REVIEW:
The market remained under selling pressure through mid-week after last friday’s options expiration debacle. On monday the SPX hit a pullback low of 1490 (twice) before rallying into the close. After another rally into the close on tuesday, the market hit 1490 (twice) again on wednesday, and again rallied into the close. Thursday the market lifted a bit higher with a low of 1500, and friday turned the whole week higher with a close nearing the high for the week. A rocky beginning to a week ending with solid gains, which nearly recaptured the entire selloff a week ago friday. For the week the SPX/DOW were +2.2%, and the NDX/NAZ were +2.95%. Bonds gained 0.3%, Crude made new highs +4.6%, Gold made new highs +2.2%, and the Euro made new highs +1.0%. New highs for the stock indices should be next.
LONG TERM: bullish
It has been said that bull markets "climb the wall of worry", and bear markets "spiral down the sinkhole of despair". The only thing that can be gathered from these two expressions is simply that there are always problems. Yet there are still bull and bear markets. More importantly, when the underlying market psychology is positive, as it has been for five years, problems can be dealt with and bull markets unfold. However, when the underlying market psychology is negative, no matter how the problems are dealt with, there will be bear markets. Long term market psychology cycles drive markets. Negatives and positives, both fundamental and technical, create the waves within the cycle. Until a positive psychology cycle ends, a bull market can not end, and visa versa. It has yet to be determined what exactly initiates these cycles. But here at OEW we know how to track them once they have begun, and can anticipate when they are about to end. For this bull market, there is still plenty of time left. Possibly by the year 2010 this one will conclude. With that in mind, let’s go on record and call for SPX 2010 by the year 2010. Naturally, if the cycle starts accelerating in time you will be informed.
This bull market is taking its time unfolding, which is likely to be 8 years. Since it is a Cycle wave, five Primary waves need to unfold. Primary waves 1 – 4 already completed at the August 2004 low. Primary wave 5 has been extending ever since. Primary waves divide in 5 Major waves, which subdivide into 5 Intermediate waves. Then further subdivisions into Minor waves, Minutes waves, Micro waves, etc. Major waves 1 – 2 completed at the April 2005 low. Major wave 3 has been underway ever since. Intermediate waves 1 – 4 completed at the March 2007 low, and Intermediate wave 5 is still underway. Graphically this count is displayed on the weekly charts of the various US indices in the chart link at the bottom of the post. The bull market continues.
MEDIUM TERM: bullish
The uptrend from the mid-August spike lows to SPX 1371 continues. Minute wave 1 traveled 108 points, and was corrected by an irregular flat Minute wave 2. Then Minute wave 3 traveled 137 points, and was corrected by a nasty zigzag Minute wave 4. After the options expiration selloff, we posted that the key support levels to watch were 1490 (the top of Micro wave 1), and 1484 the EW pivot. Also, if a break below 1479 occurs, the internal pattern of this uptrend would become suspect. As noted above, 1490 held support as it was tested four times before the market rallied in earnest to close at 1535 on friday. Now to hit our 1620 target, Minute wave 5 needs to be similar in length to Minute wave 3: 1490 + 137 = 1627. At wednesday’s lows the market put in good a positive RSI divergence and was the most oversold it had been since the July/Aug correction; see SPX 60min and daily charts. Also, the medium term and long term RSI has turned nicely higher off those lows as well. Next, as the market moves higher, we should a negative divergence starting to unfold in both the daily RSI and MACD. This would be typical fifth wave activity technically.
SHORT TERM:
Support for the SPX is now at 1530 and then 1506, with resistance at 1556 and then 1576. Short term momentum is slightly overbought, but not at an alarmingly high level. The NDX/NAZ, which have been the leaders during this uptrend, are already close to making new highs. Certainly there have been some laggard indices during this uptrend, specifically the TRAN/R2K/SOX. However, this is normal during a fifth wave, and was anticipated in this interest rate environment. Large cap Techs and the Internationals were expected to do the best; i.e. the NDX is +21.5% during this uptrend. On the economic front, the FED convenes on tuesday for a 2-day session, to discuss the economy and determine their decision on short term rates. Based upon the indicator I have been following, which closed at 3.96% on friday. With fed funds currently at 4.75%: a 25bps cut would still be behind the curve, and a 50 bps cut would align interest rates to where they should be at this point in time. Also there is a lot of economic data this week. On tuesday, the Case-Shiller home prices report; wednesday the ADP employment report, Q3 GDP and Chicago PMI. Thursday provides the ISM and the core PCE report. Then on friday, the jobs report and factory orders. Should be a volatile week again.
FOREIGN MARKETS:
The Asian markets continue to uptrend and for the most part look good. China’s SSEC looks to be turning over, as it often does after a holiday, but it beats to its own drum. Japan’s NIKK continues to look weak, as it has for nearly 18 months now.
The European markets continue to uptrend as well, with England’s FTSE and Germany’s DAX ready to make higher highs.
COMMODITIES:
Bonds are starting to uptrend again after about a 4-week pullback. Expecting lower rates ahead.
Crude continues to soar in its uptrend. It appears to be a market that is getting out of control fundamentally, and is driven on technicals alone.
Gold continues to make new bull market highs as well, as its uptrend continues.
The Euro, made new highs again this week as the USD continues to erode in relative value.
Should be a wild week, but expecting it to end positively. Best to your weekend!
the ELLIOTT WAVE lives on 
Hi Ben,
Yes it is unusual.
However, in the 1982 – 2000 bull market, Primary waves 1 – 4 lasted 5 years.
Then Primary wave 5 took 13 years.
Thus far in this bull market, Primary waves 1 – 4 took two years, and Primary 5 three years.
A similar relationship would push Primary 5 to 2009/2010.
good point!
tony
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Hi John,
That would make two flats in a row: one in early Sept. and another now.
Unlikely but possible.
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Tony,
For the $NDX and $COMPQ, is there any reason that Primary Wave 5 extends so long? Looks like from the time scale, it will be much longer than wave3 and wave1, is it unusual?
Thanks!
Ben
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Tony,
Is there the possibility that the market could decline from this level for about one week to complete an A-B-C pattern from 1576. I see the decline from 1576 to 1490 as five waves and the subsequent advance as three. The advance from around 1490 to Friday’s close approximates 50% of the decline from 1576 to 1490.
That would complete a double zig-zag from July 19.
John Mackenroth
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