weekend update


Despite all the negativity surrounding the US market, and foreign markets, the current uptrend made a new high this week. The week started off with a gap down on monday, a SPX 1329 low on tuesday, then rallied to close out the week at 1386. For the week the SPX/DOW were +1.85%, and the NDX/NAZ were +1.10%. Foreign markets were mixed, with Asia losing 0.9% and Europe gaining 2.5%. Economic reports ended the week with a positive bias. Upticking: durable goods orders, consumer sentiment, the M1 multiplier, monetary base, the WLEI and weekly jobless claims declined. Downticking: new/pending home sales, new home prices and Q2 GDP. Next week is the FOMC meeting, plus we’ll get reports on ISM, the PCE and Payrolls.

LONG TERM: bull market

While it has been difficult, at times, to remain bullish on the US stock market. The wave patterns and our technical indicators have stayed the course, and the market continues to perform with a bullish bias. It has been, and will likely continue to be, a liquidity driven market. The FED’s QE 1 and 2 served their purpose. Yanking the stock market, and the economy, out of a downward spiral in 2009. Central banks, worldwide, have also applied their particular forms of liquidity. Some successful and some not so successful.

For the past two years the European crisis, during this deflationary Secular bear cycle, has continued to put a negative spin on all markets worldwide. Greece and Spain are likely in depressions, while some other members of the EU are in recessions. When the world’s economic engine is not running on all cyclinders it is difficult to invest in any stock market. Let alone one of the only bull markets in the world, the US. Nonetheless, despite the choppy activity from time to time, the US bull market continues to unfold.

Our count remains the same. A five Primary wave Cycle wave [1] bull market underway from the March 2009 low at SPX 667. Primary waves I and II completed in 2011 at SPX 1371 and 1075 respectively. Primary wave III has been underway since that low. Primary wave I divided into five Major waves, with Major wave 1 subdividing into five Intermediate waves. Thus far Primary wave III is duplicating that type of wave activity.

After five Intermediate waves ended in May 2012, best seen on the DOW charts, Major wave 1 concluded at SPX 1415. The following correction ended Major wave 2 at 1267 in June. Since then Major wave 3 has been underway. Notice the sharp rally and equally sharp pullback to start Major wave 3 of Primary I in mid-2010. This is somewhat similar to the recent choppy activity during the beginning of Primary III’s Major wave 3. Overall we are expecting the bull market to end in mid-late 2013 between SPX 1536 and 1556.

MEDIUM TERM: choppy uptrend makes new highs

When reviewing the beginning of Primary I’s Major wave 3 we notice some similarities to this Major wave 3. Notice after the Major wave 2 correction, in mid-2010, the SPX rallied from 1011 to 1129 in a somewhat choppy pattern, then had a fairly steep pullback to SPX 1040. The market spent about two months, from the Major wave 2 low to the Intermediate wave ii low, before it rallied in an Intermediate wave iii. I believe, at the time, the market was disappointed after the FOMC meeting and resumed its rally only after FED chairman Bernanke mentioned QE 2 at Jackson Hole, Wyoming.

During the current Major wave 3, notice it has also been a choppy advance until the recent low. Which is also about two months after the uptrend began. And again it took comments from a central bank official, in this case ECB’s president Draghi’s; “save the Euro at all costs”, to get the uptrend to resume with an Intermediate wave iii. Coincidence? I think not. This is how liquidity driven markets unfold. With words by central bank leaders and then actions if required. Often a strong statement is good enough to move markets.

The count on the SPX remains the same. A Major 2 low occurred in June at SPX 1267 and a multi-month uptrend, possibly six months, Major wave 3 was underway. The first rally we have labeled Intermediate wave i at SPX 1363. Then after an Int. wave ii low at SPX 1309 Minor wave 1 rallied to SPX 1375. What followed was an irregular ABC failed, or running, Minor wave 2 flat: SPX 1325-1380-1329. It’s irregular because it made a higher high than Minor 1, usually quite bullish. And then it’s a failed flat, because it failed to make a lower low during wave C (1329), than wave A (1325). This is also somewhat bullish.

We had noted last week; “Should the uptrend resume after this pullback, as expected, we can now project a Minor wave 3 target near SPX 1432 (Minor 3 = 1.62 Minor 1). This nears the range of the OEW 1440 pivot. Then an Intermediate wave iii target near SPX 1464 (Int. iii = 1.62 Int. i). Then an uptrend high for Major wave 3 near SPX 1507 (Int iii-v = 2.0 Int. i). This nears the range of the OEW 1499 pivot. This all depends on how the SOX index responds to its recent low.” This week the SOX index responded quite well to its low at week ago tuesday, gaining 5.3%. With the SOX index close to confirming a new uptrend, the two-year Tech cycle low may very well be in place.


Medium term support has now risen to the 1363 and 1372 pivots, with resistance at the 1386 and 1440 pivots. Short term momentum ended the week extremely overbought.

This uptrend, over the past two to three weeks, has been a bit difficult to track. Each rally which has led to higher highs, (SPX 1363, 1375 and 1380) has been equally sold off by about 50 SPX points. Great for day traders, but not so great for EW’ers. Each of the lows, however, has been accompanied by positive divergences.

While several short term counts are possible at this juncture, we continue to favor the one posted on the SPX charts. An Intermediate wave i and ii, followed by a Minor 1 and an irregular flat Minor 2. This recent rally, from SPX 1329, looks quite impulsive. This fits into the scenario that a Minor wave 3 is underway. With this pattern being highly unusual for this bull market. We would like to point out that SPX 1344, wednesday’s high, appears to be quite an important level. As long as the market remains above it the uptrend continues. If it drops below it, a downtrend is likely underway.

