US markets end the week in the red, but the month in the black. Lots of FED testimony this week, which were mostly cautiously positive. Economic reports showed some gains in durable goods/Chicago PMI and Q4 GDP was revised a bit higher. Home prices plus new/existing home sales declined, however, along with Consumer confidence/sentiment and the weekly jobless claims rose. The market remained in the consolidation mode as it has for the past two weeks. This week’s range was SPX 1086-1112, and last week’s SPX 1082-1112. For the week the SPX/DOW were -0.55%, and the NDX/NAZ were -0.30%. Asian markets were +1.2%, Europe indices -1.6%, and the Commodity index markets were -1.6%. Bonds were +1.5%, Crude -0.5%, Gold -0.2% and the USD was -0.3%. Next week is highlighted by the monthly Payrolls report on friday.
LONG TERM: bear/bull market inflection point
After the five wave 2002-2007 bull market, OEW signalled a long term downtrend in early Jan 08. We counted the waves down from SPX 1576-667 into Mar 09, labeled it a completed three wave zigzag, and within days of the low anticipated a 50% retracement bear market rally. It appeared at the time the most obvious count. For the next ten months the SPX rallied from 667-1150, a 53% retracement, and it ended in three waves in Jan 10. Everything seemed in order until early January when OEW signalled a long term uptrend. OEW quantifies the significant waves in the market. It is the market! What we try to do is interpret what the market is projecting based upon the wave patterns that unfold. When OEW signalled a long term uptrend in early January it forced us to review all historical wave patterns in relation to this type of event. We anticipate, monitor and adjust when neccessary. Our initial conclusion in mid-January suggested, for the bear market to resume the next downtrend would have to display impulse waves to the downside. When the downtrend started in mid-January we monitored its progress.
While the downtrend was unfolding we reviewed all historical data going back to 1885 in the DOW, and prior to that in other indices. We questioned all preconceived ideas about a multi-century Grand Supercycle GSC, and the muliti-decade Supercycle SC. It is important, at least for us, to have a good grasp of the overall historical picture. Afterall, we take the top down approach to the markets. In this approach the direction of the GSC leads the SC waves, which divide into Cycle waves and then Primary waves, which define bull and bear markets. As we concluded each part of our analysis, we reported our findings in this blog. In the meantime, the downtrend from mid-January started off impulsive looking on the hourly charts, but corrective looking in the OEW charts.
We concluded that there is a GSC and it unfolded between the years 1700 and 1929 in the US. The GSC divided into three bull market SC waves lasting about three generations each, with two shorter intervening SC bear markets. Between the years 1929 and 1932 a GSC bear market collapse unfolded, as the market lost 89% of its value. Then at the depth of the depression a new 200+ year GSC began in 1932. The first SC bull market, of this new GSC, unfolded between the years 1932 and 2007. We’ll label that SC 1. Then from the Oct 07 SC 1 top a SC 2 bear market unfolded. By Mar 09 the market had experienced it greatest loss of market value since the GSC began, which helps to confirm this count. Now for the important part. Since the decline from Oct 07 to Mar 09 was a completed three wave zigzag, and the market had its biggest decline since 1932, it could be counted as the end of the entire bear market. We have noted several technical indications to support that potential scenario. Remember, OEW quantifies all the waves of the markets. We, in turn, try to interpret those waves using all available data, and then anticipate the most probable direction of the market. Right now, based upon all data, this market is at an inflection point. The next few months will determine if the bear market is over, or it will resume. Most of the foreign market wave patterns suggest that the bear market ended between Oct 08 and Mar 09, depending upon the index. As you know, we were turning bullish on these markets in 2009 as impulsive patterns were unfolding. If the US market confirms an uptrend and then makes new highs. Probabilities would certainly suggest that the bear market was over in Mar 09. And, the 50% retracement rally was actually the start of a new bull market.
