weekend update

REVIEW

The US market rallied into election day, and then sold off after President Obama was re-elected. During the selloff the trends of all four major US indices realigned, for the first time since early October. For the week the SPX/DOW were -2.25%, and the NDX/NAZ were -2.65%. Asian markets lost 1.4%, European markets lost 2.1%, and the DJ World index lost 2.1%. On the economic front positive reports outpaced negative reports 7 to 2. On the downtick: ISM services and the WLEI. On the uptick: consumer credit, the trade deficit, export/import prices, consumer sentiment (5 year high), wholesales inventories, and weekly jobless claims improved. Next week we get to review the FOMC minutes, plus reports on Retail sales, the PPI/CPI and Industrial production.

LONG TERM: bull market

We continue to count the wave structure from March 2009 as an ongoing bull market. We have been expecting five Primary waves to unfold in this rising Cycle wave [1]. The first two Primary waves completed in 2011 at SPX 1371 and 1075 respectively. Primary wave III has been underway since that low. Primary wave I divided into five Major waves with a subdividing Major wave 1. Primary wave III has also been following a similar path, except Major wave 3 also appears to be subdividing. Should all work out as expected we should be seeing new all time highs shortly.

Our fundamental indicators suggest the economy is improving, consumers are getting optimistic for the first time in 5 years, the real estate market is rebounding, and both the FED and ECB have unlimited liquidity programs underway, or ready. Yet, four of our six long term technical indicators are again displaying weakness. This is not as bad as it was in 2011, at the Primary wave I high, when 5 of the 6 displayed weakness. Nor as bad as 2007, when all 6 displayed weakness and we entered a bear market.

Whenever the majority of these long term indicators turn negative we are forced to review the charts in search of a potentially completed wave pattern. In 2007 there were five impulse waves up, and the market turned bearish. In 2011 there were five impulse waves up, the market corrected 20% and then turned higher again. Now we do see a potential completed wave pattern as well. It is a bit odd, considering the length of the first wave, but noteworthy nonetheless. Currently with only 4 of the 6 long term indicators negative, and the market appearing to be in a normal Intermediate wave ii correction, we give this count a probability of 20%. However, should the DOW drop below 12,000 the probabilities increase dramatically. The DOW closed at 12,815 on friday.

MEDIUM TERM: downtrend

For the past few weeks we have been waiting for all four major US indices to align in confirmed downtrends. That happened this week. We also had calculated some retracement/fibonacci levels which should provide some support during the downtrend. The first level was the OEW 1386 pivot: a 38.2% retracement of the recent uptrend and wave C = 1.618 wave A. The second level was the 1363 pivot: a 50.0% retracement. The third level was SPX 1345/46: a 61.8% retracement and wave C = 2.618 wave A.

On wednesday the market broke through all our short term support levels, and found support at the OEW 1386 pivot. It held this support until just before the close on thursday, then opened on friday at the OEW 1372 pivot and found support. The next logical support is the OEW 1363 pivot.

Technically we now observe an oversold condition on the weekly charts, a positive divergence on the daily charts, and one more lower low could set up positive divergences on the hourly charts. All the ingredients for an upcoming downtrend low during this bull market. Medium term support is at the 1372 and 1363 pivots, with resistance at the 1386 and 1440 pivots.

SHORT TERM

Short term support is at the 1372 and 1363 pivots, with resistnace at the 1386 pivot and SPX 1396/98. Short term momentum ended the week nearly oversold. The short term OEW charts remain negative with the swing level now at SPX 1404.

We have been counting this downtrend as a complex ABC. A three wave Minor wave A bottoming at SPX 1426. Minor B topping at SPX 1464, and a three wave Minor wave C underway. On friday, at the SPX 1373 low, Minor wave C had divided into two equal declining waves of exactly 61 points each. Besides the oversold condition, and the OEW pivot, probably one of the reasons for the volatility.

Also on friday the SPX rallied to 1391, overlapping the previous low at 1388. This suggests the market could have completed five waves down from SPX 1434: 1408-1433-1388-1403-1373. However, since Minute wave A (1464-1403) had a somewhat sloppy ending: drifting a few points lower than the five wave ending at SPX 1407. We can envision a similar ending for Minute wave C as it enters the OEW 1363 pivot range: 1356-1370.

FOREIGN MARKETS

The Asian markets were mostly lower, losing 1.4%. Japan, S. Korea and Singapore are in confirmed downtrends.

The European markets were mostly lower as well, losing 2.1%. All but Australia and Switzerland are in confirmed downtrends.

The Commodity equity group were all lower, losing 2.1%. Brazil, Canada and Russia are in confirmed downtrends.

