OEW tutoring

All markets are driven by long term investor psychology cycles. When the cycle is positive a bull market unfolds, when negative a bear market. The Objective Elliott Wave (OEW) technique not only determines if a market is bullish or bearish, it also determines how far a market has progressed in its current cycle.

OEW is not textbook Elliott Wave. It is a proprietary technique that defines every significant wave within bull and bear markets quantitatively. With this approach one could historically analyze any market to define its exact wave structure, and determine what the past is projecting about the future. We first uncovered this technique in the early 1980’s when doing an analysis of the entire history of the US stock market. When waves are determined quantitatively they never change, past of present.

At that time our analysis led us to believe that a stock market crash was likely in late-1987 to early-1988. Then another bull market would be underway. When the stock market did crash in October 1987, and a new bull market began in late-2007, we knew we had uncovered some of the missing tenets of the Elliott Wave Theory.

Over the years OEW analysis has led to some important projections in a variety of markets. In the US stock market: the correction in 1990, the correction in 1998, the 2000-2002 bear market, the ensuing 2002-2007 bull market, the 2007-2009 bear market, then the recent bull market as well. After a decade long bull market in many of the commodities: we pinpointed the bull market high in Crude at $148 in 2008, and identified a new bear market in Gold not too far from its 2011 $1900 high. In currencies: we tracked the bear market in the USD until 2011, then identified a new bull market in the USD and bear markets in most other currencies. In real estate: we identified the bull market top in 2005, and then the bear market bottom in 2011.

Bull and bear markets usually last for years. Uptrends and downtrends last for months, and are often mistaken for changes in long term trends. OEW analysis not only confirms when changes in long term trends are occurring, but often projects them ahead of time allowing one to follow the bull or bear market as its unfolds. If you are interested in learning how to do this type of analysis yourself, and joining our private international OEW group, please contact us at caldaro@msn.com for details. Best to your trading/investing.

The possession of knowledge, unless accompanied by the manifestation and expression in sharing is a vain and foolish thing. The Law of Use is universal, and he who violates it suffers by reason of his conflict with natural forces.”

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weekend update

REVIEW

The week started off at SPX 2102, then dropped to 2057 on a gap down Monday. After that the market gapped up three days in a row, but only managed to get back to SPX 2085 by Thursday. Then ended the holiday shortened week at SPX 2077. For the week the SPX/DOW lost 1.20%, the NDX/NAZ lost 1.25%, and the DJ World lost 1.6%. On the economic front positive reports continued to outpace negative ones. On the uptick: pending home sales, the Chicago PMI, consumer confidence, the ADP, ISM manufacturing, construction spending, the WLEI, plus the unemployment rate declined. On the downtick: Case-Shiller, auto sales, factory orders, plus weekly jobless claims rose and payrolls declined. Next week’s reports will be highlighted by the FOMC minutes, ISM services and Consumer credit.

LONG TERM: bull market

For the past eight months the market has remained in a 162 point trading range with the mid-point around SPX 2054. Which was nearly hit on Monday (2056). During this period some market pundits have declared: the market is now extremely overvalued, the EW pattern suggests a bull market top, equities are in a bubble, etc. Our analysis suggests none of these claims can be confirmed. The claims that equities are in a bubble and ‘now’ extremely overvalued does not match basic valuations.

The last time equities were in a bubble was the late 1990’s. Then the PE multiple on the SPX was 37 while the 10YR bond rate was over 6.5%. The earnings yield (1/37) 2.7% was less than half the bond yield. That’s a bubble! Currently the SPX PE is 20, for an earnings yield (1/20) of 5% while the 10YR rate is 2.4%. No bubble here. As for the market is ‘now’ overvalued. We do not see that either. In late 2013, more than 18 months ago, the SPX reached the same PE multiple it has today: 20. During that entire 18 month period the PE multiple has ranged from 18 to 21. The reason the market is now higher is simple because earnings are now higher. There has not been a multiple expansion to suggest an overvaluation.