Short term support is at the 1372 and 1363 pivots, with resistance at the 1386 pivot and SPX 1402/03. Short term momentum is extremely overbought and a pullback can now happen at any time. The short term OEW charts remain in a positive mode from under SPX 1350 with the swing level now at 1358. Best to your trading!


The Asian markets were mostly on the downside for the end losing 0.9%. China and S. Korea are in downtrends.

The European markets were nearly all higher for a net gain of 2.5%. Italy and Spain are in downtrends.

The Commodity equity group gained 1.8% on the week. Brazil may have ended its downtrend.

The DJ World index remains in an uptrend gaining 1.3% on the week.


Bonds appear to be in a downtrend losing 0.6% on the week. The 10YR hit 1.39% on tuesday, a record low, and spiked to 1.56% by friday. The 30YR also hit a new record low at 2.45% this week.

Crude continues to uptrend but lost 2.0% on the week.

Gold held sway early in the week, then rallied to post a 2.4% gain. It is still uptrending.

The USD hit an uptrend high on wednesday at 84.10, then sold off after Draghi’s comments. Down only 0.9% on the week, but negative divergences are in place on the weekly charts.


Economic reports will be plentiful this week, and the Central banks will be meeting as well. Tuesday starts the reports with Personal income/spending, PCE prices, Case-Shiller, the Chicago PMI and Consumer sentiment. Wednesday we have the ADP index, ISM manufacturing, Construction spending and Auto sales. Thursday, weekly Jobless claims and Factory orders. Then on friday the Payrolls report and ISM services. The FED starts its FOMC meeting on tuesday, then releases its statement on wednesday. The ECB meets on thursday with a press conference to follow. Also on thursday FED director Eichner gives testimony in the Senate at 9:00. Lots of economic reports and two Central bank meetings suggest quite an interesting, and potentially volatile, week. Best to you and yours!

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

About tony caldaro

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73 Responses to weekend update

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  5. mckennedy says:

    Hi all,

    Just some notes from the heartland here…. still no rain. Last time our farm received a decent rainfall was a little over 1″ in June. The rain has been very spotty. One of our neighbors here in eastern Iowa filed for Federal Crop Insurance on one of his farms last week. That farm is about 3 miles from our farm (it didn’t get that June rainfall). It is prime black Iowa soil and flat. He said there were cracks in the field big enough to stuff your entire arm into. That farm produced 229 bu corn/acre last year & he thinks he’ll be lucky to get 29 bu/acre this year.

    I know this sounds a bit weird but we will be having one of our best years simply because our leases give my mother a flat lease rate + a tiered bonus that is triggered solely by price, and the drought is obviously driving up prices (and we have a very conservative & talented operator). I didn’t include yield in the bonus calculations simply because yield is a function of the talents of the operator, and I wanted her to have guaranteed income + a little upside based on pure market actions. That said, her operator can initiate a “grovel clause” in the event of a catestrophic event that requires him to “open the kimono” and demonstrate financial need for relief from the bonus payment but, since he is covered by Federal Crop Insurance, he has already indicated that he will not need to “grovel”. I guess even a blind squirrel finds a nut every now & then! I’m feeling like a very lucky blind squirrel!

    The guys around here are crediting the hybid seed that was planted for the corn crop holding out as long as it has. I understand that within 2-3 years, there will be hybrid seed available that will only require a total of 3″ of rainfall for the entire growing season. Sure could have used that this year. Am waiting to see how many of the farmers get disqualified from their Federal Crop Insurance for planting too early. Haven’t heard anything on that yet but know a boatload did.


    • tony caldaro says:

      thanks McKennedy,After all the rain last year, hardly any rain this year.Next year should be fine.


      • mckennedy says:

        Something like 90+% of the US corn is produced in Iowa & Illinois. From what I’ve heard, the crop is gone in Indiana & most of Illinois. I’m hearing farmers cutting down the crop for sileage in Waterloo IA. No one has done that here yet but that’s because (I believe) they are trying to figure out exactly what to do. Most farmers around here sell their crop ahead as much as 2 years & you still have to fullfill those obligations somehow.


    • mm4398 says:

      Thanks for the info on corn. Im trading corn for the first time after a few months of research and a lot of time with the price charts and oew.

      A 90% reduction in yield is brutal. It sounds like that at this point even heavy rainfall will not have a significant affect on yield.


      • tony caldaro says:

        We had about an inch on thursday, western S. Illinois.Not sure it will even help much


      • mckennedy says:

        Pretty much over at this point for corn. Soybeans have a little time left; they are planted after the corn crop is put in. Farmers are just deciding what to do at this point, especially if they have contracts for this year’s crop to fill & don’t have the corn on hand to fill them.


      • mckennedy says:

        The other important point to keep in mind when evaluating fnancial performance in ag….yield, yield yield. Price can sky-rocket but absolutely makes no difference to the producer because price cannot make up the difference if you don’t have a crop.


  6. Shorting market 300% ; Long SPXU 44.15 stop is 42.90 for the record, 3% or so downside, nice upside. 1387 at time of short


  7. M1 says:

    Tony, can wave 1 be ovelapped by wave 4 in “C” waves ?


  8. vishal409 says:

    Lee, defeaning silence for crude?


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