weekend update


Markets rebounded this week after last week’s nasty selloff. Last week’s decline of SPX/DOW 3.9% was the largest weekly decline in six months. The previous one was the week of November 21, 2011: a 4.75% decline that marked the end of Major wave 2. Thus far, it looks like the recent selloff may have marked the end of Major wave 4. For the week the SPX/DOW were +1.20%, and the NDX/NAZ were +2.05%. Asian markets were flat, European markets were +0.6%, and the DJ World index gained 0.7%. On the economic front it was a mixed week. All five the publicly watched indicators were higher: existing/new home sales, FHFA housing prices, durable goods orders and consumer sentiment. Yet, four of the not so publicly watched indicators we track were all lower: the M1- multiplier, new home sale prices, the monetary base and the WLEI. The last week of May starts off with a US holiday, then is followed by a slew of economic reports. Q1 GDP, the Payrolls report and PCE prices highlight the week. Best to your week!

LONG TERM: bull market

While we entertained some alternates counts for the medium term last week. None of them suggested this Mar 2009 bull market was over. Even though the market hit a level which was about 2% lower than expected. It did hit a medium term oversold level that has only occurred once in each of the past four years. Each time this has occurred, the market has rallied about 100 SPX points within two weeks. Currently the market has only risen 36 points, 1292-1328, with a week to go. If this pattern prevails this week could be quite interesting.

Since the world’s markets are linked these days, and our OEW analysis covers twenty world indices. We thought it would be best to give a quick overview, by region, and alert everyone to the negative long term prospects in the majority of these indices. In Asia we track eight countries. Six remain in long term downtrends, and our smart money indicator has seven of these markets with negative outflows. The only real positive is Indonesia. In Europe we track seven indices. Six remain in long term downtrends as well, and five have negative outflows. The only real positive is England. Of the five that are left: the DJ World index, Brazil, Canada, Russia and the US. Four remain in long term uptrends, but three (the commodity indices) have negative outflows. The real positives here are the US, and oddly enough the DJ World index. With only 35% of the world’s market in long term uptrends, it will be a difficult task for these bull markets to make much more upside progress. Unless, of course, world markets change dramatically. Our bull market target remains SPX 1545-1586.

MEDIUM TERM: downtrend may have bottomed

Last weekend we noted the six corrections during this bull market have ranged from 7.4% to 22.0%, with 9.1% being hit twice. A week ago friday the SPX hit 1292, a decline from 1422 and exactly 9.1%. The decline in the SPX appears to have taken the form of a double three: a failed flat ending at 1359, a B wave to 1415, then a zigzag to 1292. Note the zigzag (1415-1292) equalled twice the length of the flat (1422-1359). During Major wave 2, a zigzag, wave C (1278-1159) equalled 1.5 times wave A (1293-1215). So we have alternation between the waves. Also note Major wave 2 declined 134 points (1293-1159), while Major wave 4 has declined 130 points (1422-1292). Symmetry. And, SPX 1292 represents a 50% retracement of the entire Major wave 3 uptrend from SPX 1159-1422. The market harmonics appear to point to SPX 1292 as a significant low.

The DOW, however, has taken on a different pattern. A five wave downtrend from 13,300 to 12,700, a three wave uptrend to 13,300, then another five wave downtrend to 12,300. This looks more like an irregular zigzag, with wave C equalling 1.618 times wave A. This wave activity also allows for a potential alternate count which was posted in last week’s weekend update. For now, we remain with the primary counts posted on the SPX and DOW.


Support for the SPX remains at the 1313 and 1303 pivots. Resistance is at the 1363 and 1372 pivots. Short term momentum ended the week right around neutral. The short term OEW charts signalled a potential positive swing on friday when the SPX traded above 1321. This is the first potential reversal since the C wave SPX 1415 decline began. As a result we labeled the recent low with a tentative green Major wave 4.

While the correction was unfolding between April and May. The DOW made a new intraday high for one day on May 1st, while the other three major indices did not. This signalled the end of its uptrend, and all four major indices then declined in unison. Last wednesday the DOW made a new, one day, intraday low for its downtrend while the other three major indices did not. This in reverse may have signalled the end of the downtrend and correction. Note after the high in May the markets moved very little for the first two days and then accelerated to the downside. After wednesday’s low the markets again moved very little for the next two days into friday’s close.

Short term support is at the OEW 1313 and 1303 pivots, with resistance at SPX 1324/28 and 1342/47. If our short and medium term count is underway the SPX should hold the OEW 1313 pivot range (1306-1320) during any further pullbacks. The SPX closed at 1318 on friday. Best to your trading and extended weekend!


The Asian markets were quite mixed on the week and ended flat. Only China is in an uptrend.

The European markets were mostly higher gaining 0.6% on the week. All indices in downtrends.

The Commodity equity group was also mixed on the week for a net gain of 0.5%. All downtrends here as well.

