weekend update

A relatively quiet week with the market consolidating last weeks gains for the first few days. Then rallying to new rally highs (SPX 1291) on wednesday. Only to pullback in the last two days to end the week -0.2%. The DOW fared worse -1.1%, but the Techs rallied on friday and rose about 1.25% for the week. Housing stocks were flat, the financials gained 1.0%, the banks +0.7%, and all were off their highs for the week. Economic indicators were also mixed, and then after the close on friday the FDIC closed two more banks: 1st National Bank of Nevada and First Heritage Bank, with total assets of $3.6B.
LONG TERM: bear market
Since the bear market began nine months ago the SPX has dropped 23% top to bottom (1576-1200). This is really not that bad considering when the bull market began in October 2002, Primary wave II dropped 17% (top to bottom) in just three months (954-789). Then, after nearly a three year decline (2000-2002) and a 50% loss in the SPX, the majority believed it was just another bear market rally. The market had conditioned the majority to look for lower prices. Nowadays, after a five year bull market, the market has conditioned the majority to look for corrections lows, and expect new highs ahead. In this line of work I receive many reports, worldwide, through email. The internet is certainly the consciousness of mankind. Some consistently call for the end of the bear market at every downtrend low. Others consistently call for an economic apocalypse, and the end of the financial system as we know it. The majority, however, understand that this is bear market, and a buy and hold strategy just won’t work. It’s a traders market. Until the first group mentioned, the bear market bottom pickers, disappear. Market sentiment is not likely to get low enough to create a significant bear market low. The waves and the OEW wave count suggest this as well. As for our economic apocalypse group. They could have very well been right. If recent events would have occurred in the begining of the decade, when the 70-year Supercycle ended. The difference between the 1929 Supercycle top, and the 2000 Supercycle top is vast. Leading up to, and after 1929, all asset classes were deflating, and monetary policy was tight. After the 2000 top, stocks and commodities were deflating, but housing remained robust, and prices were starting to accelerate, while monetary policy was accommodating. When housing peaked in 2005, stocks were still rising and commodities were rising as well. Then at the 2007 top, stocks started to deflate along with housing, but commodities continued to rise, as the FED lowered rates and increased the monetary base. What this all means is simply this. We are unlikely to have an economic collapse unless everything is deflating at the same time. In that case the majority move into cash and stay there. To avoid that scenario monetary policy has to assure that there is always an asset class rising, while others are deflating to counter balance the effect. In other words, there always has to be a bubble forming somewhere to keep the credit system from imploding. Look back at the recent past. Currency bubbles in the 90’s, the dotcom stock bubble in 2000, the housing bubble in 2005, and now Crude oil and company at all time highs. What this means is that the world economy will have to go through a period of adjustment similar to the 1970’s. Rising inflation, rising unemployment, with flat to negative GDP growth: stagflation. The stock market will gyrate like it did in the 1970’s as well. To sum it up. We do not see a significant bottom in the bear market yet, nor any economic apocalypse in the near future, as long as commodities remain in a bull market.
MEDIUM TERM: downtrend bottomed at SPX 1200
For the past two months, while the FED and Treasury jawboned about this and that, and Congress started to clean up some of the loopholes they created, the market declined. The decline did not end until the SEC ruled naked short selling in the Primary dealers http://www.newyorkfed.org/markets/pridealers_current.html and GSE’s was no longer legal. The market then promptly bottomed on July 15th at SPX 1200, as short covering in the financials generated a market rally. From that low the market rallied for about a week reaching 1291 on wednesday. Notice, nearly every significant low in the past year (aug-nov-jan-mar-july) was triggered by monetary policy or regulations. It’s interesting how none of these types of events occur during bull markets. And this is a free market? Reviewing with our January 2008 bear market forecast, posted in the photo section on this page. We anticipated an abc down to complete Major wave A, and that occurred in January. Then a Major B wave rally, retracing a good portion of that decline would follow, and that completed in May. Lastly we expected another abc decline into a significant low to complete Major wave C and Primary wave A of the bear market. The first wave "a" appears to have completed at SPX 1200, and the "b" wave rally is underway. Upon completion of this "b" wave, the market should then decline into that Primary wave A significant low. We had projected a low near SPX 1100, and currently have a range between SPX 1060 – 1140. The actual labeling is posted on the SPX hourly, daily, weekly charts in the charts link below. Essentially nothing has changed from the original projection, except the actual price levels.
Support for the SPX remains at 1240 and then 1219, with resistance at 1261 and then 1287. Short term momentum is beginning to rise a bit after thursdays oversold low. The near term indicators are still rising, but have pulled back from there highs. From the SPX 1200 low we can count a small abc up to the 1291 high. wave "a". Then a sharp pullback thus far to 1251, which was nearly retested on friday. This low may be sufficient to end wave "b" unless the Case-Shiller home prices report on tuesday morning frightens the market. Our pivot projection for this rally of 1287-1240-1327 is still on track. One poster noted that many blogs, strangely enough, also have this same projection. Therefore, we should be on the lookout for some alternate scenarios that would also fit. The first is a double top like that which occurred in February. This would suggest a 1287-1240-1287 scenario. Another would suggest even a greater rally: 1287-1240-1344. Still prefer the original projection at this point, and will just follow the market as it unfolds. One last note. During the November and January downtrends, the wave 2 and wave 4 rallies were between 50-63 points. Yet, during this recent downtrend not one rally exceeded 36 points. Since Nov/Jan were both similar and Intermediate waves of the same degree within Major wave A. Then the recent downtrend into the July low, and the downtrend to follow, should also be similar, as they will be Intermediate waves within Major wave C. This suggests the next downtrend will also be a prolonged one, with limited rallies as it unfolds.
The Asian markets all rallied last week generally following the western markets.
The European markets rallied as well, but the FTSE ended lower. A mixed performance like the US indicies.
The Commodity markets continued to downtrend with the CRB index. 
Bond rates after peaking at 4.32% in June corrected to 3.77% in July. Now they appear on the rise again closing at 4.11% on friday.
Crude peaked at $148 just two weeks ago and has already declined 17% to $123. Expecting a bounce soon, and then an end to correction.
Gold was under pressure from the entire commodity complex, but held up well in its continuing uptrend.
The Euro declined this week 0.9%, and the USD rallied the same. Still have the Euro in an uptrend.
As noted earlier, we have Case-Shiller on tuesday and a consumer confidence reading. Then the ADP employment index on wednesday. Thursday provides the weekly unemployment report and our first look at Q2 GDP, (plus 1% again?). Then friday the monthly non-farm payrolls, ISM manufacturing, construction spending and auto sales, or lack thereof. The only FED speech occurs on monday with FED governor Mishkin in DC at 12:00. Best to your week!

