monday update

SHORT TERM: volatile day after ISM report, DOW +77

Over the weekend the largest US small business lender CIT declared bankruptcy. It’s the fifth largest bankruptcy in US history. Overnight the Asian markets were mostly lower. Europe opened lower but closed +0.75%. US index futures were higher overnight, and at the open the SPX traded between 1038 and 1043 before settling back to 1037 just before 10:00. The SPX closed at 1036 on friday. From SPX 1037 the market rallied 15 points in about 15 minutes as the ISM manufacturing report was higher than expected: 55.7% v 52.6%, and Construction spending was +0.8% v -0.1% (+0.8% before revision). Just after 10:00 the SPX hit 1052 its high for the day. By 10:30 the market started to retrace some of its gains. At 11:30 FED director Greenlee’s testimony to the Senate was released: http://www.federalreserve.gov/newsevents/testimony/greenlee20091102a.htm. At 12:00 selling started to accelerate to the downside and by 1:00 the SPX had hit a new low for the decline at 1031. Friday’s low was SPX 1034. A rally attempt followed to SPX 1037 by 1:30 but the market made a new low at 1029 by 2:00. The low for the day. The market has now declined 72 points from the SPX 1101 high. This is its largest drop since the July uptrend began, and the second largest drop since Primary wave B began in March. By 3:00 the SPX had rallied back to 1040, right at the 1041 OEW pivot, when FED governor Tarullo’s speech was released: http://www.federalreserve.gov/newsevents/speech/tarullo20091102a.htm. Then the market bounced around into the close. For the day the SPX/DOW were +0.70%, and the NDX/NAZ were +0.30%. Bonds were down 5 ticks, Crude rallied $1.15, Gold surged $19.00, and the Euro was higher. Support for the SPX moves back to 1041 and then 1018, with resistance at 1061 and then 1090. Short term momentum bounced around between oversold and neutral today. Tomorrow, Factory orders at 10:00, and then monthly Auto sales in the afternoon. Also tomorrow the FED starts its two day FOMC meeting.  

Quite a volatile day. The market opened about unchanged, spiked up over 1% in 15 minutes, turned down over 2% to make new lows, and then closed up on the day. In the process of this volatility it appears that the rally to SPX 1052 completed our wave 4, and today’s low could have completed wave 5 as well. Since we are expecting the entire downtrend, when confirmed, to be an Intermediate wave. We are labeling this first five wave decline as Minor wave 1, with possibly an abc Minor wave 2 currently underway. The degree of the waves posted on the hourly chart have been changed to reflect the count. A couple of more foreign markets confirmed downtrends, which brings our count to five out of thirteen. Foreign markets can either lead or lag US downtrend confirmations. These appear to be leading: ASX, BSE, IBEX, NIKK and TSX. This decline definitely looks impulsive. Would expect downtrends to be confirmed in the US soon. Best to your trading!     

MEDIUM TERM: uptrend in jeopardy

LONG TERM: bear market

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987