weekend update

REVIEW

Last friday’s optimism for a quick resolution to the potential fiscal cliff, continued this week as US equity markets rallied. In fact, US stock market indices had their best week since June. For the week the SPX/DOW were +3.5%, and the NDX/NAZ were +4.1%. Asian markets gained 1.7%, European market gained 4.9%, and the DJ World index rose 3.8%. On the economic front, reports swung back to positive after one week with a negative bias. For the week positive reports outnumbered negative ones five to three. On the downtick: building permits, consumer sentiment and the WLEI. On the uptick: existing homes sales, housing starts, the NAHB index, leading indicators, and weekly jobless claims improved. Next week we get to review the FED’s Beige book, Q3 GDP, PCE prices and additional housing reports. Best to your week!

LONG TERM: bull market

Probabilites continue to favor a continuing bull market verses a bear market rally: 70% to 30%. The recent downtrend did increase the probabilities of a bear market high at SPX 1475 to 30%, as noted last weekend. Yet, the market then held that friday SPX 1343 low, and then rallied to SPX 1409 in just a week. The rally was an impulsive five waves and it generated a WROC buy signal. These signals usually precede an uptrend confirmation, and historically are 96% accurate. As a result, probabilities are quite high the downtrend from SPX 1475/71 bottomed at SPX 1343. And, a new uptrend is underway.

This week’s rally, however, does not remove the market’s bull/bear inflection point. After the SPX 1475 high the market did correct 8.9%. This is within the range of the first downtrend correction of the previous five bear markets: 6.9% to 13.8%. As noted last weekend, once the first downtrend ends the following uptrend can retrace from 69% to 90% of the previous decline. If we count SPX 1343 as the downtrend low, a bear market retracement rally would normally carry the SPX to between 1434 and 1462. Once this range is hit the bull/bear scenario will be defined by the market. If the market continues on to new highs – the bull market continues. If the market then rolls over into another downtrend – a bear market is probably underway. A simple hedge, once the market reaches this range, might be the best way to deal with it. But keep in mind the probabilities are 70% to 30% in favor of a bullish outcome.

Our preferred count remains unchanged. A five Primary wave bull market that should conclude some time between mid-late 2013. Primary waves I and II concluded in 2011 at SPX 1371 and 1075 respectively. Primary wave III has been underway since that low. Primary I divided into five Major waves with a subdividing Major wave 1. Primary III appears to be following a similar path, but Major wave 3 also appears to be subdividing into five Intermediate waves. Technically the RSI and MACD indicators still look bullish.

MEDIUM TERM: uptrend probably underway

After the SPX made a failed fifth wave high in October at SPX 1471, (DOW made a new high), the market headed into a downtrend. We labeled that high as Intermediate wave i of Major wave 3, with Int. wave ii underway. While the downtrend did take a while to get going, we counted the entire decline as a double zigzag. The first zigzag, Minor A, completed at SPX 1426. Then after a Minor B wave rally to SPX 1464, the next zigzag, Minor C, dropped to SPX 1343. At that low Intermediate wave ii had retraced 61.8% of Int. wave i, and Minor C was 2.618 times Minor A. When the downtrend began, the SPX 1345/46 area was calculated to be our worse case downtrend low scenario.

At the lows the weekly and daily RSI’s were quite oversold. And, the hourly RSI was displaying a positive divergence, after hitting a quite oversold double bottom MACD. Normally, these are some of the type of technical requirements that start new uptrends. Since that low the market has spiked higher, hit slightly overbought on the daily RSI, and made a positive cross on the MACD after a steady decline. We have removed the downtrending label while we await an OEW uptrend confirmation. Under our preferred bullish scenario we will be counting this rally as Minor wave 1 of Intermediate wave iii. Medium term support is at the 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots.

SHORT TERM

Short term support is at SPX 1403/02 and 1396/98, with resistance at SPX 1413/16 and 1422/27. Short term momentum ended the week extremely overbought – a pullback is now possible at any time. The short term OEW charts remain positive with the swing level now around SPX 1384.

