For the week nearly every economic report improved. Case-Shiller home prices improved, as did, Consumer sentiment/confidence, Durable goods orders, New home sales and Personal income. Initial Jobless claims eased 10K, the first revision to Q2 GDP remained unchanged, but Consumer spending declined. Yet, the US market responded to the news by going sideways. The SPX started the week at 1026 and had the following closes: 1026, 1028, 1028, 1031 and 1029. In between it made a new uptrend high at SPX 1039. For the week the SPX/DOW were +0.35%, and the NDX/NAZ were +0.35%. The Asian markets were mixed but managed an average gain of 1.60%. Europe gained 1.10%, but the Commodity equity markets were mixed for an average gain of 0.55%. Bonds gained 0.8%, Crude lost 1.6%, Gold was +0.1%, and the USD (+0.3%) gained against the Euro (-0.2%) and Cad (-0.8%), but lost against the Yen (+0.9%). This week, ISM and Non-farm payrolls.
LONG TERM: bear market
The bear market of 2007 continues to unfold as projected, a three Primary wave affair. The first Primary wave was quite steep. The SPX dropped 58% (1576-667) over seventeen months, and the decline took the form of a 5-3-5 zigzag. Near the lows we projected a five month 50% retracement Primary wave B, which was later modified to between a 50% rally and 50% retracement. As of friday, the SPX has rallied 56% and retraced 41%. Therefore it has met the minimum requirements. During the Primary wave B rally the market has taken the form of a zigzag again. The wave counts are detailed in the weekly charts, link below. During this bear market every uptrend, and there have been seven of them, has ended at a long term OEW pivot. Back in March with the SPX around 700, we projected that Primary wave B would end at either the SPX 1041 pivot or the SPX 1107 pivot. This week the market ran into trouble at the 1041 pivot. On monday the SPX stalled at 1036, tuesday at 1038 and on friday at 1039. The range for these pivots are +/- seven points, i.e. 1041 pivot = 1034-1048. Should the SPX exceed this range it could then rally to the 1107 pivot, before ending Primary wave B. Primary wave C is still expected to either retest the SPX 667 low, or break further into the SPX 400 area. The next few months ahead should be quite interesting.
MEDIUM TERM: uptrend
Primary wave B has been underway since the March low at SPX 667. The first uptrend, Major wave A, took the form of a detailed zigzag rallying to SPX 956. Major wave B was a bit shallow bottoming at SPX 869, and also took the form of a zigzag. The current uptrend, Major wave C, is also unfolding in a zigzag. Intermediate wave A topped at SPX 1018. This was followed by a decline to SPX 979 for Intermediate wave B. Intermediate wave C is currently underway. There are some interesting fibonacci relationships at current levels: at SPX 1036 Int. C = 0.382 Int.A, and at SPX 1047 Major wave C = 0.618 Major A. Both levels are within the range of the OEW 1041 pivot. Also of note are the negative divergences appearing on the SPX/DOW/NDX/NAZ daily charts, and the NDX/NAZ weekly charts. Plus, as noted last week, China is in a downtrend, the Baltic Dry index has been downtrending for months, and Crude appears to be weakening. Probabilites favor a Primary wave B high right around the OEW 1041 pivot.
Support for the SPX remains at 1018 and then 990, with resistance at 1041 and then 1061. Short term momentum finished around neutral on friday. The short term count from the mid-August SPX 979 low appears to be five waves. This could complete Intermediate wave C at a 0.382 relationship to Intermediate wave A. We noted in the review that the market traded relatively flat on a closing basis all week. The last time this occurred was at the SPX 956 Intermediate wave A top during the week of June 8th. This was followed by a gap down on monday as Intermediate wave B was underway. When the SPX breaks the 1018 pivot we’ll get more evidence that the top is in. Should the SPX hit 1049 or higher Intermediate wave C is likely extending to the next OEW pivot. We should get the answer this week.
The Asian markets were mixed on the week for an average gain of 1.6%. Downtrending China was -3.4%, and Hong Kong -0.5%.
The European markets were both higher (+1.1%) and still both uptrending.
The Commodity equity markets were mixed for an average gain of 0.55%. Canada was +1.4%, and Brazil -0.3%.
Bonds rallied 0.8% on the week. Bonds have rallied off the current downtrend low and are getting close to a reversal.
Crude dropped 1.6% on the week as the $75 level offered some strong resistance. An ending diagonal may have formed.
Gold did its usual down monday-rise the rest of the week routine and was +0.1% on the week. Silver continues to lead the uptrend.
The downtrending USD (+0.3%) continues to hold the 77+ area, but its rallies continue to be choppy. The Euro (-0.2%) remains in a choppy uptrend, while the uptrending Cad (-0.8%) displays some weakness, and the Yen (+0.9%) strengthens.
Busy week ahead as we close out August and enter the last month of the US fiscal calendar. Monday kicks off the week with the Chicago PMI at 9:45. On tuesday we have ISM manufacturing, Construction spending and Auto "cash for clunker" sales. Wednesday, the ADP index, Pruductivity, Factory oders and the FOMC minutes. Then on thursday the usual weekly Jobless claims and ISM services. On friday, Non-farm payrolls, the Unemployment rate and the Average workweek data. Again the FED has nothing scheduled. Best to your week!