weekend update

Stocks rally in short 4-day week rebounding from last weeks selloff. For the week the SPX/DOW were +1.6%, and the NDX/NAZ were +3.5%. Crude helped stocks by dropping 3.7% and Gold followed -3.7%, the CRB was -2.1%, Bonds dropped 1.4%, and the Euro was -1.3%. Case-Shiller reported that housing prices nationwide continue to decline, and the Univ of Michigan reported consumer sentiment is at a multi-decade low. On a positive note Q1 GDP was reported at +0.9%.
LONG TERM: bear market
Based upon OEW analysis, a bear market in equities started at the October 2007 top. This concluded a five year bull market from October 2002 – 2007. The preferred count is that the October 2007 high ended Cycle wave [1] of a new multi-decade Supercycle bull market, and a Cycle wave [2] bear market is currently underway. Certainly there are potential alternate counts; i.e. the October 2007 high only completed Primary I of Cycle wave [1], and Primary wave II completed at the March 2008 low as noted by one of our OEW group Achal. And there are numerous others. On May 18th we posted an analysis of how markets typically react to major bottoms over the past few decades. Currently this market has failed to respond like any of the others, with one exception: the 1990 low. Should the recent selloff lead to further highs in the SPX/DOW, then that scenario is still possible. And a major bottom may then be in place. Until that potential occurs we continue to maintain that the recent high in the SPX at 1440 was the end of Major wave B in an ongoing bear market. Counting from the October 2007 top the market declined in five waves: Nov-Dec-Jan-Feb-Mar, each one month apart. Since then this wave has lasted two months Mar-May, which would be preceived as a typical counter-trend retracement. Should the bear market continue with its initial pattern, we would should expect five more waves down over the next five months: Jun-Jly-Aug-Sept-Oct. This would project a Primary wave A low in October of this year. Then a very sharp explosive rally should occur into 2009, as originally projected and illustrated by the chart in the photo section. If we then take the first decline from Oct-Mar (SPX 1576-1257) or 319 points, and subtract it from the recent counter-trend high SPX 1440, we project a Primary wave A target of 1121 for the SPX. This again is very close to our original projection of SPX 1107, and close to the previous Primary wave IV low SPX 1061.
MEDIUM TERM: uptrend should have topped at 1440
Typically after a major bottom the market impulses up in five waves, indicating that the low is in and a new bull phase has begun. This impulse wave has to occur in the SPX/DOW general market, and not only in some sectors. These others sectors, like Tech, could give false signals as the Techs did in 2001 before the market broke much lower. When examining this uptrend in the SPX/DOW we have yet to see a bonafide impulse wave, and it still appears to be a double zigzag (abc-x-abc), as noted by the ‘abc’ labeling on the SPX charts. Counter-trend rallies during bear markets typically retrace between 38.2% and 61.8% of the previous significant decline. At the recent May highs both the SPX and DOW met the upper end of those parameters. Also at the recent highs the SPX/DOW weekly charts displayed negative RSI divergences and the MACD did not even make it back to neutral. Then on the daily charts the SPX/DOW both displayed negative RSI/MACD divergences at the highs as well. In addition to these technical indicators a financial indicator is breaking down. The bear market, thus far, has been caused by the housing crisis and the financial crisis that followed. A good way to follow these combined sectors is to follow the CDO (collaterialized debt obligations) market. CDO’s are packaged mortgages that were sold by financial institutions as insured investments. Standard & Poors reported last month that by time the housing crisis ends: AAA CDO’s will be worth 35 cents on the dollar, AA 10 cents, and A or lower will be worth nothing. In the past two weeks the A CDO’s have started to make new lows and are now trading at around 11 cents on the dollar. These instruments have always led the stock market lower and have signalled the start of the next downtrend. The market topped two weeks, and it appears to be leading again.
Support for the SPX remains at 1383 and then 1364, with resistance at 1410 and then 1438. Short term momentum drifted down to neutral nearing fridays close. The near term indicators, which displayed massive RSI/MACD negative divergences at the highs, are now rising and approaching overbought. As a result of all that has been noted thus far, we have labeled the recent SPX 1440 high as the top of the uptrend since March. Then the first decline to SPX 1373 as wave 1 of the next downtrend, with this rally is being labeled as wave 2. Also of note in this bear market, every time the DOW has dropped 600+ points, it has signalled the start of the next downtrend. Lastly, each wave 2 has retraced a good part of the wave 1 decline, about 70.7%. If this is to occur again this would project a wave 2 retracement to near SPX 1420, and DOW 12,930. Since the first decline in the SPX ended about 10 points below OEW 1383 pivot at 1373. A wave 2 rally to 1420, 10 points above the OEW 1410 pivot would seem in order. Therefore, we are expecting this wave 2 rally to end early next week, and then the market should selloff.
The Asian markets have all been uptrending, but are also starting to weaken.
The European markets, have been following the US market quite closely, and should follow it lower.
The Commodity markets (Brazil and Canada) remain in uptrends.
Bonds continue to downtrend in their bear market, down 1.4% this week.
Crude has sold off (-3.7%) for the past week after hitting $135. Typically this type selloff in this market has often led to higher highs.
Gold sold off (-3.7%) with Crude, but the mining stocks we follow are in uptrends, expecting Gold to follow higher.
The Euro/USD/Yen complex displays the Euro/Yen still in downtrends, and the USD in a weak uptrend.
On monday ISM factory index, Factory orders tuesday, ISM services on wednesday, the Unemployment report thursday, and Non-farm payrolls on friday. The FED chairman offers a speech on tuesday, then from Harvard on wednesday, and finally FED governor Kroszner on friday. Best to your week! 

About tony caldaro

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