The recent action since last friday’s SPX 1343 low looks quite bullish. The market bounced sharply off that oversold low, as it has during some of the previous downtrends. The internal wave structure looks like a bullish five waves: 1361-1351-1390-1377-1409. And, we have observed multiple signals that a new uptrend is underway.

Thus far, this advance looks similar to last November’s uptrend rally, and even June’s uptrend rally. In both instances the SPX rallied about 100 points before there was any sizeable pullback. Currently the market is extremely overbought short term. So some sort of pullback should be expected. However, until a pullback declines below SPX 1390 we have to assume this rally, Minor wave 1, continues. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly higher on the week gaining 1.7%. Hong Kong, Indonesia and Japan are in uptrends.

The European markets were all higher on the week gaining 4.9%. Greece is still in an uptrend.

The Commodity equity group were all higher as well gaining 3.7%. No confirmed uptrends here yet.

The DJ World index gained 3.8% on the week, and has not confirmed an uptrend yet.

COMMODITIES

Bonds are still in an uptrend but lost 0.7% on the week.

Crude still appears to be trying to start an uptrend and gained 1.4% on the week.

Gold looks to be starting an uptrend as well, gaining 2.2% on the week.

The USD may have started a downtrend as it lost 1.3% on the week.

NEXT WEEK

A busy economic week ahead. On tuesday: Durable goods orders, Case-Shiller, Consumer confidence and the FHFA housing price index. Wednesday: New home sales and the FED’s Beige book. Thursday: weekly Jobless claims, Q3 GDP (est. +2.8%), and Pending home sales. Then on friday: Personal income/spending, PCE prices and the Chicago PMI. The FED has two speeches scheduled. Tuesday: FED chairman Bernanke at the FED in Wash, DC. Wednesday: FED governor Tarullo speaks at Yale in New Haven, CT. Best to your weekend and week.

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

About tony caldaro

Investor
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99 Responses to weekend update

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  3. LX says:

    If one would think A @ morn low and B @ days high…. a C down tomorrow would offer a cheap short scalp.

  4. pbnj123 says:

    I guess this is all healthy as we are then burning off over bought conditions – consolidating and setting up for more upside – hah I just talked myself into it – sold :-)

    • pbnj123 says:

      I mean buy ;-)

      • kvilia says:

        Hourly SPX indicators remain overbought. If this is the way to “burn” overbought conditions, then sure buy is in place. However next wave shows downside direction, so hold or sell verbs would be more appropriate here.

  5. H D says:

    Cyber shoppers, APMEX has free shipping today if you are needing some classy Christmas gifts.

  6. LX says:

    $AAPL runs Bartertown
    5 waves up complete yet ?

  7. pbnj123 says:

    Good day all
    Tony since 1 has completed would a 2 be constructed of an A-B-C and if so would it be that we are now in the B and C to complete at the gap up around 1391 from last week to complete 2- or is that a stretch?
    Thank you
    Cheers

  8. LX says:

    I haven’t been dialed in like this since Micheal Jordan quit basketball to play baseball…Mike couldn’t hit the curve.

  9. mjtplayer says:

    I’d like to see the market fill this mornings’ gap, either today or tomorrow. Wed full moon and lunar eclipse should act as a buoy, holding-up markets for another day or 2, then trigger a down leg once passed. Looking to go short when/if the major indicies fill the gap, will short the weakest sectors from a technical standpoint: IYT, IWM via TWM and IYE via DUG.

  10. Hi Tony. Pretty good stuff again. I also think S&P500 is likely going higher in the Short-Term though I am not as bullish as you are ( I see the upside potential upto the Sept top at most).
    I have one question regarding your wave labelling. Most of your fifth waves are failed waves. I expect to see a 5th wave failure at major turning points (which lead to a Medium-Term trend change). So I am surprised you have so many 5th waves failures. Do you have any particular reasoning for this?
    Thanks and Regards,
    Alexander

  11. Price action in global indices during the current correction in the Dow suggests an explosive bull market ahead across the globe from Japan to Germany.. Even china may finally limp along with the rest this time around….Was particularly surprised by the resilience of europe during the dow correction….IHS will be formed on the dow over the next few days…..and then its off to the races…

  12. H D says:

    GM all, looking for 97’s to break and give 1391 ES

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  15. You relate, “The recent action since last friday’s SPX 1343 low looks quite bullish.”

