HAPPY NEW YEAR!
Year in Review:
For the year, the cyclical DOW (+16.3%) and the SPX (+13.6%), outperformed the growth NAZ (+9.5%) and the NDX (+6.8%) for the first time since the bull market began. You will probably read in the coming weeks, that the bull market is narrowing from a broad based advance to a more selective narrower advance. Which is normally the sign of an impending end to a bull market. This will eventually occur, but we are not there yet. The other two broad based indices we follow; the New York Stock Exchange NYA (+17.9%) and the Small cap R2K (+17.1%), both with at least 2000 stocks, outperformed even DOW. The semiconductors (SOX -2.3%) and short term over evaluation, were the drag on the volatile growth sector. The majority of the stocks are still participating in this bull market, which is typical third wave activity.
LONG TERM: bullish.
While many market prognosticators were painting a doom and gloom portrait at the beginning of 2006, the market had other intentions. For the first six months of the year, I was constantly bombarded with bearish emails every time the market would make a downturn. Even after I explained my bullish position, and what the OEW analysis was projecting, the bearish emails continued. Then in the summer, when OEW analysis projected one of the biggest rallies of the bull market. And, the market started rallying towards those projections. The bearish emails ceased, and the capitulation emails began. Some stated the market is simply defying gravity, mystically rising to higher and higher heights … that made me chuckle. Others stated that the Elliott Wave no longer works, and they were moving on to other forms of technical analysis … I found that interesting since I used OEW to make those bullish projections. And others stated that the stock market just didn’t make sense any more, and they were moving on to other financial markets. I consider all the comments as a reflection of the "point of recognition" for the bull market. From early 2004 to mid 2006 the market gave the doom and gloomers hope, as each advance only marginally took out the previous highs. For 30 months, every top was considered the bear market counter rally high. The past five months changed all that, as the DOW joined the TRAN/NYA/R2K in all time new high territory. And, the SPX is only 8% away from its own all time highs. As you are aware, we have been long term bullish since Oct02. Every wave of significance has been an impulse wave, solidifying that bullish position. The bull market is not over, it’s accelerating! 2006 brought the bull market to the "point of recognition". 2007 should bring in an abundance of investment dollars to fuel every medium term uptrend. The stock market has an excellent opportunity to make sigificant upside progress this year. And, we hope to continue to be here tracking the market for you … God willing.
MEDIUM TERM: NDX/NAZ downtrending, uptrending SPX/DOW should reverse soon.
The bull market has continued to unfold since Oct02. Four of the five Primary waves were already completed in Aug04, and the market is in an extending Primary wave V, (see SPX weekly chart). Primary wave V is dividing into 5 major waves. Major waves 1 and 2 completed in Apr05, and Major wave 3 is dividing into 5 Intermediate wavves. Intermediate waves i and ii completed in Jly06, and Intermediate wave iii to getting close to completion as well. This is the bull market in OEW terms thus far. Since the Jly06 low, the SPX has soared over 206 points (16.8%), for the largest uptrend point gain of the entire bull market. Typical third wave activity! Since Thanksgiving however, the growth sector has not made much progress, and has just turned lower confirming an OEW downtrend. The growth sector usually leads the market during corrections. Therefore, I am expecting the SPX/DOW/NYA/R2K to turn over shortly, joining the NDX/NAZ/TRAN/SOX in a correction. I posted on the charts, what appears to be the important EW pivot point for each of the indices during the upcoming correction. For the SPX its at 1360, the DOW is at 11,950, and the NDX is at 1625. If the correection is moderate, as expected, these pivot points should provide support. As a point of reference, the SPX closed at 1418, the DOW at 12,463 and the NDX at 1757.
SHORT TERM: cyclicals in tail end of uptrend.
Since the Jly06 lows at SPX 1226, this index has rallied in a clear five wave structure. Minor waves 1 and 2 completed in the beginning of September, and Minor waves 3 and 4 early November. While the NDX was topping around Thanksgiving, the SPX held up well and started to extend higher. Using the previous long term EW SPX 1383 pivot as support, the SPX rallied to within 6 points of the next long term pivot at 1438. Quite an impressive uptrend! Shorter term this last Minor wave 5, from the early Nov. lows, has been dividing into 5 Minute waves. Minute waves i thru iv appear to have completed at the Dec 22nd low. Thus in OEW terms: Minute wave v, of Minor wave 5, of Intermediate wave iii is still underway. Since the DOW/NYA are both in similar wave structures, and both have already made new highs, which the SPX has not. It is possible, from a conservative viewpoint, the uptrend in the cyclicals ended last week. Therefore, if the cyclicals are to continue this uptrend to complete a clear 5 Micro waves within this last Minute wave 5, support at SPX 1410 should not be violated. This is a very important support level for the cylicals if they are going to eke out further new highs. Please refer to the hourly and daily charts for the OEW wave structures just discussed, posted in the CHART LINK.
FOREIGN MARKETS: mixed
Asia: India’s BSE is already in a downtrend. Australia’s ASX and Japan’s NIK are still uptrending, but topping. China’s SSEC, thus far displays no signs of a medium term top as it continues to roar ahead: it’s risen 50% in the past two months alone.
Europe: England’s FTSE and the Germany’s DAX appear to be ending their medium term uptrends.
Bonds: These fixed income investments continue to correct as the downtrend continues.
Crude: The energy complex is failing to capitalize on its momentum upswing. Not positive longer term.
Dollar: The downtrend in the greenback continues.
GOLD: The precious metal is starting to impulse again, after a correction to near $605. This could be good alternative investment as the stock market corrects.
It was a fun year! The daily readership to this blog incremented geometrically throughout the year. Thank you for your support! The CHART LINK was implemented in January, and after several requests, a new labeling method was devised for easier comprehension of the OEW wave structure. Our website: Objective Elliott Wave.com was initiated late in the year, to back up the blog site and make previous reports more accessible. As time moves forward, I will do my best to continue to improve the information provided by all three sites. And my goal will remain to FREELY help as many people as possible to understand the markets, and to benefit from their movements. I want to personally thank all the members of the International OEW group; for the insights, recommendations, participation and support during 2006. We currently have students and graduates in 10 countries covering both hemispheres. It has been a fun and personally rewarding year! In anticipation of making 2007 an ever better year, I wish you all a Happy, Healthy and Prosperous New Year.