Lastly, each bull market in EW/OEW terms unfolds in five waves. What creates the five waves are two significant selloffs during the long term trend. These two selloffs are the second and fourth waves of the bull market. Generally they are the two biggest corrections in the bull market. You can go back in history and they are easily identified. During this bull market we have only witnessed one significant correction in 2011: -21.6%. Every correction since then has been less than half that value. And since mid-2012, there has not been one correction of even 10%. Clearly the fourth wave of this bull market has yet to occur. Until it does we can not have a fifth wave to end the bull market. No market top yet.

SPXweekly

We continue to label this bull market as Cycle wave [1] of the next multi-decade Super cycle bull market. Cycle wave bull markets unfold in five Primary waves. Primary waves I and II completed in 2011, and Primary wave III has been underway since then. When it concludes there will likely be the largest correction since 2011 for Primary IV. Then when it concludes a rising Primary V will end the bull market. We continue to expect a P3 top in the year 2016, followed by a quick P4 correction, then a P5 rise into the year 2017. Targets for Primary III remain on the weekly chart above.

MEDIUM TERM: downtrend

After a new all time high at SPX 2135 in mid-May the market entered a downtrend. We have counted the uptrend from early-February to mid-May as a leading diagonal triangle, and Intermediate wave i of a subdividing Major wave 5. This downtrend is Intermediate wave ii. Major waves 1 and 2 had occurred in late-2011, and Major waves 3 and 4 just ended in late-2014 to early-2015.

SPXdaily

Thus far the downtrend appears to have completed Minor wave A, with a double bottom at SPX 2072; and Minor wave B, with a sharp rally to SPX 2130. Minor wave C is currently underway. When we apply Fibonacci retracement levels to the recent uptrend we arrive with the following SPX levels. At SPX 2076 (38.2%), SPX 2058 (50.0%), and SPX 2040 (61.8%). Notice Minor A stopped just 4 points under the first level. And this week, the ongoing Minor C stopped just two points under the second level. The market is respecting these retracement levels.

We continue to look for downtrend support around the low SPX 2040’s and, worse case, the 2019 pivot range. We would also like to see the NDX/NAZ confirm a downtrend while this is unfolding. They have yet to do so. Medium term support is at the 2070 and 2019 pivots, with resistance at the 2085 and 2131 pivots.

SHORT TERM

The short term pattern has been quite choppy, which is no surprise considering the choppiness of the previous uptrend. After the complex three for Minor A, we had a sharp, almost impulse looking Minor B. Minor C has thus far declined in seven corrective small waves to SPX 2056 on Monday. We labeled that Minute A. Over the next three days Minute B rallied to exactly the 2085 pivot. That was the minimum expected for Minute B, suggesting it can still continue to chop its way higher. When it does conclude Minute wave C should take the market to its downtrend low.

SPXhourly

Short term support is at the 2070 pivot and SPX 2056, with resistance at the 2085 and 2131 pivots. Short term momentum ended the week just above neutral. Best to your trading the post-Greek referendum results on Monday.

FOREIGN MARKETS

The Asian markets were mixed on the week for a net loss of 0.7%.

The European markets gave back most of last week’s big gains and lost 3.3%.

The Commodity equity group were all lower for a net loss of 1.1%.

The DJ World index is in a downtrend and lost 1.6%.

COMMODITIES

Bonds remain in a downtrend and lost 0.7% on the week.

Crude is now in a downtrend and lost 5.3% on the week.

Gold remains in a downtrend and lost 0.7% on the week.

The USD confirmed an uptrend and gained 0.7% on the week.

NEXT WEEK

Monday: ISM services at 10am. Tuesday: Trade deficit and Consumer credit. Wednesday: the FOMC minutes. Thursday: weekly Jobless claims, and a speech from FED governor Brainard. Friday: Wholesale inventories and a speech from FED chair Yellen. Best to  your weekend and week!

