weekend update

REVIEW

The pullback from new bull market highs continued for a second week. After a 16.4% gain over the past, nearly, four months. The market has pulled back 3.0% over the past two weeks. Quite normal for this stage of the uptrend. For the week the SPX/DOW were -1.2%, and the NDX/NAZ were -2.1%. Asian markets were flat, European markets lost 4.1%, and the DJ World index lost 1.8%. Positive economic reports continue to outpace negative reports, this week 11 to 5. On the downtick: Q2 GDP, durable goods orders, pending home sales, the Chicago PMI and consumer sentiment. On the uptick: Case-Shiller, consumer confidence, FHFA housing prices, new home prices/sales, personal income/spending, PCE prices, the M1 multiplier, the WLEI and the weekly jobless claims improved. Next week we get a look at the monthly Payrolls report, ISM, Auto sales and Consumer credit.

LONG TERM: bull market

This Cycle wave [1] bull market continues to unfold as expected. While many fundamentalists and technicians have warned investors of many potential problems for the economy and stock market. The FED has continued to fight the deflationary secular cycle with an accommodative liquidity cycle. Thus far, the FED, the stock market, and government deficits continue to help the economy recover. While several of the highly watched economic indicators have recently shifted into contraction mode, or have been softening. Our leading economic indicator, the WLEI, has been rising since Q4 of 2011. This suggests to us, with nearly 50 years of historical data, the economy is expanding again.

The weekly chart displays our OEW labeling of this bull market. We are expecting the typical five Primary wave advance for a Cycle wave. Primary waves I and II completed in 2011 at SPX 1371 and SPX 1075 respectively. Primary wave III has been underway since that low. Primary wave I divided into five Major waves with a subdividing Major wave 1. Primary wave III appears to be following the same path as its Major wave 1 also subdivided into five Intermediate waves. Major waves 1 and 2 completed in 2012 at SPX 1415/22 and SPX 1267 respectively, and Major wave 3 has been underway since that low.

Currently, the MACD continues to rise suggesting further upside progress for Major wave 3. Yet, the RSI has declined some during the recent pullback. This suggests the next series of new bull market highs may create a negative divergence. Negative divergences like this have signalled the top of most of this bull market’s uptrends. After Major wave 3 concludes, the market should experience a Major 4 correction. Then another uptrending Major wave 5 to complete Primary wave III. After a Primary wave IV correction, a rising Primary wave V should take the stock market to new highs, possibly/probably, all time highs to end the bull market in mid to late 2013.

MEDIUM TERM: uptrend

This uptrend, Major wave 3, began in early June at SPX 1267 and rose to a high of SPX 1475 by mid September. We have been labeling this uptrend as five Intermediate waves with a subdividing Intermediate wave iii. The uptrend was a bit choppy during July, but eventually resumed its impulsing advance by the end of that month.

We have labeled Int. wave i @ SPX 1363, Int. wave ii @ SPX 1309, Int. wave iii @ SPX 1475, and Int. wave iv underway, or having completed @ SPX 1431. Assuming an Int. wave iv low @ SPX 1431 we can now project some Fibonacci targets for Int. wave v. At SPX 1527-1534, Int. v = Int. i and 0.618 Int. iii. We also have a long term OEW pivot at SPX 1523, and these levels are within its upper range. At SPX 1586-1606 Int. v = Int. iii and 1.618 Int. i, plus Major wave 3 = Major wave 1. These levels represent all time new highs in the stock market. There are also two other OEW pivots before the market potentially reaches all time new highs: OEW 1552 and OEW 1576. Overall, the potential to reach SPX 1600 is possible, but the market will have to overcome a lot of resistance in the process. For now, once the 1499 pivot is cleared, we will look for an uptrend high at the 1523 pivot. Medium term support is now at the 1440 and 1386 pivots, with resistance at the 1499 and 1523 pivots.

SHORT TERM

Short term support is at the 1440 pivot and SPX 1422/27, with resistance at SPX 1463/64 and the 1499 pivot. Short term momentum ended the week just below neutral. The short term OEW charts remain negatively biased with the swing level around SPX 1447.

