weekend update

It was a very choppy week as the NAZ lost 1% (all of it on friday), the NDX 0.5%, the SPX/DOW were flat. It seemed as though the cyclicals wanted to move higher, but the growth sector kept selling off every rally. Some good economic numbers hit the Street: consumer confidence at its highest level in four years, the beige book reported steady to strong growth, and the commerce department reported a 4.8% GDP first quarter with core inflation at 1.9% last 12 months. The FED’s Bernanke spoke before congress on thursday stating that the economy and inflation were moving along as expected and the FED will no longer be increasing rates on a regular basis. It was all very good news for stocks in the long run. Shorter term investors are still assimilating the data. "Buy the rumor, Sell the news?"
LONG TERM: bullish
The bull market continues, and I’m beginning to notice some capitulation amongst the perennial bears, who are now calling for a top in 2008. Why they continue to try to call the top to this market rather than participate in it is a strange phenomenon in itself. The market will top when it completes five primary waves up from October 2002. I have been bullish for 3.5 years and still see several intermediate term advances ahead of us. The DOW closed on friday just 3% below its all time high, the TRANsports are in record territory, and the NYSE composite is in record territory with a new high on friday. The momentum on this intermediate term advance in the four major indices has been lacking, except for the DOW. Our market seems to be drifting upward, which has been typical of the markets in europe these days, (specifically the FTSE), but not our market. This type of drifting upward extends the bull market, in time and price: market momentum cycles are prolonged and waves are extended. However, on an intermediate term basis, it is not healthy.  
The uptrend is still intact in all four of the major indices: NAZ/NDX/SPX/DOW, with the cyclical DOW showing the most strength. However, on an intermediate term basis I have to be concerned about the uptrend because of this lack of upside momentum. Especially since the NDX has failed to make new highs after a seven week advance. In OEW terms, we are not getting momentum confirmation of the uptrend in the NAZ/NDX/SPX only in the DOW, and not with their recent new highs either. In early 2005 we had a similar situation: the SPX/DOW were making new highs while the NDX was failing to do so. At that time the NAZ was failing to make new highs as well. But this time it is different, the NAZ has rallied with the SPX/DOW. Therefore it is a bit perplexing. I’m posting a chart in the photo section that displays the relative activity between the SPX and NDX over the past three years. It covers nearly every important top and bottom of the bull market. Referring to the chart, you will notice in early 2004 the same event occurred: the NDX failed to confirm new highs in the SPX, and this ended Primary wave III. Then in early 2005, as mentioned above, the same event occurred and this ended Major wave 1. Now we are witnessing it again after five waves up from the April 2005 lows. On an intermediate term basis this is not constructive. Therefore I am moving to a neutral stance until the NDX either resolves the situation by making new highs, or a confirmed trend reversal occurs.
SHORT TERM: neutral
The picture here is not too constructive either, considering fridays selloff in the NDX/NAZ. Every positive divergence this week, which should have led to a strong rally; at times did but it was quickly sold off, or failed to do so. The EW pivot points have held up very well: SPX 1292.1300.1316, NAZ 2300.2333.2375, NDX 1684.1705.1750. Thursday’s quick opening selloff pushed the SPX/NDX to the lower pivots, they held firm and the market rallied. Since the NDX/NAZ are the weakest performing sector, their lower pivots need to be watched carefully. Remember these are print levels, not closing prices. Short term momentum is oversold in the NDX/NAZ, but at neutral in the SPX/DOW. Overall, we are close to a trend reversal in the NDX/NAZ. In order for the major indices to remain positive they need to start rallying from these levels shortly.
Asia: The markets here currently appear to be mixed. The ASX/BSE/STI look toppy, while the NIK/HSI/SEC look to have another series of new highs ahead of them before they end their intermediate term advances. China’s SEC and Hong Kong’s HSI look especially strong.
Europe: These stocks indices continue to grind out new highs with no market momentum to speak of. They look a bit toppy, at current levels, as they usually do.
GOLD: As expected gold rallied and made new highs, but is now close to an intermediate term top. Start to get defensive, when it turns down there could be a steep drop back to the $530’s.
Crude: Did make an expected pullback this week, but should be turning up shortly to new highs.
Dollar/Euro: The Dollar (due to the G-7) gapped down at the start of the week and plunged to support at 86.02. It is oversold, but I do not see any signs of a bottom yet. Will be looking for a positive divergence at new lows.
CRB: Again pulled back as expected, but still anticipate new highs ahead to end the advance.
Bonds/Notes: We’re getting close to an intermediate term low in the bond markets. Expecting one more push down, probably this week or next to end this intermediate term downtrend. A 5.35% yield on the 30yr looks like a good place to stop, for now.
2yr/90day: Considering Bernanke’s statements this week I’m surprised short term rates have not dropped quicker. This market has been a tough one to call. Waiting for a trend reversal to occur soon.
Summary: Was looking for a rally last week and all we witnessed was a lot of choppiness and a flat to slightly lower week. Concerned about the lack of internal market momentum and the NDX failing to make new highs after nearly a two month uptrend. Waiting for a resolution to this situation before turning positive or negative on an intermediate term basis. Best to your week!    

About tony caldaro

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2 Responses to weekend update

  1. tony says:

    Hi Hoang,
    You may get that pop in gold this week. But I have to be a little defensive up at these levels, even though the wave structure has yet to complete.
    The Dollar does not look done on the downside, agree!
    Best to your trading! 


  2. Unknown says:

    Excellent work as usual. I did some Fibo analysis on gold just now and identified two potential targets for this run up at 670 and 708. I\’m leaning towards the second one since wave 5 is usually the longest in commodities. Regarding the EUR, I think it may have another 100 pip spike before going down with the target being the low of wave 1 in early 2005, which is 1.2731.I\’ve been humbled more than once with target calling recently. But it\’s nice to have some numbers to watch 🙂 Let\’s see how it plays out.


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