weekend update

REVIEW

Markets rallied worldwide as the FED announced, thursday afternoon, an open ended QE 3 program. The FED plans to purchase MBS and USBs, at a rate of $40 bln/month, until they determine employment is improving and the economy is on solid ground. We fear the FED has now completed their normal cycle of undershoot, (not doing enough in 2008), to overshoot, (doing too much in 2012). During previous Quantitative Easing the FED announced their programs while the stock market and economy were heading lower. QE 1, ($75 bln/mth), was announced in March 2009 after the SPX had declined for 17 months and was at 720. QE 2, ($60 bln/mth), was announced in August 2010 after the SPX had lost 17% of its value and was at 1065. In both cases the economy was already in bad shape, (QE 1), or declining sharply, (QE 2). QE 3 was just announced with the stock market at bull market highs, and the economy already on the mend from its decline into its Q4 2011 low. While reviving the economy over the next year or so is probable. The price we may all pay, in the end, is inflation.

For the week the SPX/DOW were +2.05%, and the NDX/NAZ were +1.30%. Asian markets gained 2.8%, European markets gained 2.3%, and the DJ World index rose 3.0%. Economic reports continued to improve with positive ones outnumbering the negatives ten to six. On the downtick: consumer credit, import prices, industrial production, capacity utilization, while both weekly jobless claims and the budget deficit increased. On the uptick: trade deficit, export prices, wholesale/business inventories, the CPI/PPI, retail sales, consumer sentiment, the M1 multiplier and the WLEI. Next week we get a look at Housing, the NY/Philly FED and Leading indicators. Best to your week!

LONG TERM: bull market

For about one year we have been calling for a bull market high around mid-late 2013 between SPX 1536 and 1556. With the FED’s announcement of an open-ended QE 3 this week, we believe forecasting a top of this bull market, in price, has now become more difficult. The OEW waves, however, have tracked this bull market quite well. With the combination of the waves/trends, and our technical/fundamental indicators, we should be able to ride this bull market until it finishes.

For now, we will maintain our time window of mid-late 2013. Yet we believe the bull market will end about one to three months before QE 3 ends. The reason for this is the market’s previous reaction to the ending of QE programs. The market initially topped in Apr10 when QE 1 was ended in Jun10. The market also topped in Mar/May11 when QE 2 was ended in Jun11. The market is quite likely to repeat this same pattern.

In regard to price, we will again maintain our SPX 1536 to 1556 target. Yet we believe this is now a minimum range rather than a maximum range for a bull market top. In fact, we would not be surprised if the market approached this range in 2012. Should this occur our bull market price target will be raised to SPX 1650-1700. We noted this change on the weekly chart.

The technicals for this bull market continue to track quite well. The MACD has remained mostly above neutral, similar to the 2002-2007 bull market. Plus, the RSI continues to get extremely overbought during uptrends, and only slightly oversold during downtrends. Currently both the MACD and RSI are still rising, suggesting further upside price activity ahead.

Our wave count continues to unfold as expected. This is a five Primary wave Cycle wave [1] bull market. Primary wave I consisted of five Major waves, with Major 1 subdividing into five Intermediate waves. After Primary I topped at SPX 1371, and Primary II bottomed at SPX 1075, Primary wave III was underway. Primary III is also unfolding in five Major waves, with a subdivided five Intermediate wave Major wave 1. Major wave 1 completed at SPX 1422/15 and Major 2 completed at SPX 1267. Major wave 3, this uptrend, has been underway since that low.

MEDIUM TERM: uptrend new high SPX 1475

After the Major wave 2 low at SPX 1267 this current uptrend, Major wave 3, was underway. The initial rally to SPX 1363, and pullback to SPX 1309, was quite normal. After that the market became somewhat choppy for about one month. Then it started impulsing again. Since this is a Major wave 3 uptrend, we have been counting the five Intermediate waves that creates it. Intermediate wave i was, as noted above, SPX 1267-1363. Intermediate wave ii then bottomed at SPX 1309. Intermediate wave iii has been underway since that low.

Intermediate wave iii started to subdivide, into five Minor waves, around the time the market started to get choppy. Minor wave 1 ended at SPX 1374, Minor 2 ended at SPX 1329 in an irregular failed flat, Minor wave 3 ended at SPX 1427, Minor 4 ended recently at SPX 1397, and Minor wave 5 has been underway since then. The hourly chart displays this waves quite well. Within Minor wave 3 we also counted five Minute waves. This subdivision structure is also appearing in Minor wave 5.