During this entire uptrend we have observed alternation between second and fourth waves down to the Minute degree. Naturally we should expect to see alternation between the largest degree waves within this uptrend, Int. waves ii and iv, and we do. Int. wave ii lasted only four trading days and was a simple zigzag. Thus far Int. wave iv has lasted eight trading days, and at the SPX 1431 low it appears to be a double zigzag. If it did not complete at wednesday’s low then a more complex pattern is possible, as is a possible retest of SPX 1431 or a slightly lower low. Thus far we have not received a signal from our short term charts that would suggest the pullback is over. Should the SPX exceed thursday’s 1450 high we are likely to get that signal. Best to your trading!

FOREIGN MARKETS

The Asian markets were quite mixed on the week and ended flat. All indices are in uptrends, except improving China and Singapore.

The European markets were all lower on the week for a 4.1% loss. France, Italy and the Stox may be in downtrends.

The Commodity equity group were all lower as well for a net loss of 2.3%. All three indices remain in uptrends.

The uptrending DJ World index lost 1.8% on the week.

COMMODITIES

Bond prices have been downtrending since early June in quite a choppy pattern. They gained 0.6% on the week. Bond yields have been rising since the late July 1.39% low, but are close to confirming a downtrend.

Crude sold off to $89 this week after reaching an uptrend high of $100 in mid-month. Crude lost 1.1% on the week, and any additional selling could confirm a downtrend.

Gold has been uptrending since late June. This week it failed to exceed its uptrend high at $1790 and lost 0.1%.

The USD downtrended from mid July @ DXY 84 to mid September @ DXY 79, became quite oversold, and has since rebounded. Still downtrending, but it gained 0.8% on the week.

NEXT WEEK

Monday kicks off the economic week with ISM manufacturing and Construction spending at 10:00. Tuesday we have monthly Auto sales. On wednesday: the ADP index, ISM services, and the FOMC minutes. Thursday: weekly Jobless claims and Factory orders. Then on friday the monthly Payrolls report and Consumer credit. The FED comes out of its hiatus with a speech from FED chairman Bernanke on monday at 12:30. On friday FED governor Duke gives a speech at the NY FED. Best to your weekend and week.

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

About tony caldaro

Investor
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61 Responses to weekend update

  1. M1 says:

    Tony, one last question for today. Could be possible (oew) this rally from 1267 is just interm wave i of major wave 3 ?

    • tony caldaro says:

      Mario,
      If the stock market is going to the “moon” yes.
      But historically that does not occur until a Seecular cycle ends.

      • M1 says:

        Thx…
        I don’t think the count should be adjusted, but I will be prepared in case 1430 (wave iv) is brocken. With an enless Q3 anything is possible.

  2. M1 says:

    Tony, if int iv ended at 1430, then this is a crucial support now, right ?

  3. M1 says:

    Nothing. =(
    Let’s wait once again.

  4. rc1269 says:

    Good morning Tony,

    So looks like we’re probably going to get above 1450, which I’m guessing means that Int IV low is likely in and we’re moving up to Int V. Does that seem about right? (assuming we do indeed breach 1450)

  5. rc1269 says:

    Gold just spiked $22 the last 30 mins or so. no clue why

    • alexhartley1 says:

      well RC I think with the 26-28th being a GANN turn date I think we saw the end of Int. 4 last week and with Ben speaking today as Tony noted in a comment perhaps gold is sniffing out that Ben ain’t going to help the USD in his speech which would then provide the impetus for the market to move higher over the course of this week. I have the next turn coming by the end of the week/early next week and would expect this to perhaps be the end of Int. 5 as well. We shall see.

      I have to admit I was extremely nervous watching US futures this morning Hong Kong time (I live in HK and am not nocturnal) and they were back down testing near lows but they’ve been strong in the last few hours.

      onward and upward to the 7-10th.

    • robslob64 says:

      Most likely because Fed dove Evans stated that “accommodative” policy will continue until moral improves or we get at least 6 months of plus 200K NFP improvement.

