weekend update


For the bears it was a good week. With the exception of monday’s lightly traded semi-holiday session, the market made a new downtrend low every day. For the week the SPX/DOW were -1.75%, and the NDX/NAZ were -1.85%. Asian markets lost 1.2%, European markets lost 2.2%, and the DJ World index was -1.9%. On the economic front it was not much better. For the first time in many weeks the economic reports were predominately negative, with 8 to 3 to the downside. On the uptick: business inventories. the monetary base, and the CPI. On the downtick: retail sales, the PPI, the NY/Philly FED, industrial production, the WLEI, plus both the budget deficit and weekly jobless claims rose. Next week, another light economic report ahead of thursday’s Thanksgiving holiday, we’ll get reports on Consumer sentiment, the Leading indicators and Housing. Best to your Holiday!

LONG TERM: bull market

Despite the markets seemingly relentless decline since the Election, this correction continues to look quite normal for this stage of the wave structure. It has declined somewhat more than we recently expected as the SPX hit, our worse case support scenario, SPX 1345/46 on friday.

On wednesday we raised the probability for our alternate bearish count from 20% to 30%. Remaining objective we would like to review both of these bullish and bearish counts, as the market has reached another inflection point. They seem to occur every year now.

Our preferred bullish count remains unchanged. We have been expecting a five Primary wave bull market into 2013. Primary waves I and II completed in 2011, and Primary wave III has been underway since then. Primary I divided into five Major waves, with a subdividing Major wave 1. Primary III also divided into five Major waves, but now both Major 1 and Major 3 appear to be subdividing. When this correction concludes, Intermediate wave iii of Major wave 3 should be underway, to new bull market highs.

Our alternate bearish count, first posted last weekend, suggests the bull market ended at the recent DOW 13,662 high (SPX 1475) in the form of an elongated diagonal triangle. The five Primary waves expected, unfolded in an overlapping fashion forming a rising wedge. Should this be the effective pattern, the market should lose about 50% of its value over the next few years. We noted four levels of importance on the DOW chart: 12,700, 12,500, 12,300 and 12,100. As each level is hit the probabilities of this count rises accordingly: 12,700 was 20%, 12,500 is now 30%, etc.

While the bullish count suggests this is now a buying opportunity. The bearish alternate count suggests one shouldn’t be in the equity market at all. Confusing right? We will now approach this inflection point objectively so that you can make your own investment decisions.

The initial downtrend of the last five bear markets, going back three decades, has displayed a market decline between 6.9% and 13.8% with the mean at 10.8%. After this downtrend an uptrend has always followed that has retraced between 69% and 90% of the downtrend, with the mean at 75%. Then, the next downtrend resumes the bear market. Reviewing the current bull market structure which has contained only Intermediate, Major and Primary waves. When this Int. wave ii downtrend concludes the next uptrend, Int. wave iii, must make new highs. It can not fall short, as a 69% to 90% retracement, and subdivide into a wave of a lesser degree. Major wave 3 of Primary I did not subdivide at all. Therefore we see no reason for Major wave 3 of Primary III to subdivide any further than it already has.

What does this all mean? When this downtrend ends, there will likely be at least a 69% retracement of the entire decline. If this upcoming uptrend fails to make new highs we are very likely in a new bear market. If it makes new highs the bull market resumes with the preferred count. The next uptrend will be the key to the entire bull/bear inflection point. Let’s see what the market decides in the coming weeks/months.

MEDIUM TERM: downtrend hits SPX 1343

The current downtrend, we have been labeling Intermediate wave ii, has now declined 8.9% from the bull market high of SPX 1475. Previous Int. wave ii corrections, during this bull market, have declined between 9.1% and 10.4%. This also happens to be the mean range for all corrections during this bull market.

Currently we have a rare ‘quite’ oversold condition on the weekly chart with an MACD still above the bullish neutral. The daily chart is displaying a near ‘extreme’ oversold condition, and the hourly chart is displaying a positive divergence. These technical readings have been signs of an pending downtrend low during this bull market.

