A short US trading week with lots of activity. The biggest news of the week was the potential debt default by Dubai World. Overseas markets reacted violently during thursday and friday, and in the US futures markets. On friday, however, most of the reaction was already somewhat muted. Asian markets were down, as was the US markets, but Europe closed higher. For the whole week the SPX/DOW was -0.1%, and the NDX/NAZ was -0.2%. Asian markets were all lower -4.3%, European markets were +0.3%, and the Commodity equity markets were -1.6%. Bonds were +1.3%, Crude -1.8%, Gold +2.3%, and the USD -0.8%. The first revision for Q3 GDP was lowered to 2.8% from 3.5%, and durable goods orders turned negative. Yet, existing/new home sales were higher, Case-Shiller/FHFA home prices were higher, Consumer confidence/sentiment rose, personal income/spending improved, and even the weekly jobless claims came in lower. Overall one of the most positive economic report weeks in quite a while.
LONG TERM: bear market rally
Last weekend we posted a chart of the five Cycle waves that created the 1932-2007 Supercycle. We noted that the only time the stock market lost about 50% or more of its value was during Cycle wave type bear markets: 1929-1932, 1937-1942, 1973-1974, and 2007 to present. We stated that the 1929-1932 bear market was of Supercycle degree, having completed five cycle waves into the 1929 top. And, that bear market took the form of a zigzag as it wiped out 89% of market value in just three years. We also noted that another Supercycle had completed at the 2007 high. However, unlike the 1929-1932 zigzag bear market, this time we are expecting a flat (double bottom) style bear market. This is the Elliott wave rule of alternation.
This week we post a slightly more detailed chart of Cycle wave  (1974-2007). Notice Primary wave II (1976-1982) took the form of a complex flat, and Primary wave IV a less complex zigzag. Also of note, but not readily obvious on the chart, Major wave 2 (1984) took the form a double flat, while Major wave 4 (1987) took the form of a zigzag. This is the Elliott wave rule of alternation: corrections of similar degree need to alternate in structure. If one reviews DOW Primary wave V (2002-2007), using the link below, you will observe that alternation occurred during every significant corrective wave of that bull market. In example, Major wave 2 zigzag and Major wave 4 complex flat, Intermediate wave 2 an irregular zigzag and Int. wave 4 a simple zigzag, Minor wave 2 a flat and Minor wave 4 a zigzag, etc. This is the rule of alternation in action. Since the last Supercycle bear market (1929-1932) was a simple ABC zigzag, then we expect this Supercycle bear market (2007-****) to be a simple ABC flat. It could also unfold in a more complex structure, like a triangle or a complex flat. This would require much more time. This is possible. Yet one of the rules of OEW is to go with the obvious count, and then let the market unfold: anticipate, monitor, adjust.
MEDIUM TERM: uptrend
From the Oct 2007 top we counted a detailed zigzag into the March 09 low. Referring now to the SPX, the zigzag unfolded with three Major waves: Major A five waves down to SPX 1257, Major B rally to SPX 1440, and Major C five waves down to SPX 667. This completed Primary wave A of the anticipated Supercycle ABC flat bear market. After Primary wave A appeared complete in early March, we projected a 50% retracement (SPX 1122) abc Primary wave B rally. Thus far Primary B has unfolded in three Major waves: Major A Jun 09 SPX 956, Major B July 09 SPX 869, and Major C Nov 09 SPX 1114. The DOW, btw, has achieved its 50% retracement, and the SPX retracement is close enough.
When looking for potential trend reversals we observe several technical parameters: internal wave structure, fibonacci relationships, momentum and OEW pivots. The internal wave structure of Major wave C (SPX 869-1114) has been quite complex. Much more so than Major wave A (SPX 667-956). We are maintining two potential counts: SPX daily and DOW daily. You can review these counts with the link below. Despite the complexity, every rally during the entire Primary wave B structure has been five waves. The recent rally from SPX 1029-1114 also appears to be a completed five waves, and it is similar in length to the two previous rallies: 85 points, versus 81 and 88 points. Major wave C (245 points) is also similar in length to Major wave A (287 points). In regard to momentum, we continute to observe negative RSI divergences on all timeframes: from the hourly charts to the weekly charts. All uptrends during this entire bear market have ended at a long term OEW pivot. The SPX has been trying to break through the OEW 1107 long term pivot for nearly two months now with no success. Finally, the internal momentum of this uptrend has been deteriorating. The NYAD is displaying negative divergences, the financial/banking sectors (XLF, KBE, KRE) are in downtrends along with their leader GS. Plus, several foreign indices are in confirmed downtrends: ASX, BSE, DAX, NIKK and the STOX. At this stage it will not take much more selling to end Primary wave B.
Support for the SPX is at 1090 and then 1061, with resistance at 1107 and then 1133. Short term momentum was at oversold levels on friday and remained there into the close. As noted above it appears we have five waves up from the SPX 1029 low into the recent highs. Over the past two weeks the SPX has traded above 1110 on five separate days, and has not been able to break through the OEW 1107 pivot range on any of those days. In fact, over the past three weeks the market has appeared to be churning. During this period each sunday night the USD was sold heavily overseas, the SPX surged on monday, and then went flat for the rest of the week. This action is similar to the churning action at the top of the last uptrend: Major wave A.
The parameters heading into next week are as follows. The OEW pivot at 1107 continues to be formidable. Should the SPX trade into the upper teens then the next short term resistance is at 1133, and long term resistance is at 1179. When the SPX breaks the 1090 pivot range the next support is at 1061, and a downtrend will likely be confirmed if that pivot breaks into the 1018 support pivot. The action in thursday/friday futures market may a be a prelude to increasing volatility. This should be an interesting week. Best to your trading!
The Asian markets were all lower on the week -4.3%. The ASX, BSE and NIK remain in downtrends, but the HSI and SEC were the biggest losers.
The European markets were mixed gaining +0.3%. The DAX and STOX remain in downtrends, and all indices were relatively flat.
The Commodity equity markets were mostly lower -1.6%. The biggest loser was the RTSI.
Bond prices were +1.3% on the week as Bond prices extended their uptrend.
Crude was -1.8% on the week, and a downtrend will likley be confirmed shortly.
Gold was +2.3% for the week, and both Silver and Gold remain in uptrends.
The USD made new downtrend lows this week -0.8%, while the uptrending EUR (+0.7%) and JPY (+2.4%) made new uptrend highs.
A full week ahead with some potentially interesting economic reports. On monday at 9:45 the Chicago PMI. Tuesday, with have ISM manufacturing, Construction spending and Auto sales. Wednesday, the ADP index and at 2:00 the Beige book. Then thursday provides the weekly Jobless claims, Productivity and ISM services. Friday has the much watched Non-farm payrolls report, the monthly Unemployment rate and Factory orders. As for the FED, on monday at 10:00 we have a speech from assoc. director Greenlee in MI at 11:00. On tuesday the Foreign exchange rates will be released. Then on thursday there will be a confirmation hearing in the Senate with FED chairman Bernanke. That might prove to be quite interesting. Best to your week!