wednesday update

SHORT TERM: gap up opening ends in a volatile day, DOW +162

Overnight the Asian markets were mostly higher. Europe opened higher but closed mixed. US index futures were higher overnight, but at 8:30 Durable goods orders were reported more negative: -0.8% vs -0.1%. Nevertheless, the market gapped up at the open to SPX 1238, and continued to rally in the opening minutes. The SPX had closed at 1229 yesterday. After the initial surge, when the SPX hit 1243, the market started to pullback. At 10:00 New home sales were reported higher: 313K vs 295K. After that report the pullback started to accelerate. Around 11:00 the market took out yesterday’s SPX 1227 low and hit 1221. This represents another two day 36 point pullback, similar to last week’s tuesday/thursday 1233-1197 pullback. Then the market started to rally. After an initial push to SPX 1232 by 12:00, and a pullback to 1225 by 1:30, the market headed toward the highs of the day. At 2:00 the FED issued the following press release: http://www.federalreserve.gov/newsevents/press/bcreg/20111026a.htm. Around 3:30 the SPX hit 1246, then pulled back to close at 1242.

For the day the SPX/DOW were +1.20%, and the NDX/NAZ were mixed. Bonds lost 19 ticks, Crude slid $2.35, Gold added $14.00, and the USD was lower. Support for the SPX moves back to 1240 and then 1222, with resistance at 1261 and then 1291. Short term momentum hit oversold this AM and has risen past neutral. Tomorrow, weekly Jobless claims and Q3 GDP at 8:30, estimates are +2.1% to +2.3%. Then at 10:00 Pending home sales.

This has been a difficult uptrend to track, but we feel yesterday tipped off the pattern. The current pullback of 36 points (1257-1221) overlapped the previous high at SPX 1233. These 20+ point overlaps are getting quite common. After the initial surge off the diagonal triangle Intermediate wave v/Major wave A low, this uptrend appears to be running out of upside momentum. When we review the rallies and the pullbacks we notice there have been six pullbacks of 20+ points each. This suggests this has been a corrective uptrend forming a series of zigzags as it ascends. Exactly what should be expected in a B wave rally. The most obvious count is an Intermediate abA from SPX 1075-1225. An Intermediate B wave to SPX 1191, then the ‘a’ of an Intermediate abC to 1257. The ‘b’ of this abC pattern may have completed today at SPX 1221.

What would be next is another zigzag, with a 20+ point pullback in the middle, into the eventual pattern high. This may hit the 1284 area, or create a double/triple top at the 1261 pivot. SPX 1258 is a 61.8% retracement, and 1284 is a 70.7% retracement, of the entire May-Oct decline. Also at SPX 1266 Int. C = 0.50 Int. A, and at 1284 Int. C = 0.618 Int. A. So we have a cluster of price and pattern possibilities at both levels. Best to your trading!

MEDIUM TERM: uptrend high SPX 1257

LONG TERM: bear market highly probable

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