The downtrending DJ World index gained 0.7% on the week.


Bonds continue to uptrend but were flat on the week. The 10 yr yield is 1.75%.

Crude made a new low for its downtrend at $89.28 and has now corrected 19% from its early March $110.55 high. It declined 0.8% for the week. We are now observing a positive divergence on the daily chart, with the most extreme oversold condition since 2008 on the weekly chart.

Gold  has remained in a downtrend for three months and lost 1.1% on the week. The most obvious count, since the $1924 high, is a contracting Major wave 4 triangle. This would also fit into the Silver long term count. A rally above $1675 should turn both metals positive again.

The USD continues to uptrend gaining 1.4% on the week. It is starting to display a negative divergence at extremely overbought levels. Should it start to weaken here its uptrend is likely over.


Monday is a holiday. Tuesday we have Case-Shiller at 9:00, and Consumer confidence at 10:00. On wednesday Pending home sales. Thursday, Q1 GDP (estimate 1.9%), weekly Jobless claims, ADP and the Chicago PMI. On friday the monthly Payrolls report, Personal income/spending, PCE prices, ISM manufacturing, Construction spending, and  monthly Auto sales. The FED has nothing scheduled for the week. Best to your week!

CHARTS: http://stockcharts.com/public/1269446/tenpp

About tony caldaro

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53 Responses to weekend update

  1. As you know I have been bearish for the U.S. stock market for quite some time. Based on the structure of the current decline, I see more weakness ahead.
    Now, I’d like to point to all of you my view on Facebook IPO. Many traders expected this IPO to bring back the excitement in the market and to stop the decline that had been going on from the beginning of May. Needless to say, Facebook not only did not help the overall market, but the stock declined sharply itself right from its very debut. The people that bougth 6 trading days ago can see their investment more than 20% down today. Two things are worth noting here:

    1.) Facebook stock declined sharply since its debut because it was highly overvalued (the P/E ratio right now even after the drop is still 81!) but obviously not many people paid attention to that fact. Now, as they are losing money, they probably start to investigate the stock in more detail but obviously it is too late to do that. You should make your research and game plan before you make your trading decision!

    2.) When the stock market is in downtrend, the sentiment is negative and everything is considered negative or a “selling opportunity”. As we have discussed many times before, nothing outside the market can change the prevailing market trend.


    • tony caldaro says:

      thanks Trend, If FB was priced at $18-$26, as originally projected, it would have been a success.Pricing it at $26-$38, and then releasing it at $38 only benefitted the insiders – taking the public to the cleaners.In relative market terms it was a non-event.


  2. M1 says:

    Futures suggest a strong rebound DJI mini +74….. But, I reapeat that we should be watching any rebound to get some clues abt the new downtrend…


  3. M1 says:

    A few days ago I said:
    M1 says:
    May 22, 2012 at 7:48 pm
    Short term: not so sure this is the rebound we were expecting….but, I guess it will be positive if 1292 holds this week.
    By the way, I am in cash.


  4. M1 says:

    Two months ago I said:
    M1 says:
    March 31, 2012 at 9:11 pm

    A look at cycles:
    1. http://blogs.decisionpoint.com/chart_spotlight/2012/03/four-year-cycle-approaching-crest.html

    2. OLD DOW
    1932 low – 1938 low = 6 years
    1938 low – 1942 low = 4 years
    2002 low – 2008 low = 6 years
    2008 low – ?


  5. M1 says:

    Three months ago I said:
    M1 says:
    March 2, 2012 at 5:06 pm
    The inflection point may last longer than expected and the market may take more than one month to resolve which way it will go medium term.
    I will keep neutral and I will turn bearish if I see a brake of the lows of february. Waiting for any clue to turn bullish again.

    Same charts:

    The one suggesting NDX going up to 3100-3150 and spx up to 1630…
    1. http://stockcharts.com/h-sc/ui?s=$NDX&p=M&yr=13&mn=0&dy=0&id=p03475453942&a=258568990

    The bearish charts. Both suggesting an important selloff may unfold in the coming months
    1. http://stockcharts.com/h-sc/ui?s=$NYA&p=M&yr=13&mn=0&dy=0&id=p90338799719&a=258089896
    2. http://stockcharts.com/h-sc/ui?s=$OEX:$USD&p=M&yr=20&mn=6&dy=0&id=p20300766759&a=258090209

    = Inflection point.


  6. rj2212 says:

    Has anyone look at a $indu vs. $gold chart monthly chart recently? We are currently at the 30 month moving average which has provided major resistance since mid 2001. Every time we have hit that average on the monthly chart, Gold has out perform the DJ. If you believe the market is going higher, we should see gold go even higher. JMHO.



  7. graph1159 says:

    Hi Tony,
    I’ve noticed that within waves ABC, sometimes you count subwaves abc and other times you count 1-2-3-4-5. I am curious about what prompts the difference in OEW.



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