weekend update


Markets lost ground for the second week in a row this week as the SPX/DOW were -4.75% and the NDX/NAZ were -4.85%. Economic reports swung slightly to the negative. On the uptick: existing home sales, personal income, PCE prices and the WLEI. On the downtick: Q3 GDP, personal spending, durable goods orders, consumer sentiment and weekly jobless claims rose. Trading in the US was cut short to three and one half days due to the Thanksgiving holiday. Economic highlights next week include: The FED’s beige book, ISM and the monthly Payrolls report. Best to your week!

LONG TERM: remaining neutral

We continue to maintain two long term counts, one on the SPX charts and the other on the DOW charts. The SPX count displays a bearish five waves down from the SPX 1371 May 2011 high to complete Major wave A. Then a sharp quick rally to SPX 1293 in what appears to be a completion of Major wave B. Now, a decline to SPX 1159 (friday) in what appears to be a Major wave C underway. Should this scenario continue to unfold we can envision two potential scenarios going forward. First, and obvious to some, another five wave (trends) decline bottoming at either a 50% retracement SPX 1011, (previous Major wave 2 support) or the 70.7% retracement level at SPX 869, (previous Intemediate wave ii support). The second potential scenario would be a one wave (trend) decline to SPX 1011. At this level Major wave C would equal Major wave A and a 50% retracement of the previous bull market, Primary wave I, would have completed.

The second long term count is more bullish and is carried on the DOW charts. It suggests a correction to the Primary wave I bull market, (SPX 667-1371), ended in early October at SPX 1075 with the ending of Primary wave II. The corrective pattern took the form of an elongated flat, similar to the 1987 crash, and this first uptrend off that low was Intermediate wave i of Major wave 1 of Primary wave III. Under this count, this downtrend should take the form of a corrective ABC zigzag ending around the OEW 1136 pivot, or worse case SPX 1126 for a 76.4% retracement, similar to August 2010 decline.

When we review the technical activity on the monthly/weekly SPX charts the recent uptrend looks more and more like a B wave. Notice on the monthly chart the RSI only hit neutral during the last two bear market B waves. And, this uptrend hit neutral as well.

On the weekly chart. The recent uptrend just barely got overbought before turning lower. Typically, in bull markets, uptrends get quite overbought before correcting. This technical activity is also more indicative of a B wave rally than a kickoff to another leg in a bull market. The one caveat is that Major wave 1 in 2002 and Intermediate wave i in 2009 did not reach extremely overbought levels either.

MEDIUM TERM: downtrend probably underway

After the market rallied from SPX 1075 to 1293 in just 18 trading days. It quickly dropped to 1215, and then rallied to 1278 in a choppy corrective pattern. At that point it appeared the uptrend had ended at SPX 1293. We labeled the first decline as a Minor wave 1 or A depending on the chart, and the corrective rally as a Minor wave 2 or B. The next important decline was to SPX 1227, which was followed by a rally to 1267. We labeled those two waves as Minute wave i and Minute wave ii on both charts. The market then stalled between SPX 1244 and 1264 for a few days before starting its impulsive move down in Minute wave iii. Currently the SPX would have to rally back to the OEW 1187 pivot to confirm Minute wave iii had ended.

While this potential downtrend has been unfolding we have been tracking potential fibonacci retracement/support levels: SPX 1210 (38.2%), SPX 1184 (50.0%), SPX 1158 (61.8%) and SPX 1126 (76.4%). At each of the first three levels the market paused, rallied 13-15 points, and then headed lower again. Also, the decline from SPX 1278 is now between 1.50 and 1.618 times the decline from SPX 1293 to 1215. So the next important support should be around the OEW 1146 pivot range. SPX 1150 was also a significant pullback level during the recent uptrend.

On the global front. We now have 8 of the 19 international indices we track in confirmed donwtrends, with more to follow in the coming days. Three of these indices have already made new 2011 lows. We’re looking to track one more foreign index to make it an even 20, and are open to suggestions.


We posted in last week’s update: We’re obviously leaning toward a more bullish outcome but are remaining long term neutral until we are certain this potential downtrend is corrective. Should the market drop more than 10% from the SPX 1293 high, or below SPX 1164, we believe there could be trouble ahead for the market and the bullish scenario. As long as the market remains above this 10% cutoff, and completes a corrective pattern, we see the possibility of the US bull market extending in the months ahead.

On wednesday of this week, the SPX started to break down below the important support cluster between the 1168, 1176, and 1187 OEW pivots. When this started to occur our positive bias moved to neutral. Then when the SPX dropped below the 10%, 1164 cutoff level, our bias dropped to negative while remaining long term neutral. Corrections during bull markets do not usually reach 10%.

Our next set of parameters are dependent upon the wave structure of this downtrend and the level where it ends. Should this correction hold the OEW 1136 pivot, and/or, the 76.4% retracement level at SPX 1126, it will be a positive longer term if the downtrend ends in an ABC. Should these levels fail to create support and the downtrend ends in an impulsive 1-2-3-4-5 then this would be a negative longer term. In the meantime we remain long term neutral with a negative bias.


The Asian markets were all lower on the week for a net loss of 3.4%. India and Japan are in confirmed downtrends.