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

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Thursday update

SHORT TERM: gap up opening faded, DOW -28

Overnight the Asian markets gained 0.3%. Europe opened higher but lost 0.5%. US index futures were higher overnight. At 8:30 monthly Payrolls were reported lower: 213k v 280k, the Unemployment rate was reported lower: 5.3% v 5.5%, and weekly Jobless claims were higher: 281k v 271k. The market gapped up at the open to SPX 2084, ticked up to 2085, then started to pullback. The SPX had closed at 2077 yesterday. At 10am Factory orders were reported lower: -1.0% v -0.4%. The market continued to decline into the afternoon, with only 2-3 point bounces along the way. Around 2pm the SPX hit 2071, and then tried to rally. The rally carried to SPX 2079 in the closing minutes, just before a 2077 close.

For the day the SPX/DOW were -0.10%, and the NDX/NAZ were mixed. Bonds gained 14 ticked, Crude slipped 45 cents, Gold dipped $2, and the USD was lower. Medium term support remains at the 2070 and 2019 pivots, with resistance at the 2085 and 2131 pivots. Tomorrow is a national holiday.

The market gapped up at the open for the third day in a row today. And just like the previous two gap up openings, the market was immediately sold off after the first few minutes to half hour of trading. At the open the SPX hit a slightly higher high for the rally from Tuesday’s SPX 2056 low at 2085. Now we have five overlapping waves up from that low suggesting, as we have thought, this is a B wave rally. As noted yesterday, this rally could bounce around a bit before resuming the downtrend. Quiet day. Short term support remains at the 2070 pivot and SPX 2056, with resistance at the 2085 and 2131 pivots. Short term momentum hit overbought this morning before heading lower. Best to your three day holiday!

MEDIUM TERM: downtrend

LONG TERM: bull market

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

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Wednesday update

SHORT TERM: another gap up opening, DOW +138

Overnight the Asian markets gained 0.9%. Europe opened higher and gained 1.8%. US index futures were higher overnight, and at 8:15 the ADP was reported higher: 237k v 201k. At 9am FED governor Brainard’s speech was released: http://www.federalreserve.gov/newsevents/speech/brainard20150701a.htm. The market gapped up at the open to SPX 2075 and continued to 2083 by 10am. At 10am ISM manufacturing was reported higher: 53.5 v 52.8, as well as Construction spending: +0.8% v +2.2%. The market then went into pullback mode. Just before 11am the SPX hit 2073. Then after a bounce to SPX 2078 by 11:30, it dipped to 2070 by 1pm, bounced to 2075 just before 2pm, then dropped to 2069 by 2pm. After that it rallied into a SPX 2077 close.

For the day the SPX/DOW were +0.75%, and the NDX/NAZ were +0.65%. Bonds lost 24 ticks, Crude dropped $2.40, Gold slipped $4, and the USD was higher. Medium term support rises to the 2070 and 2019 pivots, with resistance at the 2085 and 2131 pivots. Tomorrow: at 8:30 monthly Payrolls (est. +249k) and weekly Jobless claims, then at 10am Factory orders.

The market gapped up at the open for the second day in a row, exceeding yesterday’s high on its way to SPX 2083. This broke a six day streak of lower highs and lows. Plus, this suggests the decline from SPX 2130 to 2056 was an a-b-c zigzag to complete Minute wave a. The rally off that low also looks like an a-b-c: 2074-2062-2083. This Minute wave b could have completed at today’s high, or can bounce around before Minute wave c gets underway. Still looking for downtrend support around SPX 2040, or the 2019 pivot. Short term support is at the 2070 pivot and SPX 2056, with resistance at the 2085 and 2131 pivots. Short term momentum hit overbought today, declined, and then headed higher into the close. Best to your pre-holiday trading!

MEDIUM TERM: downtrend continues

LONG TERM: bull market

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

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Tuesday update

SHORT TERM: gap up opening then choppy, DOW +22

Overnight the Asian markets gained 0.7%. Europe opened lower and lost 1.5%. US index futures were higher overnight, and at 9am Case-Shiller was reported lower: 4.9% v 5.0%. The market gapped up at the open to SPX 2072, ticked up to 2074, and then started to pullback. The SPX had closed at 2058 yesterday. At 9:45 the Chicago PMI was reported higher: 49.4 v 46.2, then at 10am Consumer confidence was reported higher: 101.4 v 95.4. The pullback hit SPX 2062 just past 10am. Then the market bounced to SPX 2067 by 10:30, dropped to 2060 just before 11am, bounced to 2068 by 11:30, then hit 2056 by 12:30. After that the market rallied back to the high of the day at SPX 2074 just past 2pm. At 2pm FED vice chair Fischer’s speech was released: http://www.federalreserve.gov/newsevents/speech/fischer20150630a.htm. In the last hour of trading the SPX hit 2062, then bounced to close at 2063.