Our original target to complete Minor 5 and also Intermediate wave iii was SPX 1463/64. At this level Int. iii = 1.618 Int. i, and Minor 5 = Minor 1. The market broke through this level on friday as it reached SPX 1475. The next fibonacci resistance area is SPX 1493/95. At this level Minor wave 5 = Minor 3 and Int. i. This is also within the range of the long term OEW 1499 pivot. This pivot should therefore offer more resistance than the SPX 1463/64 area. Should this pivot be reached during Intermediate wave iii, we would raise our target area for Major wave 3, this uptrend, to the OEW 1523 long term pivot. Medium term support is at the 1440 and 1386 pivots, with resistance at the 1499 and 1523 pivots.

SHORT TERM

Short term support is at SPX 1463/64 and the 1440 pivot, with resistance at the 1499 and 1523 pivots. Short term momentum hit its highest level during the entire bull market on friday, (RSI 98%), then declined to just under overbought by the close. The short term OEW charts remain positive from SPX 1412, with the swing point now at SPX 1440.

Our count for Minor wave 5 count appears to have gone quite well. In fact, the entire uptrend has progressed quite nicely. We can count five Minute waves up from the Minor 4 low at SPX 1397, and Minor 5 may have completed on friday. Should the lower range of the current SPX 1463/64 support area, (1456-1471), fail to hold, then Intermediate wave iii likely ended at SPX 1475. 

Support for Intermediate wave iv would begin at the 1440 pivot. Then regress to SPX 1422/27, 1413/16 or even 1402/03. Since fourth waves during this bull market have been relatively small, we believe the 1440 pivot range should hold for Int. wave iv support. Should this rally continue to the 1499 pivot, ending Int. iii, we still feel the OEW 1440 pivot range should still hold support for Int. wave iv. After Intermediate wave iv concludes we will still have a rising Intermediate wave v before this uptrend ends. Originally we expected this uptrend to end by late 2012 around the OEW 1499 pivot. The timing should still work out well, but this uptrend, Major wave 3, could continue higher to the OEW 1523 pivot or even the OEW 1552 pivot. It all depends on how much sideline money is put to work in the stock market. The 1552 pivot, btw, fits within the SPX 1536-1556 target noted much earlier in this report.

Overall the trend is up and the FED is fueling the shift back into risk assets. We’ll just have to deal with the potential consequences when/if they arrive. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly higher, the SSEC was -0.2%, and gained 2.8%. Only China and Singapore have not confirmed uptrends.

The European markets were all higher gaining 2.3%. All uptrends in this group.

The Commodity equity group gained 5.4%. All uptrends and all higher on the week.

The DJ World index remains in an uptrend gaining 3.0% for the week.

COMMODITIES

Bonds had one of its worse weeks since early June -1.5%. Prices remain in a downtrend and 10yr yields reached 1.89% on friday.

Crude continues to uptrend, hitting $100.42 on friday, gaining 1.0% on the week.

Gold continues to uptrend as well. It gained 2.1% on the week after hitting a high of $1780.

The USD downtrend continues as the USD lost 1.8% on the week. The uptrending EURUSD soared 2.5%, while the JPYUSD slipped 0.2%. 

NEXT WEEK

On monday: the NY FED at 8:30. On tuesday: the current Account deficit and the NAHB. On wednesday we get reports on: Housing starts, Building permits, and Existing home sales. Then on thursday: weekly Jobless claims, the Philly FED and Leading indicators. Friday: Options expiration day. The FED only has a Flow of Funds report on thursday. Enjoy your weekend, week, and the bull market in equities.

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

About tony caldaro

Investor
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91 Responses to weekend update

  1. Pingback: Risk-Reward Market Report… 09.18.12 | The Risk-Reward Market Report

  2. cruda Lee says:

    Have a good afternoon and evening all !
    Be humble or be humbled
    Being right only pays when u close a position

    • CB says:

      lines 2-3 are so dang right that I’ll prbly just frame and put them on the wall somewhere here so I can see it all the time : ) Nice job on Cruella Loca Lee!

      • cruda Lee says:

        Hey C B

        I’m fiscally and financially Conservative and socially a lamp shade on head moron Liberal.

