thursday update

SHORT TERM: market gaps up then fades, DOW -19

After yesterday’s close FED governor Tarullo’s speech was released: http://www.federalreserve.gov/newsevents/speech/tarullo20121010a.htm. Overnight Asian markets gained 0.3%. Early this morning FED vice chair Yellen’s speech was released: http://www.federalreserve.gov/newsevents/speech/yellen20121011a.htm. European markets opened lower but gained 1.1%. US index futures were higher overnight. At 8:30 weekly Jobless claims were reported lower: 339K vs 367K. The lowest level since February 2008. Also at 8:30 Export prices (+0.7% vs +0.4%) and Import prices (+0.2% vs -0.2%) were reported higher. Plus the Trade deficit expanded: -$44.2 bln vs -$42.0 bln. After all that the market gapped up at the open to SPX 1441, traded within a two point range, then continued to rally. At 11:00 the SPX hit 1444, touched slightly overbought, and then began to pullback. There was also a speech from FED governor Stein today: http://www.federalreserve.gov/newsevents/speech/stein20121011a.htm. The pullback lasted all afternoon, and the market completely closed the upside gap with a SPX 1433 close.

For the day the SPX/DOW were mixed, and the NDX/NAZ were -0.20%. Bonds gained 3 ticks, Crude rose $1.20, Gold gained $5, and the USD was lower. Medium term support remains at the 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. Tomorrow: the PPI at 8:30, Consumer sentiment at 10:00, then the Budget deficit at 2:00.

The market gapped up at the open today, possibly responding to the short term positive divergence in place yesterday, reaching the OEW 1440 pivot. Then after an hour and a half of trading the market started to pullback when it could not clear the pivot’s upper range. After a 3 day 40 point decline, the market just had its first significant rally SPX 1431-1444. But when the SPX pulled back this afternoon most of that rally was retraced.

A pullback like this, during an uptrend, is quite normal. We had several of them over the past four months. But none of them occurred with the NDX/NAZ confirming downtrends, and a potentially completed five waves up in the DOW. Probabilities are now 55%/45% that the SPX/DOW will confirm as downtrend soon. Should this occur we could see a correction into early November, with a decline possibly to the 1363 OEW pivot. Long term this does nothing to impact the bull market. Medium term a slight modification would be required in the wave degree of the recent uptrend, and potential downtrend.

Short term support remains at SPX 1422/27 and SPX 1413/16, with resistance at the 1440 pivot and SPX 1463/64. Short term momentum hit slightly overbought today then declined below neutral. The short term OEW charts remain negatively biased with the swing level now around SPX 1446. Best to your trading!

Note. Since we received many inquiries on the NDX count and APPL’s count we decided to completely review APPL’s bull market. After a careful review we updated the count and posted it. As for the NDX, we realigned it with the SPX/DOW counts since it was giving many the wrong impression. We maintained the alternate count we had posted on the NAZ charts. Hopefully this will clear up many questions.

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