SHORT TERM: Bernanke’s speech rallies market, DOW +165
Overnight the Asian markets were mixed. Europe opened lower but closed +0.75%. US index futures were higher overnight, and at 8:30 the first revision of Q2 GDP was lower but within expectations: +1.6% v +2.4%. The market opened higher at SPX 1053, but immediately began to pullback. The SPX had closed at 1047 yesterday. Within the first half hour the SPX dropped to wednesday’s low at 1040. At 10:00 FED chairman Bernanke’s speech was released: http://www.federalreserve.gov/newsevents/speech/bernanke20100827a.htm. The market immediately started to rally. Also at 10:00 Consumer sentiment was reported lower: 68.9 v 69.6. Around 12:30 the SPX hit 1060, within one point of yesterday’s high. For the next hour the market drifted lower but only to 1056. Another rallied followed pushing the SPX to 1065 near the end of the day where it closed.
For the day the SPX/DOW were +1.65%, and the NDX/NAZ were +1.65%. Bonds lost 33 ticks, Crude gained $2.05, Gold added $2.00, and the USD was lower. Support for the SPX moves up to 1058 and then 1041, with resistance at 1090 and then 1107. Short term momentum hit oversold again this morning and rose to overbought during the day. The weekly WLEI was reported slightly higher: 40.1% v 39.9%. For the month of August it has remained between the contracting 39% to 40% level.
After today’s opening the market retested the OEW 1041 pivot and then spiked higher. We still have the potential ABC zigzag from SPX 1129 to 1040: wave A was 60 points (1129-1069), wave B was about 30 points, and wave C was 60 points (1100-1040). The market needs to continue to surge to keep this count in effect. We see another short term count if the market fails to surge higher. This count suggests a different ABC decline with: wave A SPX 1069, wave B SPX 1100, and wave C still underway. Unfortunately, there is even a third short term count. Let’s see if this rally can clear the OEW 1058 pivot range before examining this third one.
Reviewing the bigger picture. We felt at the beginning of the month that the economic numbers/monetary readings needed to improve. They have not. They have not declined any further but have remained in contraction mode. Over the past two weeks or so, the SPX has declined 7.9% (1129-1040). This pullback exceeds the largest pullback, during an uptrend, for the entire bull market. This is not a good technical sign going forward. Best to your weekend!
MEDIUM TERM: uptrend in jeopardy
LONG TERM: bull market