The DJ World index is downtrending and lost 2.1%

COMMODITIES

Bonds are uptrending and gained 0.9% on the week.

Gold appears to be uptrending again, gaining 3.1% on the week.

Crude is still in a downtrend, displays positive divergences, and gained 1.3% on the week.

The USD continues to uptrend gaining 0.5% on the week.

NEXT WEEK

Tuesday kicks off the economic week with the Budget deficit. Wednesday: Retail sales, the PPI, Business inventories, and the FOMC minutes. Thursday: weekly Jobless claims, the CPI, the NY FED, and the Philly FED. Friday: Industrial production, Capacity utilization, and Options expiration. The FED gets active again with a speech from vice chair Yellen on tuesday. FED director Gibson gives Senate testimony on wednesday. Then on thursday FED chairman Bernanke gives a speech in Atlanta, GA. Best to your weekend and week!

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

About tony caldaro

Investor
This entry was posted in weekend update and tagged , , , . Bookmark the permalink.

57 Responses to weekend update

  1. H D says:

    GM Tony and all, Maybe a good week to start growing the 1500 SPX beards. just sayin…..

    • tony caldaro says:

      GM HD … or taking out those rally hats ;)

      • CB says:

        we must be waiting for all the folks on the east coast to get their power back on -it would be kind of tasteless to start a sharp rally when may folks there are on edge, wouldn’t it?…how is that for a technical indicator ..

      • tony caldaro says:

        My sister just got hers back after 11 days

      • CB says:

        my Goodness, Tony, it must be so tough for all those people ..I can’t imagine what that would be like not to have power for such a long time!…I wasn;t payiing close attention but CNBC indicated that everyone on Long Island or basically everywhere in tbe NYC area would have power by tomorrow PM…but folks there were pretty sceptical……

      • tony caldaro says:

        Brother-in-law said electricity is overrated.
        Sister wants to move to an underground wiring area.
        Overhead wiring does not do too well in storms, especially in highly populated areas.
        Fine for rural areas though.

      • CB says:

        yeah, it’s nice to live in the Midwest or on the East coast – in older, established neighborhoods with lots or old trees and stuff – except during storms and especially winter stporms – then all hell breaks loose…I guess you’ve mailed some canned foods to your famil,y Tony – or Fedexed it, rather..

      • maks12 says:

        maybe an air drop of supplies?

      • CB says:

        good to hear that..I think you mentioned also that everyone was prepared pretty well over there…and with some imagination and a little preparation one can survive a couple of weeks..hopefully everyone did their homework..this Thanksgiving everyone will be very appreciative for what they have ..even if it’s just the basics..

      • saf18hornet says:

        My father works for First Energy, and lives in PA. He’s been working around the clock since the Hurricane. He just went to northern NJ as of yesterday to assist in putting some power back in there….. and he said the talk is that many folks will not have power well into mid-December, even with all of the out-of-state help

      • CB says:

        a big weather story, and a big human story..so many people givng 200% these days..wish all of you guys affected by the events Good Luck and lots of stamina!..Mr. President how bout moving some of those internationally-engaged national guard troops into the area?…seems like there is always money for air drops overseas, but not enough concern for our own folks..go figure

      • tony caldaro says:

        What I find quite different than 2005 and Katrina, is the near total absence of looting reports.

      • CB says:

        different strokes for different folks…real estate values also tend to recover faster or don’t dip that much during s downturn in the North East vs., let’s say, the rest of the country…why? intellectual capital is concentrated there…good news is more and more folks move to the Southwest these days from the North east..so our IQ quotient is increasing steadily too.. :)

      • CB says:

        oops…my IQ is obvioulsy low cuz IQ already includes the word quotient, doesn’t it?….oh, well, I blame it on Merc Retrograde… ;) Thanks Tony…one day at a time…one can get thru anything

  2. rc1269 says:

    this market is acting like it’s not yet cheap enough to attractive aggressive dip buyers. a little disconcerting, given all the +divs around

    • tony caldaro says:

      RC … question.
      Is Greece included in OMT?
      The market has moved higher early, the three days, and then the bears sell AAPL, GOOG and IBM to get it heading lower again.

      • rc1269 says:

        per Greece/OMT… potentially. in theory, and eurozone country who has participated in the ESM will qualify for OMT support. however, there is a caveat and that does currently apply to Greece. specifically, if you receive a sovereign bailout and are deemed to not have market access, then you cannot receive OMT support.
        so, if/when Greece has received its ultimate bailout funds, it may then have market access and therefore qualify for OMT support.
        but today, no.