We have been counting the wave structure of this downtrend as a double three. The first three wave decline ended at SPX 1426 and we labeled it Minor A. After a Minor B wave rally to SPX 1464, another three wave decline began for Minor C. When Minor wave C first began we noted some fibonacci/retracement support levels. At the OEW 1386 pivot there was 38.2% retracement of the previous uptrend, and Minor C = 1.618 Minor A. At the OEW 1363 pivot there was a 50.0% retracement. Then our worse case scenario was SPX 1345/46 which represents a 61.8% retracement, and Minor C = 2.618 Minor A. This last fibonacci/retracement support level was hit on friday when the SPX reached 1343. This is also very close to the SPX 1341 level, which would be a 9.1% decline. The next medium term support would be at the OEW 1313 pivot, (which would be close to a 10.4% decline), and the 1303 pivot, with resistance at the 1363 and 1372 pivot.


Short term support is at SPX 1342/47 and 1333/38, with resistance at the 1363 and 1372 pivots. Short term momentum is rising off a recent positive divergence. The short term OEW charts remain negative since SPX 1416, with the swing level now at 1375.

A closer look at Minor wave C displays a five wave Minute wave A decline to SPX 1403. Then an abc Minute wave B rally to SPX 1434, followed by another five wave decline which may have ended on friday at SPX 1343. At this level Minute C = 1.5 Minute A. We have also noted during Minute wave C each notable wave made a lower high and lower low until SPX 1343 was hit on friday. Then, at least for the short term, the trend reversed to higher highs and a higher low. The last time this occurred was during the Minute B wave rally. But it also occurs at the beginning of new uptrends.

Remaining objective, the next positive sign will occur when the short term OEW charts turn positive again. Currently this will require a rally above SPX 1375. Then we should get an all clear for a new uptrend when the SPX crosses 1400. With the hourly chart displaying an extremely oversold MACD double bottom, and a RSI positive divergence, there is a good possibility that friday’s low could have been the end of the downtrend. Best to your trading!


The Asian markets were mixed on the week for a net loss of 1.2%. Hong Kong and Indonesia remain in uptrends, and Japan is close to confirming one as well.

The European markets were all lower on the week for a new loss of 2.2%. Only Greece remains in an uptrend.

The Commodity equity group were all lower on the week for a net loss of 2.5%. All three indices are downtrending.

The DJ World index is downtrending and lost 1.9% on the week.


Bonds remain in a choppy uptrend gaining 0.2% on the week. The 10YR rate has declined from 1.89% to 1.57% on friday.

Crude is trying to establish an uptrend off a positive divergence and gained 1.2% on the week.

Gold is also trying to establish an uptrend but lost 1.0% on the week.

The USD is still uptrending, starting to get overbought, and gained 0.3% on the week. The EUR also gained 0.3%, while the JPYUSD dropped 2.3%.


Monday kicks off this holiday shortened week with Existing home sales and the NAHB at 10:00. On tuesday: Housing starts and Building permits. Then on wednesday: weekly Jobless claims, Consumer sentiment and Leading indicators. Thursday is the Thanksgiving holiday and on friday volume will be quite light. FED chairman Bernanke gives speech on tuesday, at noon, in NYC. This is quite unusual for the FED to be giving speeches during a holiday week. It might be an important one. Best to your weekend, week and holiday.

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

About tony caldaro

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102 Responses to weekend update

  1. kvilia says:

    “This deflationary Secular cycle/Crisis period will end, and a new Growth period will begin yet again. Cycles, frequency and vibration makes the Universe what it is …”
    You think it will start happening 2014-2015?

  2. LX says:

    Anybody considering a short here at SPX 1386 ? Just for a tradeski ?

