for the day. An even larger pullback followed the GCM, both CB’s only reported they would do something in the future, but the market recovered off its lows of the day. Then on friday the market gapped up and rallied, just like the meetings never occurred. For the week the SPX/DOW were +0.3%, and the NDX/NAZ were +0.7%. Asian markets gained 1.0%, European markets gained 2.7%, and the DJ World index was +0.7%. Economic reports for the week were mostly to the upside again. On the uptick: personal income, PCE prices, Case-Shiller, consumer confidence, the Chicago PMI, ISM manufacturing/services, the payrolls report, investor sentiment and the WLEI. On the downtick: the ADP index, construction spending, factory orders, plus both weekly jobless claims and the unemployment rate rose. Next week we get a look at the twin Deficits, Export/Import prices and Consumer credit.

LONG TERM: bull market

After a bull market had risen for 41 months and more than doubled. One would think nearly everyone would be wildly bullish. This is not, nor has it been, the case during this one. The public is still neutral with an average 50% stock allocation. The professionals, for the most part, have been underperforming against the benchmark SPX. The wild rallies into spring peaks, and sharp declines into summer lows, have kept most market pundits at bay. Yet on friday, the SPX closed only 2.2% below its bull market high, SPX 1422, and 11.7% below its all time high at SPX 1576. Just one really good, multi-month, sustainable rally away. Should the FED start another quantitative easing program, the all time high will be made during this bull market. If not, we still expect a bull market high between SPX 1536 and 1556 by mid-late 2013. Reminds us of the Gold bull market, which also had few participants.

Our public weekly chart continues to display the 2002-2007 bull market, the 2007-2009 bear market, and the current bull market. Notice how the RSI gets quite overbought/barely oversold during bull markets, then reverses that pattern during bear markets. Also observe how the MACD remains mostly above neutral during bull markets, then mostly below during bear markets. Currently the RSI is still rising, and the MACD has just crossed positive suggesting the uptrend has further to go.

Our count continues to suggest a multi-year Cycle wave [1] bull market is underway. Primary waves I and II, of the expected five primary waves, concluded in 2011 at SPX 1371 and 1075 respectively. Primary wave III has been underway since then. During Primary I five Major waves unfolded, with Major wave 1 subdividing into five Intermediate waves. Primary wave III, thus far, is displaying the same exact pattern. Major wave 3 should now be underway from the Major wave 2 low at SPX 1267. We are expecting Major wave 3 to hit around SPX 1500 by year end. Then after a small Major wave 4 correction, Major wave 5 should end Primary III in the lower SPX 1500′s. After that a larger correction, then a rising Primary wave V to end the bull market.

MEDIUM TERM: uptrend starts impulsing

Major wave 2 ended at SPX 1267 on a positive divergence. Then this Major wave 3 uptrend began. The initial liftoff was a good rally to SPX 1363, and the pullback to 1309 was fine too. Then right after that low the waves started to get choppy: a rally to SPX 1375, pullback to 1325, rally to 1380, and a pullback to 1329. Since the SPX 1375 rally looked like a five wave pattern, and the rally to 1380 did not. We counted that entire sequence, SPX 1325-1380-1329, as an ABC irregular flat. This gave us the count of Intermediate waves i and ii at SPX 1363-1309, and Minor waves 1 and 2 at SPX 1375-1329. Minor wave 3, of Intermediate wave iii, was next.

The rally that followed to SPX 1392 was clearly a five wave pattern. Then the pullback to SPX 1355 was an abc and quite steep: a 61.8% retracement. Now the market has rallied to a higher high at SPX 1394. At this point we would expect the market to get less choppy and more impulsive as Minor wave 3 unfolds. Should it resume its choppy ways the market could break down into a downtrend. As a result we are raising our important support level from SPX 1344 to SPX 1355. Should SPX 1355 be broken to the downside it is then possible this entire uptrend would end up being a B wave. Probabilities of this occurring at this point are low. But it is something to keep in mind. Medium term support is at the OEW 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots.

SHORT TERM

Short term support is at the OEW 1386 and 1372 pivots, with overhead resistance at SPX 1402/03 and 1413/15. Short term momentum remains overbought. And, the short term OEW charts are positive with the swing point at SPX 1357.

It looks like it is time for this uptrend to put in a series of non-overlapping impulse waves. The choppy activity since the early June low has about run its course. We are still projecting a Minor wave 3 high at the OEW 1440 pivot. Then an Intermediate wave iii high around SPX 1464, before the uptrend ends Major wave 3 at the OEW 1499 pivot. The Semiconductor SOX index, which has been supporting the advance in Tech stocks,  continues its rally off its two year cycle low, and has now risen 13.5% in 13 trading days. It is also very close to confirming an uptrend. Remember to keep SPX 1355 in mind. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly higher on the week gaining 1.0%. China and S. Korea are in downtrends, but may be reversing.

The European markets were all higher on the week for a 2.7% gain. Italy and Spain are in downtrends, but may be reversing as well.

The Commodity equity group were mixed on the week for a net gain of 0.3%. All three indices are in uptrends.

The DJ World index is uptrending and gained 0.7% for the week.

COMMODITIES

Bonds are downtrending and slipped 0.2% on the week. 10 YR yields, after hitting 1.39%, are now at 1.58%.

Crude had another volatile week gaining 1.5% and is still uptrending.

Gold continues to downtrend losing 0.7% on the week.

The USD has not confirmed a downtrend yet, but dropped 0.4% on the week. The EUR gained 0.6%, while the JPY was flat.

NEXT WEEK

Tuesday kicks off the economic week with Consumer credit. On wednesday we have Q2 Productivity. Thursday: weekly Jobless claims, the Trade deficit, and Wholesale inventories. Then on friday, Export/Import prices and the Budget deficit. FED chairman Bernanke gives two speeches this week: monday at 9:00AM, and tuesday at 2:30PM. Best to your weekend and week!

CHARTS: http://stockcharts.com/public/1269446/tenpp