Market soars (SPX 11.8%) after FED chairman Bernanke addresses the Council on Foreign Relations before the open tuesday morning. The following is the text of the speech: http://www.federalreserve.gov/newsevents/speech/bernanke20090310a.htm. Economic reports during the week were generally mixed; Budget deficit expanded, the Trade deficit contracted, Inventories declined at a lesser rate, and the weekly Jobless claims were about the same. For the week the SPX/DOW gained 9.9%, the NDX/NAZ added 10.2%, Asia gained 5.4%, and Europe was up 7.2%.
LONG TERM: bear market
With the stock market now into its eighteenth month of the bear market we have the potential for the first completed wave pattern of Primary degree. We have been expecting this bear market to unfold in three Primary waves: ABC. Primary wave A would complete the first low, followed by a strong Primary wave B, and then a retest or lower lows in Primary wave C to end the bear market. Primary wave A has subdivided into three Major waves: Mar 08 (SPX 1257), May 08 (SPX 1440) and potentially Mar 09 (SPX 667). Major waves A and C have subdivided into five Intermediate waves. Major wave B was a simple counter-trend rally. The five Intermediate waves within Major wave C are defined as: Jly 08 (1200), Aug 08 (1313), Nov 08 (741), Jan 09 (944) and currently Mar 09 (667). Should the Mar 6th low at SPX 667 hold, and OEW then confirms a new uptrend, we can expect a Primary wave B rally to follow lasting several months. Historically, using similar bear markets (1929-32, 1937-42, 1973-74) as a guide, a Primary wave B rally can retrace as much as 50% of the entire bear market in about five months. The bear market decline thus far has been from Oct 07 (SPX 1576) to Mar 09 (SPX 667): 909 points. A 50% retracement would drive the SPX to 1122. Our Primary wave B target, all along, has been between the OEW pivots at SPX 1107 and 1179. Even after a 58% decline in the SPX, the waves and the pivots are still in alignment. After such a massive decline, a 50% retracement rally sounds quite extraordinary. But it is really only a rally back to the September 08 levels.
MEDIUM TERM: downtrend
The downtrend that started in early Jan 09 at SPX 944 appears to have unfolded in five waves. This is the typical wave structure for every downtrend during this bear market. The characteristic for the first four of the five downtrends, has been a relatively strong second wave followed by a weak fourth wave. This characteristic altered during the volatile fifth downtrend between Aug 08 and Nov 08. That downtrend offered two fakeout volatile rallies, first in mid-Sept. and then in late-Oct. Those rallies were the second and fourth waves of the downtrend. During the current downtrend the market appears back to its normal characteristics: a strong second wave and weak fourth wave. With this in mind we have maintained the count posted on the SPX/DOW hourly charts. The five waves during this downtrend are defined: wave 1 (804), wave 2 (875), wave 3 (742), wave 4 (780) and wave 5 at the recent lows (667). When attempting to define a downtrend low we naturally rely on the pivots, fibonacci and several technical indicators. At the recent low there were positive RSI divergences on every timeframe except the monthly, which is the most oversold it has been since the 1930’s. There is also a positive RSI divergence in market breadth (NYAD pg.5), and the VIX (pg. 5) is now downtrending. Also of note was tuesday’s surge in up/down volume. The 27:1 reading was the highest since Sept 07, while the bull market was still ongoing. Lastly, during the volatile Aug-Nov downtrend, not once did the market surge on a week to week basis, until that downtrend ended in late Nov. Then, the market bottomed on friday Nov 21st and surged 10.9% the following week. This downtrend appears to have ended on friday Mar 6th and this week it surged 9.9%. In summary, probabilites suggest that the downtrend ended on March 6th at SPX 667.
Support for the SPX remains at 734 and then 717, with resistance at 768 and then 789. Short term momentum was getting overbought again at the close on friday. The rally from the lows looks impulsive, and is not choppy like the rallies during the downtrend. In fact, on a very short term basis this rally has maintained support from the SPX 673 secondary low on monday. The rally has also been interesting in its dealings with the overhead pivots. On monday the SPX rallied to 695 (the 696 pivot) and was turned away. Then on tuesday the SPX broke through the 696 pivot, rallied to 720 (just passed the 717 pivot), and closed there. On wednesday the SPX rallied to 732 (the 734 pivot) and was turned away. Then on thursday the SPX broke through the 734 pivot, and rallied to 753. Finally on friday the SPX rallied to 758, just under the 768 pivot and closed there. It does appear that the SPX may challenge the 768 pivot before any sizeable pullback, (more than 22 points), occurs. Best to your trading!
The Asian markets all rallied this week with an average gain of 5.4%. Only China’s SSEC is in a confirmed uptrend.
The European markets rallied on average 7.2%, but neither the DAX nor the FTSE are in confirmed uptrends yet.
The Commodity equity markets rallied 7.3%, and both Brazil and Canada are still waiting for confirmed uptrends.
Bonds were relatively flat on the week, and have been going sideways for about a month.
Crude gained 2.4% in its uptrend, but the rally looks choppy and may run into trouble at the $50 level again.
Gold lost 1.4% on the week and appears in an unconfirmed downtrend. Expecting a retest of $800-$840 in coming weeks.
The Euro rallied 2.2%, and the USD down 1.5%. Both currencies appear to be setting up for trends reversals soon.
Certainly a busy week ahead. Monday kicks it off with the Empire index, Industrial production and the Home builders index. On tuesday the PPI and Housing starts, then on wednesday the CPI and Current account deficit. Thursday we have the weekly Jobless claims, Leading indicators and the Philly FED. Then on friday Options expiration. The FED starts their periodic FOMC meeting on tuesday, and reports their findings on wednesday. Also on wednesday the Banking Director Cole gives testimony to the Senate. On thursday FED governor Tarullo gives testimony to the Senate, and on friday there is a speech by FED chairman Bernanke in AZ. Busy, busy week. Best to your trading!