        Im glad u enjoyed it..its pretty well put together 😛

      • cruda Lee says:

        BTW ES hit support no 1 from Mother N Law divergence from 1467 @ 1451 ESZ

    • CB says:

      LOL!! with that lamop shade you’ve got the total package Lee… hey ur trading wisdom is pretty good for a guy wearing a crazy Travolta suit. 😉 .Ur Mother in Law is sooo good Lee, tell her that.. 🙂 and for a guy who doesn’t trade & only just looks at ES, ur throwing us some nice pro-bono stuff. Thanks Lee!

    • rc1269 says:

      “Being right only pays when u close a position”
      unless you’re an economist, in which case you get paid when you’re wrong too. 🙂
      thanks for all the fun and juicy CL banter today!

      • cruda Lee says:

        R C
        Ain’t that the truth !
        If I wasn’t the pimple on the butt of CL’s butt that I am… today could of got me real good…. and how. Had a few swings in there late…. to say the least

  3. cruda Lee says:

    http://www.cmegroup.com/tools-information/calendars/expiration-calendar/

    Sept 20 th is expiration

    Hit VERY close to ur EMA 34 on Daily CL
    This was ornery as hell

  4. jzq108 says:

    Tony, With QE3 do you still think large caps will outperform?

  5. cruda Lee says:

    ZC back filled the july breakout/crime scene at days low.
    Cheap long. IMO
    ES/SPX Still in the grips of the Mother N Law ST top from Friday @ 1457

  6. piazzi says:

    S&P in uptrend? check!

    GLD outperforming S&P? Check!

    GDX outperforming GLD? Check!

    it’s that simple, sometimes — Until It isn’t 🙂

  7. alexhartley1 says:

    Why is it that you believe gold may struggle to get through 1800 (perhaps no higher than 1830-55 I have as next resistance after 1800)? Do you still think there’s a very good chance the bull market in gold is over?

  8. lee bond says:

    Morn
    Happy Rash Hashanah
    1465 * SPX

  9. mike7x says:

    Thanks for the weekend update Tony! Bernanke just started QE3. The Redskins have started RG3. A coincidence? I think not.

  10. scottycj1 says:

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    Follow it FREE

    http://www.markethighsandlows.wordpress.com

  11. kjb0 says:

    Thanks Tony.
    Great analysis.
    I assume that your projection of 1700 is only good if Obama Hood and his band of Merry Men get re-elected.

    • tony caldaro says:

      Who wins only matters to Bernanke

      • kjb0 says:

        Tony,
        I am not sure I understand what you are implying. What we have here is the tail wagging the dog. Since Bernake IS the market, if he is replaced as dictator, how do you think it will affect the market? Seems like this whole thing could unravel the first part of next year if this scenerio plays out. Maybe I am being to cautious, time will tell.

        On the flip side, if Bernake stays, the coast is clear to the end of 2014. That is when the FED projects unemployment to get down to around 7%. At this time they will ease manipulation of the markets.

        • tony caldaro says:

          Bernanke is in office until Jan 2014.
          Nominations, no matter who wins, usually occur in the summer before … 2013.
          Since he was man of the year he will likely stay no matter what happens in Nov.

      • kjb0 says:

        Thanks Tony
        I guess I should do my research better.

      • CB says:

        hmm..interesting facts..thanks guys
        and here’s a little factoid : “”Global central banks have printed enough money to buy every person in the world a 55″ wide screen 3-D TV” – Ch. Cole, Artemis Vega Fund
        P.S. So that everyone can watch the dictator in living colo,r and in 3-D ….

  12. Igor says:

    Thank you Tony.

  13. Good stuff Tony!
    Looks like the dollar will hit its first meaningful support early next week. Volume is up, so I expect a bounce and a correction in equities as well. Friday was mostly selling and both Friday and Thursday had climactic volume and good news, the markings of a blow off top.
    Monday will tell though.

    http://tacticalstrategist.com/2012/09/15/irrational-exuberance-tactical-view-2012-09-15/

    • tommyboys says:

      Eventually (sooner than later) the strong dollar/weak equity correlation will no longer hold. This is an historic anomaly over the past several years and may already be breaking down as Rates spiked Friday even AFTER the open ended QE had been announced. Higher rates portend a stronger dollar and equities will begin to rally righ along with them as this week has shown. Increased rates, a strong dollar and rallying equity markets are what should (and typically have) occured during strong economic periods.

