weekend update

REVIEW

In the end it was a quiet week for a change. The SPX spent the entire time above last friday’s 1391 close, but within a narrow 13 point range: 1394-1407. All four major US indices did make new uptrend highs, along with the NYAD (market breadth) and the SOX (semiconductors). All nine SPX sectors remain in uptrends and the VIX made a new downtrend low. For the week the SPX/DOW were +1.0%, and the NDX/NAZ were +1.8%. Asian markets gained 2.2%, European markets gained 2.0%, and the DJ World index rose 1.7%. On the economic front reports came in mixed. On the uptick: productivity, and the twin deficits improved along with weekly jobless claims. On the downtick: consumer credit, wholesale inventories, plus export/import prices remained negative. Next week retail sales, industrial production, the Philly FED and housing will highlight Options expiration week.

LONG TERM: bull market

While most of the foreign stock market indices remain in bear markets, the US stock market continues to unfold with bullish impulse waves. If we could make a comparison between the foreign indices and the US during the last secular bear cycle, (1929-1949), we would probably uncover a similar relationship at least until 1942.

During that deflationary secular bear, Cycle wave [1] rose from 1932-1937 and Cycle wave [2] ended in 1942. In this deflationary secular bear, Cycle wave [1] has been rising since 2009 and is still ongoing. When it concludes, likely in mid-late 2013, all the world’s equity markets should again bottom during the declining Cycle wave [2] that follows.

Each Cycle wave bull market unfolds in five Primary waves. Primary waves I and II completed in 2011 at SPX 1371 and 1075 respectively. Primary wave III has been underway since then. Within each rising Primary wave there are five Major waves. Note the five Major waves, in black, during Primary I. During Primary wave III only Major waves 1 and 2 have completed. Major wave 3 is currently underway. We continue to project a rise to around the OEW 1499 pivot by year end for Major wave 3. Then a small correction for Major 4, and new highs for Major 5 to conclude Primary III. Then after a Primary wave IV correction the bull market should top out around SPX 1550 next year.

MEDIUM TERM: uptrend

The current uptrend started at the early June low of Major wave 2: SPX 1267. The initial waves of this uptrend were quite choppy and somewhat uncharacteric for an uptrend during this bull market. Nevertheless, the uptrend appears to be acting a bit more impulsive lately after the 2-year Tech cycle bottomed in mid-July.

Since this uptrend is being counted as Major wave 3 we’re expecting five Intermediate waves, and have labeled the first rally and pullback, SPX 1363-1309, as Intermediate waves i and ii. Intermediate wave iii is subdividing into five Minor waves. Minor wave 1 topped at SPX 1375, and Minor wave 2 bottomed at SPX 1329. Minor wave 3 has been underway since then. We have been projecting that Minor 3 will hit the OEW 1440 pivot range before it concludes. Then after a small Minor 4 pullback, Minor 5/Intermediate iii should conclude around SPX 1470. After an Intermediate wave iv pullback, Intermediate v/Major 3 should then conclude around the OEW 1499 pivot. This potential scenario remains on track.

SHORT TERM

Medium term support is at the OEW 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. Short term support is at SPX 1402/03 and the 1386 pivot, with resistance at SPX 1413/15 and 1422. Short term momentum ended the week barely overbought after barely touching oversold on friday. The short term OEW charts remain positive from SPX 1370 with the swing point now at 1394.

While we were reviewing the charts this week we uncovered a potential topping pattern for the uptrend. We posted this count around mid-week but only gave it a 30% probablility. The count suggest an ABC pattern is currently ending, with wave A at SPX 1363, wave B at SPX 1309, and a diagonal triangle wave C at SPX 1407. In this structure wave C = wave A, which is relatively common for an ABC pattern. While we believe the probability of an uptrend top is only 30% we noted three levels to observe, if the market starts to correct.

These levels are the three OEW pivots: 1386, 1372 and 1363. A pullback to the 1386 pivot would still be considered quite normal. But a pullback to the 1372 pivot would be a warning that this corrective pattern may concluded at the recent highs. A break below the 1363 pivot would suggest that a downtrend is underway, with a retest of the SPX 1267 low next. With this market still uptrending, and the 2-year Tech cycle rising, we see little reason for concern at this time. But thought, this should be noted in the weekend report. The alternate pattern is posted on the DOW hourly chart only. Best to your trading!

FOREIGN MARKETS

The Asian markets were all higher on the week gaining 2.2%. Only China has yet to confirm an uptrend.

The European market were also higher gaining 2.0%. Spain is close to confirming an uptrend.

The Commodity equity group are all uptrending and gained 2.6% on the week.

The DJ World index is uptrending and gained 1.7% on the week.

COMMODITIES

Bond prices are downtrending, down 0.1% on the week, and yields uptrending. 10YR yields have recently risen from a record 1.39% low to 1.73% this week. Expecting a slightly higher level of yield before any sizeable pullback.

Crude gained 2.2% on the week, but is displaying a negative daily divergence at the recent uptrend high.

Gold gained 1.0% on the week and is getting close to confirming a new uptrend. This would align it with Silver’s uptrend. Suggesting the metals may awaken from their consolidation period.

The USD still looks like it has topped, but gained 0.2% on the week. Neither the EUR nor the CHF have confirmed uptrends yet.

NEXT WEEK

Tuesday kicks off Options expiration week with Retail sales, the PPI and Business inventories. On wednesday, the CPI, NY FED, Industrial production and the NAHB housing index. On thursday, weekly Jobless claims, Housing starts, the Philly FED and Building permits. On friday, Consumer sentiment and the Leading indicators. The FED currently has nothing scheduled. Best to your weekend and week!

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