The European markets were all lower as well for a loss of 5.0%. Spain, Switzerland and the Stox are all in confirmed downtrends.

The Commodity equity group were all lower for a loss of 4.3%.

The DJ World lost 5.4% on the week.


Bonds are in a confirmed uptrend and gained 0.3% on the week.

Crude rallied from $76 to $103 during its recent uptrend. Upside momentum appears to be weakening as it lost 0.7% on the week.

Gold rallied from $1535 to $1804 during its recent uptrend. It lost 2.4% on the week and needs to start rallying soon to remain in an uptrend.

The USD is still uptrending from its 73.5 DXY low in August. It gained 2.1% on the week.


Monday kicks off the economic week with New home sales at 10:00. On tuesday we have Case-Shiller, Consumer confidence and FHFA home prices. Wednesday, the ADP index, the Chicago PMI, Pending home sales and the FED’s beige book will be released. Then on thursday, weekly Jobless claims, ISM manufacturing, Construction spending, and monthly Auto sales. Then on friday, the monthly Payrolls report. The FED has one activity scheduled for the week. A speech from vice chair Yellen, at the San Francisco FED, on tuesday. Best to you and yours this holiday season.

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

About tony caldaro

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108 Responses to weekend update

  1. H D says:

    Some of us waited all day for 1185…. just sayin
    have a great 1 all.


  2. rc1269 says:

    Treasury bonds breaking out. Now positive on the day.


    • Hi Scotty. Friday was the low but you were expecting it to be on Tuesday, at SPX 1115. I’m not concerned about being off by two days, but being off by 43 SPX points is pretty big – how would you rectify that given what you were seeing on Thursday? Is your method better at picking dates than price levels? Will track your calls to see whether this one or the one before is par for the course. Thanks in advance.


      • scottycj1 says:

        The “Market Map” is not perfect. You of all people should now know systems get pushed and pulled by many forces. Sometimes it can be early sometimes late. Late Oct 5th early 11-29 and sometimes cycles have slightly higher lows (or Highs) on the day the cycle is due. I accept this as part of the arena we all play in. I am still profitable in the puts I bought on the 14th (Albeit not as much)
        The market may fall hard yet into tomorrow, when I will look to cover and go long.


      • scottycj1 says:

        Better at Dates not price


  3. vishal409 says:

    Igor, hows the market breadth today across sectors, sitting here in india we just trade the spx


  4. vishal409 says:

    CB’s coming back in mid jan as well? Wheres the dude


    • ronini3 says:

      I thought CB is a she.


    • Igor says:

      CB is always here. Are you sure Vishal, you didn’t mean DB?


      • vishal409 says:

        No i Meant CB, wanted some bullish energy hehehhe


      • CB says:

        Hey Vishal, thanks for asking… are you sure that you are sure? Lol… I am saying be careful what you wish for..lol.
        It seems that the energy level is pretty good today,isn’t it?…no need to add anything to the mix… so, I am learning to be a better listener today ….the time is long, until it ain’t, huh? Nice blogs Igor and Scotty! It’s great to be able to learn from all of you guys!

        Btw, Vishal it wasn’t you who slapped the Idian PM last week, was it ? 😉 I can’t believe all the violence in the world these days…things are getting ugly, arent’t they…everywhere.


  5. vishal409 says:

    This is exactly the problem with gap ups & downs, rest of the day is spent in watching youtube videos!!!!!!!!!!!!!!!!!!!!!!


  6. rc1269 says:

    Good afternoon. I thought I’d chime in with some views from the credit market today.

    I’ll sum up the activity and sentiment with two words: BS. That’s what most credit market participants are thinking of whatever is causing equtiies to rally. The CDX index is about the only product rallying commensurately (-6.5bp better on the day, off of the tights at -9bp), though that is as much of an equity-proxy these days as not. Cash spreads are definitely quoted much tighter. 10yr benchmark bank spreads are anywhere from -10bp (for a WFC type name) to -20 or -30 for BAC and MS. However, there is very little buying happening at those levels. Dealers are still long inventory and trying to push bonds out the door, so most real trades of size aren’t getting done much tighter on the day, and some in fact wider.

    If we couple the muted response in credit trading with the UST rallying the entire morning (only down about 1/4pt now, up from about -1 point this morning) as well as sovereign spreads hardly tightening, the tone is decidedly skeptical. With the bullish chatter out of Europe we would expect Italian 10yr bonds better than just 4bp tighter today (still at 7.19%).

    I continue to think that the bond markets will push until a real backstop arrives. Until then, the issues will continue to resurface, like trying hold a beach ball under water. For a credit investor, the downside case to being too early on this trade enormously outweighs the upside. That dynamic is likely to keep folks sidelined until more concrete solutions arise.


    • tony caldaro says:

      RC thanks, Typically rumors are rumors, and there is usually no reason to chase equities until a firm announcement.Markets move seriously on announcements, they only bounce around anticipating same.


  7. ronini3 says:

    THE PIT” TO PREMIERE ON PUBLIC TELEVISION! http://thepitmovie.com/press/main


  8. ronini3 says:

    If they believe these sheeple are going to bail out Bernanke and this economy then they are sorely mistaken..


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