    Bespoke Investment Group writes The S&P 500 has now bounced 3.6% since last Thursday, and it has posted gains for five consecutive days. If the pattern from earlier this year is repeated, we’re set for a continuation of the rally through the end of the year. And Eddy Elfenbein writes With the election behind us, the clouds have cleared, and I see a strong year-end rally ahead of us; in fact, I think the S&P 500 can break 1,500 by the early part of 2013. Yet, I believe that a global credit bust and financial system breakdown will occur the week beginning November 26, 2012, as leaders bicker for leadership over the unsustainable Greek Treasury debt.

    Frankly, you keep getting the market top wrong, as you write “Our preferred count remains unchanged. A five Primary wave bull market that should conclude some time between mid-late 2013″. The $SPX of 1474, which is ^GSPC 1,465, which is SPY 146 on Septembe r14, 2012, is an Elliott Wave 2 High, introducing an Elliottt Wave 3 Down, which are the most destructive of all economic waves.

    Neoliberalism’s guice juice is gone and the spigots of fiat wealth creation have run dry. The World centeral bank’s monetary authority is exhausted, and carry trade investing and junk bond lending are no longer in effect, and as a result the world is pivoting in Neoauthoritarian’s diktat, where mandates of sovereign monetary bodies such as the ECB, and sovereign leaders such as Mario Monti, will serve as both currency and credit.

    The only way for stocks to go is down. And the accelerant for a hard down is the European Leaders crisis surrounding the Greek debt insolvency.

  16. valunvstr says:

    Very interesting IHS formation in progress (possibly). 1432-1434ish area then a pullback to 1400-1410. If followed by a break of the 1434 neck line the new target would be 1525 (1434 – 1343 = 91, 91 + 1434 = 1525). And for many 1525 is a meaningful number as it is. The IHS just makes it more interesting.

  17. CB says:

    thanks Tony. You, wroc man! : )
    Tony, what is the Fed gonna do on the 12th in your opinion?

  18. mjtplayer says:

    Important week upcoming for the bulls. We’ve had our much anticipated oversold rally, the short term Oscillators and RSI were both extremely oversold last Friday, now they’ve swung to slightly overbought during this holiday shortened low volume week; easy week to rally the markets. Next week, Congress in back in session and Fiscal Cliff retoric will be again be front and center. A decision on whether to continue to hold-up Greece comes Monday, a full moon with lunar eclipse on Wed and lots of economic data throughout the week. The bulls need to break-out above the S&P 1,425 area for the next wave of short-covering and hold 1,370 on any pullback. Sold my “let’s bounce” longs on Friday, looking to go short Monday and/or Tuesday on the “why did we rally so much?” pullback that should be upcoming. Whether it’s just a pullback or something more will depend upon the “action” around the 1,390 and 1,370 areas. If 1,370 is convincingly broken, the low at 1,343 is in jeopardy and 1,300/1,310 should be the next stop.

  19. Good post Tony.
    Looks like we still have a bullish divergence in SOX. The low two weeks ago has a classic washout character:

    http://tacticalstrategist.com/2012/11/24/washout-then-overbought-tactical-view-2012-11-24/

    I am expecting a pullback soon. We are hitting the neckline of the topping pattern and we are overbought, but seasonality and a potential positive outcome from Europe and Washington could push this puppy to new highs fairly quick.

  20. ko68 says:

    Thanks again Tony. I’m a little surprised that you still have a 30% probability for bear market at this moment, especially with a WROC signal given.

    Whats the reason that a bear market is more probable right know than it was for one-two months ago?

    And at what SPX level do you decrease the bear market probabilty to 20%?

    • tony caldaro says:

      KO,
      The probability of a bear market reached 30% when the DOW hit 12,500. That does not change despite the probable uptrend. Bear markets have uptrends too. Only new highs in the DOW will eliminate that count.