  3. Tony, the Dow bear alternate counts shows that five waves are completed from the bear market lows. Is it being interpreted as a giant ABC pattern with B being completed at recent highs and we in C now?

    • tony caldaro says:

      Trade,
      Not exactly.
      The alternate suggests a five wave bull market ending in a diagonal triangle.
      Not a B wave.
      There is another alternate count, not to confuse the issue, that requires one more new high to complete a large ABC pattern.
      We posted this a few weeks ago.

  4. fibretrace1618 says:

    Hey Tony,

    Firstly, thank you for your excellent work and this forum you provide all of us market junkies. Secondly, I wrote Dr. Sukanto Bhattacharya regarding the observations I had posted on your site last week, and he actually responded with a fairly lengthy letter and an attachment of a paper written by Grossman on fractals generated using Fibonacci sequence by orthogonal projection. Pretty serious reading that I am definitely not fully qualified to interpret or extrapolate with full comprehension. If you are interested in a forward of his response with Grossman attachment, just let me know where to send. Don’t know if you have the knowledge necessary to fully comprehend the Grossman paper, but Dr. Sukanto’s email is very easily interpreted. Anyway, you’re welcome to it if you want to take a look.

  5. magnus1234 says:

    This clip is little bit off-topic but I found it very interesting and would like to share it

    http://billmoyers.com/segment/john-reed-on-big-banks-power-and-influence/

  6. mjtplayer says:

    As the new guy, a couple quick thoughts:
    1) with Obama winning re-election and with it the expectations of higher taxes/cap gains in 2013, stocks like AAPL and GOOG wih implied large unrealized cap gains should remain under pressure as winnners are sold into year-end, not losers like years’ past. With AAPL, GOOG and other winners under pressure it will be difficult for the averages, especially NAZ, to move higher – nevermind a wave iii of 3 of III higher, regardless how much money the Fed prints.
    2) If we go over the fiscal cliff and into a technical recession, but the Fed keeps printing money or increases the CTL-P, then you could see something quite unique – a recession with $4+ gas and high grocery/food costs. For most companies, especially small businesses, this could mean falling top-line revenues combined with high or rising input costs and also likely increased taxes on what they do make – a disaster for bottom line earnings. Again, difficult to see wave iii of 3 of III in this environment – although we could get a deal and see that move higher, but ye have little faith in politicians doing the right thing with time to spare.

    • tony caldaro says:

      thanks Mjt … another wall of worry?

    • Ryan Parker says:

      MJT,
      I agree with most of your points but just a quick thought on #2. If we actually go over the fiscal cliff technically Bernanke will have to monetize less debt in the short term which would initially be deflationary. Then once the stock market goes down (aka TARP and debt ceiling summer 2011) the politicians will finally get together and make some kind of agreement. At that point I would think that agreement would still likely result in Trillion Dollar deficits going forward and thus there will be plenty more for Bernanke to monetize. I really wonder if politicians are going to try austerity here in the U.S. We have already seen what it is doing to Europe and they are essentially in a depression. Once you get to a certain debt/GDP ratio there really isn’t anything you can do to reverse the problem other than to inflate. The time to have been serious about trying to turn all of this around with austerity was 10 years ago but it wouldn’t have flown with the American public . If we try it here I think it works for maybe 12-18 months. After that I think the natives will become restless and that will be when we go back to more government “stimulus” spending”. That would likely be when precious metals really start to take off. Just my take.

      • mjtplayer says:

        Ryan,

        I completely agree with your austerity comments, I too think it’s too late and any attempt will only last a couple years till those pushing austerity are voted out and policies revert. Given this statement, the Fed has been and must continue to monitize the debt – at least while they have the ability too. But, I disagree that if we go over the fiscal cliff Bernanke will have less debt to monitize. Remember, in a recession, tax reciepts fall if tax rates were to remain the same, they could increase under higher taxes but net of behavioral changes (more muni’s, less trading, etc.), lower income/FICA/corp tax receipts and net of increased gov’t spending during a recession (unemployment, medicaid, larger pension contributions to offset dissapointing market performance, more aid to states, etc.) – I believe the bottom-line net effect on the deficit will be minimal, if not nil.

  7. M1 says:

    Short Term: I have the same chart, but I find another trend line support at risk on the Dow chart. (=38% Fib Retrac from Nov lows to Sep/Oct highs). http://scharts.co/PAPVI5
    Long term: same chart. The Dow may still in danger. But it should find support at 12,500 (20mma). Then at 11,000 (50mma) http://scharts.co/X4Pmpb
    GL

  8. mjtplayer says:

    Hi Tony,

    Been following your post, off and on, for a couple years now. I wanted to reach out and say thank you for all your work, advice and charts; the information and analysis you provide is in-depth and very insightful.

