SHORT TERM: yesterday’s SPX 1041 reversal hits SPX 1091 today, DOW -69
Overnight all the Asian markets were higher. Europe opened higher and closed +1.75%. US index futres were higher overnight as well. Last night FED chairman Bernanke’s speech in Japan was released: http://www.federalreserve.gov/newsevents/speech/bernanke20100525a.htm. At 8:30 this morning Durable goods orders were reported higher: +2.9% v unchanged. The market opened higher to SPX 1078 from yesterday’s close at 1074. The early rally continued until about 10:30 when the SPX hit 1091, revisiting the swing pivot at 1090. At 10:00 FED counsel Alvarez’s Congressional testimony was released: http://www.federalreserve.gov/newsevents/testimony/alvarez20100526a.htm, and New home sales were reported higher: 504K v 439K. The market, however, ran into resistance again at the 1090 pivot and started to pullback. By 11:30 the SPX had dropped to the opening level of 1078. After another attempt to crack the 1090 failed at SPX 1088 around 1:00 the market headed lower again. Nearing the close the SPX traded down to 1066 and closed at SPX 1068.
For the day the SPX/DOW were -0.65%, and the NDX/NAZ were -0.80%. Bonds lost 13 ticks, Crude rallied $2.20, Gold added $13.00, and the USD was higher. Support for the SPX remains at 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum hit overbought this morning after the positive divergence at yesterday’s lows, and was heading lower into the close. Tomorrow, weekly Jobless claims and the first Q1 GDP revision at 8:30.
Today’s continuation rally carried the SPX to 1091 turning the short term OEW charts positive for the first time since the second week in May. However, the SPX has not been able to crack through the 1090 swing pivot so we can put these charts at neutral to negative for now. This correction continues to look like the 4-year cycle is bottoming. This cycle has been very consistent through the years in creating the yearly low. It is most noted for creating bear market bottoms. Which it does most of the time. However, it does not create bear market bottoms during bull markets. Only the yearly low. Typically the bottoming process takes two to three months and the market loses 10% to 20% of its value. During bull markets; examples of the 10% variety were in 1986, 1994 and 2006; and examples of the 20% variety were in 1990 and 1998. With this market already having corrected 14.7% it should generate oversold momentum readings compatible with the 1990 and 1998 lows. Both of these lows also occurred after five wave bull market advances. After this cycle bottoms in Jun/July probabilites suggest the bull market will resume.
In the meantime we have downgraded the short term count, posted on the SPX hourly chart, to an Intermediate wave A low at SPX 1041. The current 50 SPX point rally, thus far, should be Intermediate wave B. A downsloping Intermediate wave C should follow soon. With a potential correction low in Jun/July we would expect the SPX to decline to the OEW 944 pivot. This represents a 50% retracement of the entire bull market and about a 23% correction from the SPX 1220 high. Then, possibly, when everyone is claiming the bear market is back the bull market correction should bottom. Certainly this is a risky call after the market has dropped nearly 15% in only four weeks. Thus far the technicals fit this scenario. There is plenty of time to watch it unfold. We continue with our mantra: anticipate, monitor and adjust. Best to your trading!
MEDIUM TERM: downtrend
LONG TERM: bull market