weekend update

On a week to week basis this one looks much the same as last week. Despite another 1% gain in the USD the US stock market was higher again, Asian and European markets were also higher, and the Commodity equity group was lower again. For the week the SPX/DOW were +0.8%, and the NDX/NAZ were +1.0%. Asian markets gained 0.1%, European markets added 1.7% and the Commodity group lost 0.6%. Economic reports in the US were generally positive. Jobless claims declined, consumer sentiment rose, also the Q4 GDP and durable goods remained positive. On the downside were marginal declines in new/existing home sales as expected. Next week will be highlighted by the monthly Payrolls report on friday, plus consumer and manufacturing reports.
When a good percentage of americans are under economic stress and public sentiment is only 38.6% bullish on the economy. It is hard for most people to imagine that stocks could be in a bull market. Or, even care for that matter. Economically there are problems nearly everywhere one looks. Bull markets, however, have been known to climb that proverbial wall of worry. In the midst of the worse depression in our recollection, the 1930’s, the stock market launched a five year bull market. Those depression stock market levels of 1932 were never to be seen again. 
Recently we did an analysis on the Univ. of Michigan’s monthly consumer sentiment reading. Rather than reviewing investor sentiment we wanted to see how public sentiment related to long term stock market tops and bottoms. The sample we have is only 30 years but it displays a remarkable relationship between public optimism and stock market tops. The three phases of a bull market, the three impulse waves in OEW, can be generally defined as follows; phase 1 smart money buying, phase 2 institutional buying, and phase 3 public buying. Thus, when the public reaches a certain level of optimism nearly everyone is fully invested and then a bear market follows.
The UoM consumer sentiment reading is biased to the positive side. Their scale runs from 50 to 120, rather than from 0 to 100. So we had to do some extrapolating to arrive at the 38.6% reading. Which, btw, is the same reading the UoM had in the 1980/82 and 1990/92 periods right at the beginning of those bull markets. The two worse readings on record were during mid-1980 17% bullish and early 2009 20% bullish. Conversely, the public is usually fully invested when bullish sentiment goes over 63%.
Since we are in a long term OEW uptrend which started when the public was about 20% bullish. The current reading of 38.6% is still predominently bearish despite the twelve month rally in the stock market. While some of us may not have been smart or brave enough to catch phase 1 of this bull market. We should certainly consider entering during phase 2, the institutional buying phase. Sometimes it makes sense to be a contrarian. This appears to be one of those times. We’ll keep you posted on this indicator during the coming months.
LONG TERM: bull market
While we were not smart nor brave enough to call a bear market bottom in Mar09. We were diligent enough to identify a completed zigzag OEW wave pattern within days of the SPX 667 low. And then, project a 50% retracement which would exceed the SPX 1100 level in the months ahead. Fortunately some of our newer followers caught that low as well and recouped most, if not all, of their bear market losses. Unfortunately, since we thought it was just a bear market rally, some exited the market before or when the second uptrend hit its peak in Jan09. When the inflection point Jan-Feb correction did not start impulsing downward we fully recognized it was actually a new bull market all along. We turned long term bullish and the market has responded by making new highs. We may not have been perfect but we certainly do our homework, which recently included re-evaluating some age old accepted Elliott Wave supercycle and grand supercycle patterns. Time will be the judge of our efforts. In the meantime OEW, thanks to the efforts of our group, is getting more and more refined every year.
We continue to observe several potential long term wave patterns. Our preference remains the Primary I-II, Major 1-2-3 count posted on both the SPX and DOW charts. The NDX displays a simpler bullish Major 1-2-3-4-5 count, and the NAZ a similar count but with longer term negative implications. One by one these counts will be eliminated over the next several months. For now we’re expecting at least two more uptrends after this one concludes. The current uptrend should end Major wave 3, the next Primary wave III, and the other Primary wave V. That would be the simplest count and it would take the least amount of time. 