For the day the SPX/DOW were +0.20%, and the NDX/NAZ were +0.50%. Bonds lost 7 ticks, Crude rallied $1.00, Gold slid $7, and the USD was higher. Medium term support remains at the 2019 and 1973 pivots, with resistance at the 2070 and 2085 pivots. Tomorrow: the ADP at 8:15, then Construction spending, Auto sales, and ISM manufacturing at 10am.

The market gapped up at the open today, made its high for the day in the opening minutes, then declined to a new marginal low for the downtrend. Then it rallied back to the opening high before heading lower again in the last two hours of trading. Choppy day. We can now count seven small waves down to SPX 2056: 2095-2104-2082-2091-2057-2074-2056. This could be a 1-2-3, or an a-b-c. If a 1-2-3 the afternoon rally back to SPX 2074 would likely be the 4th wave, and the current decline the 5th. If an a-b-c the market should rally much higher than SPX 2074 before making lower lows. Short term support is at SPX 2040 and the 2019 pivot, with resistance at the 2070 and 2085 pivots. Short term momentum displayed a positive divergence at the SPX 2056 low, and pushed momentum to neutral during the rally. The growth sector was supporting the general market today. Best to your trading the Greek drama.

MEDIUM TERM: downtrend continues

LONG TERM: bull market

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

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Monday update

SHORT TERM: gap down opening, DOW -350

Over the weekend the likelihood of a Greece default increased dramatically. As a result the SPX futures gapped down nearly 30 points in overnight trading. After trading as low as 40 points down it started to recover. Overnight the Asian markets lost 2.1%. Europe opened lower and lost 3.1%. US index futures recovered some overnight, but were still down about 20 points when the market opened with a gap down at SPX 2083. After a tick down to SPX 2082 the market tried to rally. Just before 10am the SPX hit 2091 then started to pullback again. At 10am Pending home sales were reported higher: +0.9% v +3.4%. Around 11am the SPX dropped below the opening 2082 and headed even lower. At 2:30 the SPX hit 2064, bounced to 2070 just past 2:30, then hit 2057 just before a 2058 close.

For the day the SPX/DOW were -2.0%, and the NDX/NAZ were -2.4%. Bonds gained 41 ticks, Crude lost $1.45, Gold rose $5, and the USD was lower. Medium term support drops to the 2019 and 1972 pivots, with resistance at the 2070 and 2085 pivots. Tomorrow: Case-Shiller at 9am, then the Chicago PMI and Consumer confidence at 10am.

With the big gap down last night we knew the potential uptrend scenario – growth sector driving cyclicals higher – was in jeopardy. When the market opened below SPX 2089 that possibility became more of a reality. The sloppy potential uptrend activity, we noted on Thursday, has turned into a resumption of the downtrend today. Instead of growth leading the cyclicals higher, it appears the cyclicals are leading growth lower. This morning we updated the SPX charts to display this scenario. We would now expect the NDX/NAX to confirm downtrends, while the SPX looks for support in the lower 2040’s or 2019 pivot range. No change to the longer term count, as we are still expecting this correction to be Intermediate wave ii with an Intermediate wave iii uptrend to follow. Short term support is at SPX 2040 and the 2019, with resistance at the 2070 and 2085 pivots. Short term momentum ended extremely oversold. Best to your trading, and kudos to those that anticipated the cyclicals leading lower!

MEDIUM TERM: downtrend resumes

LONG TERM: bull market

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

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weekend update

REVIEW

The market started the week at SPX 2110. A gap up opening took the SPX to 2130 on Monday, the high for the week. Then the market pulled back every day, including Friday, to end the week at SPX 2102. For the week the SPX/DOW were -0.4%, the NDX/NAZ were -0.7%, and the DJ World index was +0.1%. Economics reports for the week were mostly positive. On the uptick: existing/new home sales, personal income/spending, FHFA prices, the PCE, consumer sentiment, the WLEI, and Q1 GDP improved. On the downtick: durable goods, plus weekly jobless claims rose. Next week’s reports will be highlighted by Payrolls, the Chicago PMI and ISM manufacturing. Best to your week!

