weekend update

REVIEW

After making a new bull market high the previous week, SPX 1427, and then dropping to 1398. The market spent this week below that high and made a slightly lower low, SPX 1397, on thursday. The pullback from the new high may have completed this week. For the week the SPX/DOW were -0.40%, and the NDX/NAZ were -0.15%. Asian markets lost 1.8%, European markets were flat, and the DJ World index was -0.7%. On the economic front positive reports continue to outpace negative reports. On the uptick: Case-Shiller, Q2 GDP, pending home sales, personal spending, consumer sentiment, factory orders, the M1 multiplier and the WLEI. On the downtick: consumer confidence, personal income, PCE prices, the Chicago PMI, and weekly jobless claims rose. Next week we have the Payrolls report, ISM and monthly Auto sales.

LONG TERM: bull market

During the last bull market, 2002-2007, many traders accepted the advance until early 2005. Then they expected the market to rollover and make new lows, while it continued to advance for another two years. This time around the scenario is quite similar. Many accepted the advance into early 2011, and have since expected the market to rollover and make new lows. This market has already continued to move higher for one year. Another year is certainly possible, if not probable.

We continue to observe positive technicals on our weekly charts, as well as, the various indicators we track. The weekly RSI continues to hit extremely overbought levels while only getting slightly oversold during corrections. The MACD has generally stayed above neutral, instead of under neutral, and is displaying a recent positive cross. The wave count continues to support a five Primary wave bull market underway. Primary waves I and II ended in 2011, and Primary wave III has been underway. The wave structure of Primary I was five Major waves, with a subdividing Major wave 1. Primary III continues to follow the same path. After completing a subdividing Major 1, then Major 2, Major wave 3 has been underway.

We still expect Major 3 will continue to unfold until around year end and reach the OEW 1499 pivot. Major wave 3 has been underway for nearly three months and has already risen from SPX 1267 to 1427, a new bull market high. The 1499 pivot is only about 6.5% above friday’s SPX 1407 close. This suggests this choppy uptrend activity is likely to continue. Overall, we expect a bull market high between SPX 1536 and 1556 by mid to late 2013.

MEDIUM TERM: uptrend

Medium term support is at the OEW 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. The daily RSI touched oversold at thursday’s SPX 1397 low, as expected, and has turned higher.

This uptrend started at the Major wave 2 low of SPX 1267 in early June, with an oversold MACD and a positive divergence RSI. After an initial Intermediate wave i rally to SPX 1363 the uptrend has certainly turned choppy. We then counted an Intermediate wave ii at SPX 1309, a Minor wave 1 at 1375, and then an irregular Minor 2 completing at 1329. Since then Minor wave 3, of Intermediate wave iii, has been underway.

Our initial thoughts were that Minor wave 3 completed at SPX 1427. We had labeled SPX 1392 Minute i, SPX 1355 Minute ii, SPX 1407 Minute iii, SPX 1396 Minute iv, and SPX 1427 Minute v. We have this count posted on the SPX hourly chart. This week, however, we added a variation to that count. Since our Minute iv pullback was quite small, and it failed to trigger one of our wave indicators. We added the count on the daily SPX chart.

This count suggests Minute waves i and ii remain the same at SPX 1392 and 1355. But the entire rally from SPX 1355 to 1427 was only Minute wave iii, of Minor 3, of Intermediate iii. Another subdivision if you will. This count remains viable as long as the current pullback does not overlap the Minute wave i high at SPX 1392. This count also displays some clear alternation between Minute waves ii (zigzag) and iv (flat). Should this variation work out it will add another set of waves to an already choppy uptrend.

SHORT TERM

Short term support is at SPX 1402/03, 1396/98 and the 1386 pivot. Overhead resistance is at SPX 1413/16, 1422/27 and the 1440 pivot. Short term momentum ended the week just above neutral after establishing a positive RSI divergence at thursday’s SPX 1397 low. The short term OEW charts have bounced back and forth between neutral and negative all week, and ended at neutral with the swing level now SPX 1407.

Last friday the SPX made a pullback low at 1398 then rallied into a monday high of 1416. After several attempts on tuesday and wednesday to break through that high the market turned lower, with a gap down opening, on thursday. This second pullback made a slightly lower low at SPX 1397. And, this was followed by a gap up opening on friday. After two rally attempts to break through SPX 1416 the market again pulled back into the close. This level, which ranges between SPX 1413 and 1416, has been resistance for the past eight trading days. Once cleared the uptrend should resume. However, it might take a gap up opening to clear it. US cash markets are closed on monday. Which leaves it up to Europe to set the stage for tuesday’s opening.

One last note is the alternate 30% probability count we have been tracking on the DOW hourly chart. So far this count has held support without the normal abrupt decline consequences of an ending diagonal triangle. We continue to monitor, however, the OEW 1386 pivot and especially the SPX 1375 level. Any pullback below that level and the uptrend has probably ended. Best to your trading!    

FOREIGN MARKETS

The Asian markets were all lower on the week for a net loss of 1.8%. China remains in a downtrend.

The European markets were quite mixed and ended the week flat. All indices uptrending.

The Commodity equity group were all lower for a net loss of 2.3%. All uptrends here as well.

The DJ World index is uptrending but lost 0.7%.

COMMODITIES

Bonds rallied for most of the week gaining 0.8%. The pullback in the 10yr yield reached 30 bps on friday, after a 47 bps rise, (1.39% to 1.86%). We had expected at least a 23 bps pullback. Expecting yields to turn higher soon.

Crude had a choppy week, gaining 0.3%, and remains in an uptrend.

Gold rallied strongly on friday after being down most of the week for a net gain of 1.1%. Both Silver and Gold remain in uptrends.

The USD remains in a downtrend losing 0.5% on the week. The uptrending EUR gained 0.5%, and the downtrending JPYUSD gained 0.4%.

NEXT WEEK

Monday is a holiday. On tuesday: ISM manufacturing at 10:00 along with Construction spending. Later in the day monthly Auto sales. On wednesday: Productivity and unit Labor costs. On thursday: weekly Jobless claims, the ADP index, and ISM services. Then on friday: the monthly Payrolls report, and the Unemployment rate. The FED has nothing scheduled at this time. The ECB meets on thursday. Best to your weekend and week!

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