  9. M1 says:

    Thanks, Tony.
    Nothing is said yet, but I am still waiting to see how far the bears can push the market down.
    GL

  10. makiori says:

    Dear Tony, since I started following you back in 2008 I have done this before, however from time to time I feel compelled to do again:
    Thank you for sharing your work with us, so generously, every single day and every week end.
    have a nice w/e

  11. The Homeless Daytrader says:

    I’m still short crude. As for stocks, I have both arms in the bear suit and my fingers are grasping the zipper. I have an appointment Monday to get my claws sharpened. If the Dow breaks and holds above Friday’s high, I’ll swing like a bull but I’ll keep the bear suit on unless the mighty Dow breaks and holds above 13290. If the Dow- breaks and holds below Fridays low, then I will be expecting a multi-month move lower to the 10,400-10750 range.

    Gold is on my short sale candidate list for Monday/Tuesday. Remember, not all candidates get elected (just ask Willard).

    • Igor says:

      Good post on Friday regarding divergences, thank you, in alignment with my thinking.
      Yesterday’s example. On the 30 min SPX chart my momentum indicator showed a strong +D in combination with a morning star pattern, similar to this:
      (2 hour chart from Friday’s update)

      “Cheep” long with a stop at the day’s low but only for the 30 min time-frame.

    • M1 says:

      THD, what makes you think the market may roll over to 10,400 – 10750 ? It is just a feeling/idea or is it something also ?

      • The Homeless Daytrader says:

        My real number is 10066 which is a simple fib retrace. Certain statistical blah blah blah leads me to figure the odds of the Dow making the full fifty a bit less than an even money bet, so I am simply looking for a S/R/Fib range a few percent above the real number.

        Also, I am not trying to predict what will happen so much as describe what I see happening, fwiw.

        As another caveat, I am much more accurate at a distance of 3-8 hours than I am at 3-8 months.

  12. torehund says:

    Tony as Apple makes such a big dent in the indexes, how does theindexes look excluding apple. In this bull we should see a rotation on stocks that have performed well, going into a decline and the ones that have been struggeling getting a lift. Like the RUT and many of the small caps are at all time lows, including many small cap bios. Would apprecite your opinion and chart analysis ex Apple. Would not some beaten sectors make a jump soon ? Thanks beforehand.
    This doesnet look like a deleveraging period commencing and I still believe a bull is firmly alive, a recession now would crush shipping and set small cap bio investing 20 yers back in time.

    • tony caldaro says:

      Hi Tore,
      Transports in a uptrend. Semi’s nearly in an uptrend. S&P XLI barely holding on to an uptrend. BDI in an uptrend, along with possibily the Precious metals. Speculative issues are downtrending. But since when was AAPL, with a PE of 11, a speculative issue. While I see a stock markeet correction, I do not see Risk off. QE 3 is still underway.

  13. Tony, so below 1200 we are dealing with a bear market then?

  14. budfox9450 says:

    Using my BoYu indicator for the SP500 index. The Monthly, and Weekly signals are on
    a sell. The Daily is also on a sell signal, however. The Daily SP500 BoYu, is forming
    a pattern setup for a Buy signal. Just, has not completed that formation on Friday’s
    close….Bud

  15. rolandu11 says:

    Thanks Tony,

    NDX: There is still a positiv divergence with my long-term Volume indi (and other indicators). The importance of a divergence depends on the indicator and the scale. A pos. divergence in the long-term volume indi was always important in the past. My problem is, that the SPX looks worse with my indicator, has problems with trendlines and next week is expirations week.
    Here the long-term volume indi (in blue the CMF(20)).

    http://s1.directupload.net/file/d/3070/5dmecstn_jpg.htm

    • tony caldaro says:

      thx for reminding me of Opex

      • alexhartley1 says:

        Options expiry is normally bullish for the market and especially in November. I see a short term high 15/16 before going to back to test lows (or a higher low) depending on far we rally into 22/26 time zone then up in to end of Dec where there is a Bradley turn Indicator 17-22 Dec.

        Gold may have one more pullback with Friday being the high into the 23rd for an intermediate bottom. Any close above 1731 and we’re off to 1900.

  16. tony caldaro says:

    Yes, we have been through these uncertainty periods before.
    But not with an active QE program.

  17. Pingback: Risk-Reward Market Report…11.09.12 | The Risk-Reward Report

  18. Per Hansen says:

    hello tony. so you only give it 20% chance that we topped out of the bullmarket and still keep the prefered count that we will see new alltime high primo/medio 2013?

Comments are closed.