      • Thanks TB. Appreciate your thoughts on this. How do you expect the dollar to rally in light of unlimited QE?

      • tommyboys says:

        Generationally oversold, beaten down due to poor sentiment. Many have been calling for the “end of the dollar” trade for years and many still believe this. Investment will continue to head back to the US as sentiment picks up and the US is once again seen as the global leader and not the poster boy for udder failure. The US remains the engine driving the world and it’ll all come full circle. QE is in place probably more for psychological than practical reasons. The dollar is really just a measure against other fiats more than anything and others’ relative weakness will show as relative strength in the dollar. Why would treasury rates spike right after an open ended QE announcement? All priced in possibly? Overcooked sentiment? Globally oversold? Too much fear? Who knows – probably all of it. These are all interrelated markets – higher rates/stronger dollar. The dollar will rally soon with rates and equities. I would guess now to be the best time to seek a mortgage if its on the schedule. Rates are very close – if not already past – the bottom. All imho of course…

  14. marke60 says:

    Tony,
    What are your thoughts on the Dow Transports failure to participate in this wave 3 rally by the industrials? Shouldn’t they both be participating if it were a wave 3?

  15. Ryan Parker says:

    Quick question for Tony or Patrick. Just curious as to to your targets for intermediate iii and major 1 of primary V in gold. As always your insight is much appreciated.

  16. thegrowthinvestor says:

    Great analysis Tony. Interesting move from the Fed, especially given it’s pre-election time, who knows whether there was any political motive.

    This is my view on the FTSE100:
    http://thegrowthinvestor.wordpress.com/2012/09/15/weekend-taking-stock-ftse100-makes-a-climb/

  17. Thanks Tony. You say – “For now, we will maintain our time window of mid-late 2013. Yet we believe the bull market will end about one to three months before QE 3 ends.”

    If QE3 is open ended, how would we know when are they going to end it?

    • budfox9450 says:

      If Romney, gets elected in Nov – I suspect, the Fed will quietly end the
      QE program. IMO.

    • tony caldaro says:

      Officially, we do not.
      Unofficially, there should be signs that the end is near in the indicators.

      • budfox9450 says:

        Well, on the improve economic, rapidly scenerio. That would depend, on policy
        from the White House. And, with that said. I totally agree with the investment
        outlook you provided this morning. I liked your talent to see the potential short term
        price top at 1475. I liked, the Intermediate Wave 4 outline for a low, and the best
        part was – I thought – your extending the SP500 high to the 1650-1700 range.
        That was a visionary style comment – Great work…..Bud

  18. M1 says:

    Thanks, Tony for this great weekend update.
    If we review the economy of those countries where printing money with no limit was adopted, we will find all of them ended in hyperinflation and deppression. However, those countries didn’t have an “international” currency. So all that new paper stayed inside their borders.
    We have something different here and I am sure the guys at the Fed know it very well and its consequence. I feel that a good part of the US dollars being printed is going abroad.
    It is amazing how the charts were forecasting this mess. I turned very bullish and I expect the DOW going higher and well above 20,000.
    NYA broke its trend line resistance http://scharts.co/SdCSNm
    SPXEW brokeout resistance http://scharts.co/P1P4eZ
    What could be wrong ?…the only chance for the bears…a black swang event
    Have a great weekend

    • tony caldaro says:

      Mario,

      In Elliott’s day a bull market was called an inflation event, and a bear market a deflation.
      Stocks, during the past few years, have taken on the role of a monetary inflation hedge.
      The longer this QE 3 lasts, the higher we go.

  19. jnttr says:

    Hi Tony, you mentioned inflation may be a problem in your weekend update. Has your opinion changed with regard to the long-term bear market in commodities, specifically precious medals.
    Thanks,
    John

  20. Pingback: Risk-Reward Weekend Market Report | The Risk-Reward Market Report

  21. liborval says:

    thanks for the update Tony. May I ask how big can Major 4 be with the FED around. Do you think around 100 pts on SPX, I cant imagine the market go down with QE

    • tony caldaro says:

      Val,
      The only Major wave correction during a QE program was Major 4 of Primary I.
      That was limited to 95 points: 1344-1249.
      We also had two other downtrends during QE programs.
      Int. ii and Int iv of Major 1.
      These were limited to: 956-869 and 1150-1045 … also about 100 points.
      So you appear to be correct.

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