MEDIUM TERM: uptrend high SPX 1181
Last weekend we made some projections for this uptrend. Kindly refer back to that post for details. Thus far this uptrend has traveled 136 SPX points (1045-1181). This is about half the distance of the two previous uptrends; Mar09-Jun09 and July09-Jan10 which were nearly equal and about 280 SPX points each. While we expect five Intermediate waves to unfold during this Major wave 3 uptrend. Only the first of the five appears to have occurred thus far. If the recent high at SPX 1181 did mark the high of Intermediate wave one as we suspect. Then Intermediate wave two started on thursday and is underway now. During the first two uptrends of this bull market all the significant pullbacks were between 3.8% and 6.5%. This would project an Intermediate wave two low between the 1136 and 1107 OEW pivots. With the OEW 1136 pivot the most likely based on the current momentum readings on the daily chart. We are observing negative divergences on the SPX charts from the lesser timeframes right up until the daily charts. Usually this is a good indication that a significant pullback is underway. Also the SPX has already dropped 20 points from its highs. The largest uptrend pullback prior to this was the 26 points at the end of February. After Intermediate wave two bottoms a rallying Intermediate wave three woulds be next.
Support for the SPX remains at 1146 and then 1136, with resistance at 1168 and then 1176. Short term momentum displayed a negative divergence on that SPX 1181 high. Since then it has declined to slightly oversold twice during the pullback. To help confirm an Intermediate wave two we would expect the OEW 1168 pivot range to broken to the downside. Then some follow through selling into the 1146 pivot. Thus far this pullback has held the seven point 1168 pivot range. Best to your trading!
The Asian markets were mixed on the week but averaged a 0.1% gain. Japan’s NIKK (+1.6%) led and Hong Kong’s HSI (-1.5%) lagged.
The European markets were mostly higher gaining 1.7%. Germany’s DAX (+2.3%) led and Switzerland’s SMI (-0.6%) lagged.
The Commodity equity markets were mostly lower for a 0.6% loss. Canada’s TSX (+0.1%) led and Russia’s RTSI (-1.7%) lagged.
All foreign indices are in uptrends.
Bonds took a tumble this week dropping 2.0%. Bond prices are in a downtrend and yields in an uptrend.
Crude was pressured all week by a rising USD and lost 1.2%. It remains in an uptrend.
Gold was flat on the week holding support quite well despite the USD rally. It appears a resumption of the uptrend has just begun.
The uptrending USD (+1.1%) rallied for the second week in a row. The downtrending EUR (-0.9%) and JPY (-2.2%) both lost ground.
Monday kicks off the economic week with Personal income/spending at 8:30. Tuesday we have the Consumer confidence reading. Then on wednesday the ADP index, Chicago PMI and Factory orders. Thursday weekly Jobless claims, ISM manufacturing and Construction spending, then Auto sales in the afternoon. On friday the monthly Jobs report and Unemployment rate. As for the FED. One speech scheduled by FED governor Duke on wednesday, and then the Foreign exchange rates on thursday. Volume will likely lesson throughout the week as several religious holidays are observed. Spring has sprung in the northern hemisphere. Best to you and yours this holiday season.

About tony caldaro

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51 Responses to weekend update

  1. tony says:

    Hi Don,Actually the R2K is bullish too.It\’s a hybrid index that always moves in ABC\’s, like the SOX index.


  2. tony says:

    Hi S2,As always appreciate your input!


  3. tony says:

    Welcome Jim,Will keep something like that in mind. THX


  4. tony says:

    Welcome RFN65,Thanks for reminding me. Just added weekly volume to the SPX/DOW charts.The current volume is still running twice as high as it was during the last bull market 2002-2007.Certainly not as high as the panic liquidation in late 2008, or the buying surge in early 2009.But still quite high in both the SPX/DOW.


  5. CB says:

    Makiori, you meant to say: "I am always here for you," right? lol. (kidding, of course)


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