LONG TERM: bull market

Despite Monday’s rally to within five points of the all time high, and nearly the first six months of 2015 in the books, the market is barely up 2% for the year. In fact, since the year started, the market has been down as much as 78 points, and up as much as 76 points. Not a whole lot going on so far this year.

SPXweekly

In the meantime we continue to label this bull market as Cycle wave [1] of a new multi-decade Super cycle bull market. Cycle wave bull markets unfold in five primary waves. Primary waves I and II completed in the year 2011, and Primary wave III has been underway since then. When it does conclude, the market should experience its largest correction since 2011 for Primary IV. Then when that concludes Primary wave V should carry the market to all time new highs. Currently we are expecting the bull market to end in the year 2017. Expecting the targets posted on the weekly chart to be reached by 2016.

MEDIUM TERM: potential uptrend looks sloppy

After a leading diagonal uptrend high in mid-May at SPX 2135 the market declined in a series of three wave structures until it doubled bottom at 2072. Then the market rallied in what looks like a five wave structure into its recent high at SPX 2130. During this last rally the Nasdaq exceeded its all time high for the first time in 15 years. Since the SPX hit the recent high it has pulled back about 61.8% of the entire 2072-2130 rally. On the surface this all looks good for the beginning of a new uptrend. However, there are a few minor problems.

SPXdaily

Our quantified approach to the shorter term charts are displaying mixed signals. The 5min and 10min charts are clearly displaying five waves up, then a 61.8% retracement. The 60min chart is only displaying three waves up, and then the recent pullback. Had the second pullback dropped a couple of points lower. Then all time frames would have been in sync, and we would feel a lot more confident that a new uptrend is underway. It has been this kind of market all year. Nevertheless, the five wave advance on the shorter timeframes is the first five wave advance since the early February uptrend.

The next thing that should occur, if a new uptrend is truly underway, is OEW confirmation of the uptrend. When this occurs we can make some projections as to how high the market could rise, before the next correction. So the market either breaks out to new highs, or resumes the downtrend with SPX 2040 and the 2019 pivot as support. Until the market drops below SPX 2089 we continue to lean toward a new uptrend. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 and 2198 pivots.

SHORT TERM

As noted above the recent Monday-Monday SPX 2072-2130 rally was the first five wave structure since the early-February low at 1981. The advance was defined as follows: 2104-2089-2127-2109-2130. Had the second pullback dropped to about 2107 we could have quantified a five wave advance on all shorter timeframes. After the SPX 2130 high, the market pulled back to 2095 on Friday. After this near perfect 61.8% retracement (2094), the market had its first notable rally since the pullback began. The first few days of next week should determine what is next: new highs or SPX 2040.

SPXhourly

Short term support is at SPX 2095 and the 2085 pivot, with resistance at SPX 2109 and the 2131 pivot. Short term momentum ended the week with a positive divergence.

FOREIGN MARKETS

The Asian market were quite mixed on the week for a net loss of 0.3%.

The European markets were all higher for a big net gain of 5.1%.

The Commodity equity group was also mixed for a new loss of 0.3%.

The DJ World index is trying to uptrend and gained 0.1%.

COMMODITIES

Bonds remain in a downtrend losing 1.4% on the week.

Crude remains in an uptrend but lost 0.1% on the week.

Gold is still in a downtrend and lost 2.2% on the week.

The USD is trying to uptrend and gained 1.4% on the week.

NEXT WEEK

Monday: Pending home sales at 10am. Tuesday: Case-Shiller, Consumer confidence and the Chicago PMI. Wednesday: the ADP, ISM manufacturing, Construction spending, Auto sales. Thursday: Payrolls (est. +240k), weekly Jobless claims, and Factory orders. Friday: a national holiday. Best to your weekend and week!

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

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