Somewhat of a volatile week in the US markets, as the SPX rallied to 1419, dropped to 1392, and ended the week at 1408. The market made a new uptrend high, but the pullback that followed was more than expected. For the week the SPX/DOW gained 0.9%, as did the NDX/NAZ. Foreign markets were again less fortunate. Asian markets ended the week flat, European markets lost ground again this week, (-1.7%), and the DJ World index gained 0.2%. On the economic front there was a slight bias to the downside. On the uptick: durable goods orders, Q3 GDP, personal spending, consumer sentiment, the WLEI, the M1 multiplier, and new home prices. On the downtick: pending home sales, Case-Shiller, consumer confidence, personal income, PCE prices, the Chicago PMI, the monetary base, and weekly jobless claims rose. Next week we get a look at the Payrolls report, ISM and the FOMC minutes. Best to your week.
LONG TERM: bull market
Our indicators continue to confirm this bull market started in Mar09 at SPX 667. Now three years old, the SPX has more than doubled from that extremely oversold low. We continue to count this bull market as Cycle wave  of a new Supercycle wave 3, multi-generational, bull market. Cycle wave  should consist of five Primary waves. Primary waves I and II completed at SPX 1371 and 1075 respectively in 2011. Primary wave III has been underway since that low. Primary wave III should consist of five Major waves. Major waves 1 and 2 completed at SPX 1293 and 1159 respectively in late 2011. Major wave 3 has been underway since that low. Upon conclusion of Major wave 3, Major waves 4 and 5 should follow to complete Primary III. Then Primary waves IV and V should follow to complete the bull market. Currently we are anticipating a bull market high in the first half of 2013 between SPX 1545 and 1586.
On the economic front. Our fundamental indicators still remain bullish longer term as they continue to display neutral to bearish sentiment. Our WLEI, which monitors the economy, has risen from just below 40% in October to a neutral 50%. Our consumer sentiment reading has risen from a 30 year low in August around 20% to 41.2%. Sentiment is rising, but still bearish. Our MMIS indicator, which measures public investor sentiment, is still slightly bearish at 49.1%. We expect this will be improving as well when we receive the next update. Overall, even though the stock market has doubled the public is still generally on the sidelines.
MEDIUM TERM: uptrend high SPX 1419
The current uptrend, Major wave 3, began in Nov11 at SPX 1159. The market has risen 260 SPX points, or 22% over the past four months. This bull market’s characteristics have displayed uptrends lasting 1, 3 or 6 months, and downtrends lasting 1 or 3 months. Since this uptrend is already 4 months old, it is likely to continue into May to complete the 6 month time pattern. The next two OEW pivots are at 1440 and 1499.
The internal wave pattern suggests we are currently in Intermediate wave v of a five Int. wave uptrend: wave 1 SPX 1267, wave 2 SPX 1202, wave 3 SPX 1378, wave 4 SPX 1340, and wave 5 underway. Fibonacci relationships, within this wave structure, suggest resistance at SPX 1407, 1448 and then 1516. SPX 1407 was exceeded last week, but the market appears to be having some trouble clearing this resistance area. After hitting SPX 1414 a week ago monday, the market has pulled back to 1387, rallied to 1419, then pulled back to 1392 this thursday. The market is also having trouble clearing an overhead trendline, displayed on the hourly chart below, that has contained the entire four month uptrend. Until this trendline is cleared this market could remain choppy for a while.
On the international front things are starting to deteriorate again. We last ran into this problem near the end of February. Then, we had about 10 of the 20 international indices we track in medium term downtrends. The US market stalled for a couple of weeks, had a 38 point pullback, (SPX 1378-1340), and then resumed the uptrend. The foreign markets also improved, on the back of the US rally, as 8 of those 10 indices turned around and confirmed uptrends. But this week, 3 foreign indices confirmed downtrends bringing the current total to 7. And 4 more are quite close to confirming downtrends as well. Should these foreign markets weaken further the US market could experience another significant pullback, or even enter a downtrend of its own.
In the US we are also noticing some recent weakness in the leading NDX index. In addition to monitoring the alternate uptrend has concluded count on the DOW charts. In late February, when these foreign headwinds first appeared, all four US major indices were making new uptrend highs and the NDX was quite strong. This time around the NDX has recently started losing momentum, red arrow, and the DOW has failed to make a new high. This suggests some caution ahead while this confluence of negativity works itself out.
Support for the SPX remains at the 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. Short term momentum touched overbought on friday after forming a positive divergence on thursday. Our internal count for this uptrend suggests the market is currently in Intermediate wave v. Fifth waves are the last important rally of any uptrend. Since we are expecting the typical 80-120 SPX point correction after this uptrend ends, it is important to monitor this last rally closely. Thus far, after a strong advance from SPX 1340 to 1414 this market has run into a bit of trouble. The pattern since that high can currently be counted as corrective. As noted above the DOW has failed to make a new high. It was one of the two leaders, the NDX the other, during the early-mid stages of this uptrend. And the NDX displays a potentially completed five waves up with weakening short term momentum.
Until this situation clears some it might not hurt to get a bit defensive. For now, until we observe more wave development, we will rely on our OEW pivots and the wave characteristics of this uptrend. The OEW 1386 pivot has provided support for about three weeks. Should this pivot fail it will be our first alert. The next pivot is at 1372. A pullback into its range, 1365-1379, would be our second alert. Should this range fail to hold as well it would represent the largest pullback since December. And, this would suggest the uptrend has ended and a downtrend is underway. Overhead resistance is at SPX 1414, 1419 and then the OEW 1440 pivot. Should the SPX clear these first two resistance levels, it then needs to clear the overhead trendline, currently around 1425. After that the uptrend should resume on to the 1440 and 1499 pivots. Should be an interesting week.
The Asian markets were mixed on the week and ended with no change. China, Hong Kong and India are in confirmed downtrends.
The European markets were all lower for the second week in a row, losing 1.7%. England, Italy and Spain are in confirmed downtrends.
The Commodity equity group were also all lower for the second week in a row, losing 1.5%. Canada remains in a confirmed downtrend.
The DJ World index is still uptrending and gained 0.2% on the week.
Bonds continue to downtrend but gained 0.3% on the week after a rebound from an extremely oversold short term condition.
Crude confirmed a downtrend and lost 3.6% on the week.
Gold is still in a downtrend, had a somewhat volatile week, but gained 0.5%. This week’s pullback was also a bit more than expected, but if Gold can rally over $1700 an uptrend from the recent $1628 low is likely underway.
The USD was relatively flat on the week losing 0.4%. It is still in an uptrend, but any further downside pressure could confirm another downtrend.
Monday kicks off the economic week with ISM manufacturing and Construction spending at 10:00. On tuesday we have Factory orders, Auto sales and the FOMC minutes. Wednesday, the ADP index and ISM services. Then on thursday, weekly Jobless claims. Friday ends the week with the Payrolls report, and Consumer credit. The FED has nothing else scheduled at this time. Best to your weekend and week!