weekend update

Stocks staged a late week rally, after making an important low tuesday, during this options expiration week. For the week the SPX/DOW gained 0.95%, and the NDX/NAZ rose 2.0%. Clearly the techs took center stage, as they split with the cyclicals on wednesday, took control on thursday, and led the market higher on friday. Economic reports displayed that the economy remains resilient despite the liquidity crisis and large write downs in the financial sector. The concerted liquidity efforts by many central banks, seems to be helping as short term rates began to rise this week. Commodities, as measured by the CCI, hit new all time highs on friday. A sign that the worldwide economy is still moving along. Technical and fundamental data have yet to reflect any upcoming bear market or recession.
LONG TERM: bullish, it’s still a bull market
As the market closes in on the last five trading days of the year, the tally for the year reflects the SPX/DOW +6.3%, and the NDX/NAZ +15.9%. High cap tech (NDX), as expected, outperformed the NAZ 20.2% to 11.5%, and the high cap cyclicals (DOW) outperformed the SPX 7.9% to 4.7%. Despite a choppy year with higher highs, the DOW which made all time new highs in October 2006, was joined by all time new highs for the SPX in July 2007. Reviewing the weekly charts, this year looks like the 2005 consolidation year. Making a low early in the year, and then struggling to make much upside progress throughout the rest of the year. From an OEW perspective everything remains the same. This is Cycle wave 1 of a new Supercycle bull market. Cycle wave 1 is subdividing into five Primary waves. Primary waves 1 – 4 completed in August 2004, and an extended Primary wave 5 has been underway ever since. The last Cycle wave 1 (1932 – 1937) unfolded in exactly the same extended 5th wave pattern. Primary waves subdivide in 5 Major waves. Major waves 1 – 2 completed at the April 2005 lows, Major wave 3 completed at the July 2007 high, and Major wave 4 may have just completed at this weeks low of SPX 1436, in the form of a triangle. Since OEW analysis is based upon not only quantitative wave patterns, but also market momentum cycles. Bull and bear markets do not end until patterns are completed by both indicators. Certainly at times, one or the other indicator appears complete, and this is the time that the market runs into difficulty. However, until they both complete together, the market is only experiencing a consolidation phase. Still bullish from October 2002.
MEDIUM TERM: this complex correction may have ended recently at 1436
For the past several weeks the market has been providing us with mixed signals. Of the nine US indices we follow three are in confirmed uptrends, (DOW/NYA/TRAN), and the others are not yet confirmed. This clearly displays the indecision of this market, and the volatility is typical of a triangular formation. We witnessed similar whipsaw activity in 2004. That year the SPX formed its Primary wave 4 triangle. That one took 5 months to unfold, this one has also taken five months to unfold as well. Even if this one is not complete yet, the current trading range should continue with major support at the 89-wma. Thus far, we’re counting the August low as wave ‘a’, the October high as wave ‘b’, the November low as wave ‘c’, the early December high as wave ‘d’, and the recent low as wave ‘e’. Contracting triangles do speed up in their wave formations as they enter the apex. Expending triangles slow down, as illustrated by the SPX 2004 triangle. All these charts can be reviewed in the chart link below. The internals for the major indices have been improving since the November lows. The DOW reading is currently 57% bullish, the SPX is at 46%, and the NDX at 33%. All these readings started at 20% bullish or lower. The market continues to improve, while bearishness continues to increase.
After establishing a low tuesday at SPX 1436 on a nice positive RSI divergence the market has rallied 3.4% in just three days. The SPX held support at the long term pivot of 1438, rallied through resistance at 1462, and closed right at the 1484 pivot on friday. The techs had an even stronger rally, rising 5.5% in just three days. Support for the SPX is at 1484 and then 1462, with resistance at 1506 and then 1530. Short term momentum is extremely overbought in the tech sector (+95%), and just overbought in the cyclicals. Possibly a post expiration pullback on monday, during the shortened trading session. The money flow indicator we’re following, displayed strong stock accumulation on friday. We’ll soon see if this was just was an options related event, or a capitulation by the bears.
The Asian markets were mixed for the week. China’s SSEC gained 1.9%, Hong Kong’s HSI was slightly higher, and the rest were lower. Only India’s BSE is in a confirmed uptrend thus far. But the others did come off their lows on tuesday as well, and have started to move higher.
The European markets were both slightly higher. The DAX remains in an uptrend, while the FTSE appears to have completed a Primary wave 4 triangle.
Bonds do look like they topped for the time being. After rallying for four days this week, that entire gain was eroded on friday as they closed out the week -0.2%
Crude is in a confirmed downtrend, but rallied back 1.9% this week.
Gold appears to be in a downtrend and forming a triangle as well. They seem to be everywhere these days.
The Euro/USD. The Euro continues in its downtrend after nearing 150, and the USD is uptrending. As noted on the charts, these reversals may have been significant.
HAPPY HOLIDAYS to you and yours, and may 2008 be a prosperous year for all. 

About tony caldaro

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