MEDIUM TERM: downtrend in jeopardy
From the Mar 09 SPX 667 low the market has rallied in three waves into the SPX 1150 high. In the bear market rally we expected it was labeled an ABC. If we were wrong, and this is a new bull market it would be labeled a 1-2-3. We have both of these counts posted on the SPX and DOW charts respectively. In a bear market all of the downtrends need to display impulsive characteristics. From Oct 07 to Mar 09 all downtrends did. During the Mar 09 to Jan 10 rally there was only one downtrend, and it was corrective. This is normal for an ABC bear market rally. Upon completion of this type of ABC rally the next downtrend to follow should be impulsive to resume the bear market. The current downtrend has not been impulsive, but corrective and very similar to the Jun-July downtrend.
From the Jan 10 SPX 1150 uptrend high the market declined in three waves: SPX 1072-1105-1045. While we initially counted this as a i-ii-1-2 down, it could have also been counted as an abc zigzag. Then when the SPX rallied back to 1105, fully retracing the second decline, that completely eliminated that count, and it looked even more like an ABC zigzag down. That was over a week ago. Since then we have maintained a few short term counts on the SPX and DOW hourly charts. During the past two weeks the market has stayed within the range of the OEW 1090 and 1107 pivots. Consolidating, and preparing to resolve this inflection point in the market. As we were ending February we noticed some foreign markets and US sectors confirming uptrends. The Swiss SMI and Canada’s TSX are now in uptrends. The SPX sectors XLP (consumer staples), and XLY (consumer discretionary) are now in uptrends. Also, Goldman Sachs GS has joined RIMM, BIDU and WMT in uptrends. In fact, the major US indices and sectors, most foreign indices, and many stocks are close to confirming uptrends. If this market has finished its consolidation we should get a resolution to this inflection point quite soon.
Support for the SPX remains at 1090 and then 1061, with resistance at 1107 and then 1133. Short term momentum displayed a positive divergence on thursday morning, rallied into friday, and ended the week below overbought. As noted, the decline from SPX 1150 to 1045 looked corrective on the OEW charts. The rally from SPX 1045 to 1112, thus far, has looked more impulsive than the decline. We continue to use the two pivots, OEW 1090 and 1107 to define this market. A breakdown below the 1090 pivot would generate momentum to the downside. A breakout through the 1107 pivot would not only generate momentum to the upside, but likely confirm a new uptrend as well. The first few days of the week should be the tell. Best to your trading!
The Asian markets were the only ones to display gains this week, +1.2%. Leaders China, Hong Kong and India are close to confirming new uptrends. At this point in time we feel Japan’s 20-year SC bear market is over. We updated the charts to a bullish count.
The European markets were mostly lower, -1.6%. The Swiss SMI is in a confirmed uptrend and England’s FTSE is close to confirming the same. Spains’s IBEX continues to lose ground.
The Commodity equity markets were also lower, -1.6%. Canada’s TSX is in a confirmed uptrend.
Bonds gained 1.5% for the week as the uptrend continues. 10YR rates continue to remain between 3.20% and 3.90%.
Crude lost 0.5% on the week in a choppy session. It appears to be base building for the past several months and close to confirming an uptrend.
Gold lost 0.2% on the week. Silver is again leading the metals, and that usually means an uptrend is underway. Both are close to confirming uptrends.
The USD lost 0.3% on the week. After making a new uptrend high last friday, within the upper band of the posted resistance range on the daily chart, it backed off some this week. The DX has been uptrending for three months, after a six month downtrend, and is quite overbought. The EUR (+0.1%) remains in a downtrend, while the uptrending JPY gained 2.9% on the week.
Monday kicks off a busy economic week with Personal income/spending at 8:30. Then ISM manufacturing and Construction spending at 10:00. On tuesday afternoon we have Auto sales, and on wednesday ISM services and the ADP employment index. Then on thursday weekly Jobless claims, Q4 productivity and Factory orders. Friday ends the week with the monthly Payrolls report, the Unemployment index and then Consumer credit in the afternoon. As for the FED, the only thing scheduled is the Beige book on wednesday afternoon. Best to your week!