      So this means once this actually starts to happen the market will take notice as a sign of no more QE and tank…about 9-12 months from now…

  6. Hi Tony, Nice chart (ERCI),, How are we using this information for the wave counts?

  7. dono16 says:

    Tony –

    Been reading about the coming sequestration. There seems to no progress from Obama and the Congress regarding working anything out to avoid the fiscal cliff by the end of the year. And the large federal layoffs will start in just over a month for the WARN deadline. An article here says our state (MD) is going to be hit very hard. Do you really think the market uptrend will continue with this unprecedented event looming? Just seems like a major end of year spolier. Appreciate your thoughts.

    dono

    • tony caldaro says:

      Dono,

      Might be the cause of Major wave 4.

      • alexhartley1 says:

        Tony – how long would be reasonable for a Major 4 turn to last? I expect (simply with forward dates – not ideal I know) for a significant high 22/12. My current belief is that will prove to be the end of Major 5 Primary III. Would that appear more than possible? Thanks, Alex

        • tony caldaro says:

          Alex,
          The last Major 3 lasted seven months.
          It was fueled by the QE 2 announcement right at Int. iii.
          Then Int. v lasted for three months: Nov10-Feb11.
          This Major3 will be six months old in December.
          Just taking it one wave at a time.

      • alexhartley1 says:

        or perhaps only end of Major III? That would seem to me to require quite an extension for Intermediate 5

    • rc1269 says:

      aerospace and defense names have underperformed the broad market by about 10% since the July 2011 mkt peak. sequestration thus far has only started to be priced into those names, in my opinion. i don’t expect any resolution, as avoiding sequestration requires changing the law and congress is not likely to have enough time to get anything done in the lame duck session. just my opinion

  8. budfox9450 says:

    My comment is on the US economy. I just completed a private drive,
    from West Central Florida, to Houston, over the weekend. I found
    on I-10 the truck traffic to be indicative of a stronger economy than
    the latest GDP numbers, suggest. Truck stops, were full
    as were the overnite public parking stops, as well. My view is.
    The economy is stronger, than many realize…..Bud

  9. always a pleasure to read the weekend summary, thanks Tony.

  10. M1 says:

    Tony, Israel has been suggesting a belic attack on Iran for several months. At this point, I guess the market should have already priced this “war”. But I wonder how much could impact the market if Israel finally proceed. 2% ?

  11. rolandu11 says:

    Thank you for this weekend-update Tony!
    I ponder about the consumer sentiment-current (UNI Michigan) for some month. Is that perhaps bullish? I know, you and a lot of other market pundits expect a more sideways market (overall 16 years, respective 1966-1982). What do you think about this chart?

    http://s1.directupload.net/file/d/3029/9to9htc4_gif.htm

    • tony caldaro says:

      Hi Rolandu,
      Consumer sentiment has remained negative for quite some time.
      But recently made a new high.
      The scale on that chart is off.
      It recently hit the high 70’s before dipping last week.
      The chart needs to include the early 1970’s data.

  12. CB says:

    Thanks Tony! An interesting juncture right here.
    $SPX and NYSE McClellan side-by-side ..sorry about the display quality (unfortunately I don’t subscribe to stockcharts so I cannot offer any better display)… but you get the point ST.. http://screencast.com/t/M3bnzg2CR95Z

  13. wildmarkets says:

    What do you think about markets leading stock like Apple which is weak? TY.

    • tony caldaro says:

      WM,
      During a 4th wave and entering a fifth certain stocks, sectors, and indices start to weaken.
      France and Italy, this week, and possibly AAPL are a good example.

  14. Pingback: Risk-Reward Weekend Report… 09.28.12 | The Risk-Reward Report

  15. robslob64 says:

    Hi Tony,
    How corrective are primary wave 4’s typically.

    So if Primary 3 hits and ends at S&P 1499 then what range would you expect primary 4 to correct to?

    Many thanks for guidance over the years and having Patrick on for gold was great!

    Thanks,
    Rob

  16. M1 says:

    Hey Tony, you woke up early today!!
    Thanks again for this excellent weekend up update.
    have a great day.

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