  21. LX says:

    Thanks Tony

    IMO To figure out the Weekly Rate Of Change indicator ….I’d start with the ROC and look left :)

  22. rolandu11 says:

    One question Tony. What index gives the WROC signal. DOW? Thanks

    • tony caldaro says:

      Takes more than one index

    • tony caldaro says:

      It is good to develop one’s own signals.

      • rolandu11 says:

        Of course Tony, so I do. My mid-term volume indi is good for buy signals (mid-term), and my long-term volume indi good for (mid-term) sell signals (Break 0-line). After the first move in most of cases my long-term volume indi helps me to assess the situation (and if not: There are a lot of good indicators). Volume maks the price.
        For the US market I look at DOW, SPX, Nasd. Comp. (and additional to OEX, NDX, NYSE, own indices).

  23. M1 says:

    Thanks, Tony.
    It looks like you are not so bullish this time. =(
    I would agree if we get only a small pullback at this point (Fib 38%) and then another set of 5 waves up going to abt 1440 making an abc countertrend rally. However, the uptrend will be confirmed anyway. Your wroc signal will be correct once again =).
    Unfortunally, if the market rolls over after that it would suggest to me that an extended wave 3 down could be next.
    I want to think more positive. So I am looking for more gains in the very short term and then get a minor wave 2 important pullback (Fib 61%). That would be great !!
    Have a very nice day.

  24. alexh110 says:

    Tony, in terms of your EW count this year is equivalent to 1935; but according to the bond market cycle it’s more like 1941. 
    The secular cycle in stock markets is also equivalent to 1941 (12 years after the start of the bear cycle in 2000).
    This is a combination we’ve not seen before, and could lead to unpredictable results. I wonder how the bond market cycle will interact with the stock market cycle over the next 8 years?
    Do you think we could get a less severe than expected bear market in stocks, perhaps similar to the bear market consolidation of 1946-49?

    • tony caldaro says:

      Alex,
      Would put the Bond market in 1946. The stock market probably in 1945.
      Rates should continue to rise.
      But not quickly as the USD should enter the strong up phase of its bull market next year.

      • alexh110 says:

        Thanks Tony.
        So would you expect the next few years to be similar to 1946-49? As I recall that bear market was relatively mild, and less severe than the bear market of 1937-42.

        Ofcourse the 1929-49 secular bear cycle had it’s large economic shock at the beginning with the Wall Street Crash; whereas the current 2000-c.2018 secular bear had it’s large economic shock in 2008, right in the middle of the cycle. So we have a different alignment from the 1930s/40s.

        The 1 year T-bond bottomed in 1940: so that’s why I suggested 2012=1941.
        30 year bond bottomed in 1946, and I think it’s currently still in a downtrend. May not bottom for several years yet.

      • tony caldaro says:

        Alex,
        Unfortunately the exact alignment for that Secular cycle was altered/extended by the War.
        1966-1982 fits better, but it was an inflationary Secular. So there are differences.
        Simply put, we can not align the waves exactly with either cycle, year for year, since there are variables. However, this Secular is following the typical Secular pattern.

  25. piazzi says:

    first we had nicely oversold condition late in an intermediate cycle low window

    then we had a daily swing low

    now we have a weekly swing low

    recent low of futures has all characteristics of being a low leading to an intermediate uptrend

    If, it fails, things may get very ugly very fast

  26. rolandu11 says:

    Thanks Tony, very interesting again.

    Some words to the buy signal in the mid-term volume indi from 16.11.2012 I showed last weekend.

    Buy signals are very reliable (Sell: Beware of the bulls!). This signal can happen as a first move in a beginning uptrend and also in a downtrend as a reaction. The day of the signal is the best or a very good time to buy (Please look at the last 3 signals: 25.11.11; 4.6.12; 16.11.12).
    Then happens a relativ stable gain of 5-6%. But sometimes the performance is higher (As 10%, so not good for bears this indi).
    So I hope, that nobody who read my pos last weekendt, ignore this signal.

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