REVIEW: Stocks rallied strongly this week after last week’s options expiration, and the news of a slowing economy in the second quarter. The major indices: SPX/DOW/NAZ/NDX were up between 3% and 4%. And, more importatly, the SPX/DOW confirmed new uptrends after downtrending for nearly three months during this correction.
LONG TERM: bullish.
The correction, the market has just experienced, was the largest correction in over a year. However, it was still inline with all the major corrections during this bull market; i.e. SPX corrections: Aug’04 -8.5%, Apr’05 -7.6% and Jly’06 -8.1%. Therefore, the market is still on track to make new highs for this bull market in the near future. This correction tested the four year uptrend in the "tech" sector the most, as the NAZ was down 15.3% at the lows, and was only 100+ points away from breaking the Apr’05 lows. Yet, this correction, just as in the SPX, was similar to all the other major corrections during this bull market: Aug’04 -18.7%, Apr’05 -13.3% and Jly’06 -15.3%. As a result, my four year long term OEW count remains intact: Primary waves I – II (Oct’02 – Mar’03), Primary waves III – IV (Mar’03 – Apr’04), and currently a subdividing Primary waveV is still underway. See weekly charts SPX/NAZ on chart link.
INTERMEDIATE TERM: uptrend SPX/DOW, impulsing higher NDX/NAZ.
Since the middle of June, the major indices have been displaying major positive RSI divergences, (see daily charts in photo section); and more importantly, a major positive NDX/SPX derivative divergence, (see "derivative market" and "NDX.SPX" charts in photo section). At the May highs, just before the market started its correction the NDX/SPX were displaying a major negative divergence. These types of divergences have preceeded nearly every major turning point during this bull market. Since they are created by index futures trading, and not by the normal buying and selling of actual stocks, I have termed our market a "derivative driven" market, (see report: "derivative driven market" 07/09/06). During this past week, OEW analysis recognized a trend reversal in the cyclical SPX/DOW, while the tech NDX/NAZ have started trending impulsively as well. The cyclicals are getting this market to move higher, but it is now up to the "tech sector" to follow through, and also take over the leadership. This bull market has been growth driven, and most of the real growth is coming from the "tech" sector. Since the NDX was the weakest of the four indices this year: topping in January, while the others topped in the spring. If this market is to start moving aggressively higher, which it should, the NDX/NAZ need to lead the charge.
SHORT TERM: indices impulsing higher.
On wednesday I posted a chart: "NAZ15min", in the photo section, and updated it friday. This index is indicative of the entire complex. The advance off the lows looks impulsive (bullish), and as long as certain levels are maintained, and the RSI/MACD indicators continue to reflect normal uptrend biases, the market should continue to rise in spite of geopolitical circumstances.
FOREIGN MARKETS: mostly in uptrends.
Asian: The NIK/BSE continue to trend upwards, but the ASX/SEC might need to retest their lows again.
Europe: The FTSE and DAX continue to make progress in their ongoing uptrends.
Gold: After finding support a little lower than anticipated gold should resume its uptrend
Crude: The recent rally to $80 might have been it for this uptrend, with a short 5th wave rally.
30yr/10yr/2yr rates: Rates are heading lower, the 2yr has reversed its 6 month uptrend and may drop another 50 basis points. Expecting Bonds to continue their counter trend rally before turn lower some weeks from now.
SUMMARY: Stocks look good, and interest rates should be declining along with the price of crude.