monday update

SHORT TERM: another gap down opening, DOW -40

Overnight the ECU approved an Ireland bailout package: http://www.marketwatch.com/story/ireland-bailout-deal-near-reports-2010-11-28?siteid=bnbh. Asian markets were mostly higher on the news. Europe, however, opened higher but ended -1.90%. US index futures were quite volatile overnight. Gapping up to begin overnight trading, trading down to even, rising again to higher highs, then heading lower in european trading. At the open the market gapped down to SPX 1184. The market had closed at SPX 1189 on friday. The downdraft continued until about 10:00 when the SPX hit 1174, close to the recent 1173 low. With short term momentum extremely oversold the market tried to rally. After a move to SPX 1181 by 11:00 and a pullback to 1175 by around noon, the market rallied to close the opening gap when hitting 1190 in the last hour of trading. A small pullback followed to end the day at SPX 1188.

For the day the SPX/DOW were -0.25%, and the NDX/NAZ were -0.40%. Bonds gained 7 ticks, Crude rallied $2.00, Gold was flat, and the USD was higher. Support for the SPX remains at 1187 and then 1176, with resistance at 1222 and then 1240. Short term momentum was quite oversold early, then rose past neutral during the rally. Tomorrow, the Case-Shiller index at 9:00, Chicago PMI at 9:45 and then Consumer confidence at 10:00.

While we do believe the market is in the process of completing Intermediate wave four. Then a rising Intermediate wave five should complete Major wave 1 in January. To remain totally objective and keeping the OEW mantra in mind: project, monitor, and adjust if necessary. We offer an alternative count for this uptrend in the DOW charts. As we have noted in recent weeks, the choppy market activity between mid-Oct. and early-Nov. offers several possibilities for the correct wave count. With the recent market action this alternative, Major wave 1 has completed, is one of them.

Over the weekend we noted the key support price levels heading into this week were SPX 1177 and 1173. A breakdown below these levels would suggest more selling ahead. The SPX hit 1174 today and then rallied. On the upside we noted SPX 1199 and then 1207. A breakout above these levels would suggest a resumption of the uptrend. Today we are adding to these levels the new importance of the OEW 1168 pivot. As long as this pivot holds support, both the Nov 16th 1173 low and today’s 1174 low are within its range, the uptrend will resume. Should this pivot fail to hold its (+/- 7 point) range we will likely get a new downtrend confirmation, and Major wave 1 would have completed at SPX 1227. If you recall, we had reached a similar juncture in August with the 1040 pivot. The market started a two month rally after that low. So far, it looks like the SPX has formed an Intermediate wave four flat, alternating with the Intermediate wave two zigzag. We should get a resolution to these possibilites this week. Best to your trading!

MEDIUM TERM: uptrend now under pressure

LONG TERM: bull market

CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987