weekend update

REVIEW

The week started off well enough with a rally to within two points of the SPX 1884 all time high by Tuesday. Then weakening upside momentum and the continuous slide in the NAZ (down 6 of the last 7 days) helped take the market down for the rest of the week. For the week the SPX/DOW lost 2.20%, the NDX/NAZ lost 2.05%, and the DJ World index lost 2.40%. Economic reports for the week were good: seven positive to three negative. On the uptick: wholesale/business inventories, retail sales, export prices, the M1-multiplier, the WLEI, and weekly jobless claims were lower. On the downtick: import prices, the PPI and consumer sentiment. Next week is FOMC week: with Industrial production, housing and options expirations. Could be a wild one.

LONG TERM: bull market

For the past several months we have had a difficult time tracking this bull market. Prior to that, and up until the summer of 2013, the four major indices (SPX/DOW/NDX/NAZ) were rising relatively in unison. The cyclical DOW was the first index to deviate from the general market pattern. This put the cyclical/growth hybrid SPX pattern in the middle of the cyclical DOW and the growth NAZ/NDX. Several times we thought Primary III was topping because of the DOW pattern. And, several times we were wrong.

Tracking four separate market indices objectively, becomes difficult when three of the indices are displaying different wave patterns. In the end, or likely before during Primary wave IV, they will all realign into the Primary wave V high. We have called this phenomenon a trifurcation. Please note, all of these indices are still in bull markets. Just their respective wave patterns are different.

The SPX is the index most follow, so we follow it as well. Despite this week’s decline the most obvious count still appears to be an Intermediate wave iii, of Major wave 5, uptrend. The SPX recently made all time new highs by about 2%.

The DOW, which as you know we prefer to track, displays a potentially different pattern. Not only has it not made new highs, this uptrend has not even reached the all time high set in December. The most obvious count here is that the DOW completed Primary III in December, and has entered a wide trading range while the SPX/NDX/NAZ complete their Primary wave III. We highlighted a similar potential trading range pattern that occurred in 2004. There are other counts, but this is the most obvious.

The NAZ represents the growth sector, and it is in a completely different count than either the SPX or DOW. Currently it is in Minor wave 5, of Intermediate wave iii, of Major wave 3, of Primary III. When the current uptrend concludes it will end Int. iii. Then it will still have two more uptrends to end Primary III: Int. v ending Major 3, and then Major 5.

Of these three indices, clearly the NAZ is the most bullish until its Primary III ends. The SPX is also bullish, but the DOW is potentially neutral. Obviously, for an investor/trader, it is much easier just to track one index. We do not have that luxury as we track more than thirty. We repeat, however, despite the current the different counts we are still in a bull market.

MEDIUM TERM: uptrend

From the early February downtrend low at SPX 1738 we have been counting this uptrend as Intermediate wave iii of Major wave 5. At that Intermediate wave ii low we had a RSI positive divergence, and an oversold MACD. After the initial surge off that low, which was quite impulsive, the SPX rallied to a new high at 1868. Then it pulled back to SPX 1834, before rallying quite strongly to another new high at 1884. This week that second rally was nearly completely retraced. It was fully retraced in the DOW/NDX.

We initially counted the SPX 1868 high as Minor wave 1, and the 1834 low as Minor 2. Then we thought, Minor 3 was underway with the rally to higher highs. The negative daily RSI divergences in all four major indices, however, took hold at the new highs and the market pulled back. The most obvious count in the SPX now appears that Minor wave 2 is unfolding in an irregular pattern: 1834-1886-1840 thus far.

A retest of SPX 1834 would complete a bullish irregular flat. A further decline to SPX 1825, the beginning of that Minute iv triangle, would create an irregular zigzag. Either one works, as well as, even a failed flat: where the C wave does not reach the A wave low. Currently the daily RSI is oversold, which also occurred during Minor 2 of the last uptrend. In fact, all four major indices are similarly oversold. Next week should put this market to the test. Medium term support is at the 1841 and 1828 pivots, with resistance at the 1869 and 1901 pivots.

SHORT TERM

Short term support is at the 1841 and 1828 pivots, with resistance at the 1869 pivot and SPX 1884. Short term momentum ended the week with a positive divergence. The short term OEW charts are negative with the reversal level now SPX 1858.

The hourly chart displays a somewhat choppy pattern, between SPX 1825 and 1884, after the initial two week surge of this uptrend. The triangular Minute wave iv is an acceptable pattern, but it can also be counted as corrective. Which would make the entire uptrend corrective, like some sort of B wave. For now, the 1841 pivot range is providing support. Should this give way and the SPX enter the 1828 pivot range, then break through that, the B wave uptrend scenario would definitely gain in probability. This week should be the tell.

FOREIGN MARKETS

The Asian markets were mostly lower on the week losing 2.0%.

The European markets were all lower losing 2.6%.

The Commodity equity group were all lower as well losing 3.9%.

The DJ World index is still uptrending but lost 2.4%.

COMMODITIES

Bonds remain in a downtrend losing 0.6%.

Crude appears to be downtrending losing 3.6%.

Gold shrugged off the negative divergence and resumed its uptrend gaining 3.2%.

The USD remains in a downtrend and lost 0.6% on the week.

NEXT WEEK

Monday: the NY FED at 8:30, Capacity utilization at 9:15, then the NAHB housing index at 10am. Tuesday: Housing starts, Building permits and the CPI. Wednesday: the Current account deficit and the FOMC ends it meeting. Thursday: weekly Jobless claims, existing Home sales, the Philly FED and Leading indicators. Friday: Options expiration. There will be a press conference on Wednesday at 2:30 with FED chair Yellen. On Friday: FED governor Stein gives a speech after the market close. Best to your weekend and week!

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