About tony caldaro

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38 Responses to weekend update

  1. egoldspot says:

    The S&P is in the middle of a summer rally in a bear market and could gain to 1,350 before falling away


  2. H says:

    Ok,  interesting though, on the weekly, they have virtually identical tails but I place more emphasis on volume and the volume for July\’s low says it all.  JMO.  


  3. Frank says:

    HD just compare Jan low… you see how big of tail and how wide intraday travelled?  that is some sort of good bottom…


  4. Frank says:

    HD, on my capitulation day, I really don\’t have any indicator except for how market act that day… usually on a capitulation day, most indicator is pretty useless.  On a capitulation day, or what I see as capitulation, is a panic move, a waterfall drop, a "everyone wants out at same time" move.  The day that drop to 1200, as you can see, is not much panic… the indicies only drop in the first 1 and half hour or so and that was it!  It only had like 1 big bar down on the 3 minute chart… that\’s not panic.  Anyway, that\’s just my view, of course my view count sh** when it comes to market.  So  we\’ll see…


  5. Unknown says:

    Thanks for the analysis Tony.
    Here is a potential SPX path for Mon-Wed.
    1266 would be a .382 retrace of 1291–>1251 while 1271 would be a .5 retrace and previous 15min RSI breakdown area, so 1266-1271 seems like a good upside target for b of B. The uppermost fan line down from SPX 1291 crosses that area Monday morning. Then, 1235-1241 is a previous pivot area plus .618 retrace of 1200–>1291 and number pattern target area, so that seems like a good downside target. The 2nd fan line crosses that area on Tuesday.
    The fact that 1291 was recognized tells me 1440–>1200 was lilkely a complete structure not needing a 5th wave as some are suggesting. 1291 was a .382 retrace of 1440–>1200, not 1404–>1200 and 1292 was a previous degree wave 4 in my count. And, the capitulation was not a 5% drop day like January as some may have hoped, but most other signs point to temporary capitulation.
    Timing: 1200–>1291 (A) took 6 days. 1291–>1251 (B) has taken 3 days so far and likely 1-3 more. A+B=10-12 days. If C is also 4-6 days, the intermediate-term top should occur during the first week of August likely at 1316-1327 (Tony pivots and number pattern targets and .5 retrace of 1440–>1200). That would be an odd seasonal time to drop hard, so I wouldn\’t be surprised if SPX bounces around 1200-1300 until September. Good luck.


  6. H says:

    Great update Tony.
    Frank said: “Last low didn\’t have the capitulation most looking for”
    Frank,  what specifically are you looking for in capitulation?  A price?  Look back at the volume, PPO, slow STO, NYLOW and it all adds up to a significant low.  Is there another indicator you use that signals capitulation? Or what will you be looking for when the market does finally bottom?  Just curious….


  7. Laurent says:

    I completely forgot  to put my daily wave count, wave 4 may not be completed yet.


  8. Rich P says:

    What a very crazy week.  I\’ve had to delve down to even the 5 min chart to make sure I knew what was going on.
    So, here are three charts for the Q\’s:
    5 min : http://flickr.com/photos/20792293@N02/2705169496/sizes/o/
    15 min : http://flickr.com/photos/20792293@N02/2705169514/sizes/o/
    60 min: http://flickr.com/photos/20792293@N02/2705176050/sizes/l/
    I\’ve included what I think the likely path is to finish off this countertrend move on the 60 min charts.
    Best to your trading…


  9. Laurent says:

    For some reason some people have problem with my links as they are not able to copy and paste them, I am sorry as I use Firefox since IE allways crashses but I\’ll post them clickable and let\’s hope IE won\’t crash. There you go
    SPY weekly chart
    SPY monthly chart


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