  3. pbnj123 says:

    I guess she wants to just snug right up to the 1386 pivot – fine by me 🙂

  4. Tony, a iii of 3 or bear market rally? Both are impulsive by nature. Any levels you are looking at for confirmation?

    • tony caldaro says:

      Remaining objective, the next positive sign will occur when the short term OEW charts turn positive again. Currently this will require a rally above SPX 1375. Then we should get an all clear for a new uptrend when the SPX crosses 1400. With the hourly chart displaying an extremely oversold MACD double bottom, and a RSI positive divergence, there is a good possibility that friday’s low could have been the end of the downtrend. Best to your trading!

  5. H D says:

    I have an oldish pivot at 75.50 I’d personally like to see

  6. budfox9450 says:

    ref TBF – sure looks like an OEW minor (b) wave low in place…..Bud

  7. jzq108 says:

    Tony, Did the rally above 1375 negate another low to the 1313 pivot?

  8. CB says:

    Tony, I can’t seem to be able to display ur charts…not sure whether the issue is on my end (?)

  9. kvilia says:

    At this point I find myself in consensus with most of the sources I follow. First test in the bullish case is 1404, next – new highs. It would be not very wise taking short positions unless one of the two fails. Happy trading.

  10. LX says:

    morn 1386 pivot time

  11. pbnj123 says:

    Copper behaving nicely today as well

  12. H D says:

    if we r kicking of iii of minor 3 of 3 this is what it should look like. JMHO :mrgreen:

  13. Some similarities between now and year 2000:
    Back in 2000 I was negative for the U.S. stock market expecting a major move lower. Most of the people back then laughed at me when I was forecasting more than 60% drop in Nasdaq indices. Now, I also expect a huge move lower next year (though not necessarily as big as the one in 2000-2002 bear market). As already discussed the stock market declined sharply before the election and right after the election. But in 2000 the market found a Short-Term low in mid-November and staged a strong rally for a few weeks. Then of course, the bigger trend lower resumed.

    The question now is if the market can stage a similar rebound this year. The market is oversold and the decline from the September’s tops has stayed corrective in nature (though it is strong, this decline has many charachteristics of a corrective move). Plus, we are entering a seasonally positive period for the stock market. So, there are reasons to expect at least a temporary recovery after the severe losses that we have seen for the past two months. Tony’s pivot levels have also been reached, so I guess a low is indeed close.

    And on Friday we had a key reversal day: a day when the market declines but then makes an intra-day reversal and closes higher for the day. These patterns are not very reliable though as too many people pay attention to them. But still, it is worth paying attention here. For one thing, I do not think it is time to short the market – it is too late right now, in my opinion.

    So, let’s see what happens in the next couple of weeks. Due to the oversold conditions, a rally can occur at any time. The big question is if this rally is going to fail within days, or it will be more sustainable lasting 1-2 months before the larger downtrend resumes.

    Enjoy your trading and don’t forget to always:

    Trade with the Trend!


  14. H D says:

    As of first trade date November 19, 2012, the trading day on CME Globex for these products will end at 4:15 p.m. CT, and the new trading day will begin at 5:00 p.m. CT.

  15. alexhartley1 says:

    Hi Tony, Did I read somewhere on this blog that Bernanke is speaking this week (this wasn’t originally planned perhaps). I may be wrong. Do you know if he is? Cheers, Alex

  16. valunvstr says:

    Can this be a wave IV? Meaning, wave 1 was 667-1219 (2010), wave 2 was 1219-1010 (2010), wave 3 just ended 1010-1474 and wave IV possibly takes us to the low 1200’s without overlapping 1219. Then Wave 5 to new high’s?

  17. ronini3 says:

    Looking to go long in 6J.

  18. fionamargaret says:

    Now the Japanese announced at the start of last week, they would no longer limit their purchases to bonds, but widen the framework to include REITs and ETFs, which has done wonders for their market.
    Way back, just before QE1 was announced here, the Japanese announced their easing.

    …..could it be Ben is going to extend his mandate???

    another idea, sort of …..but it seems to me everyone is thinking waterfall, black swan events, and your regular zero hedge doom and gloom, so a rally would be most unexpected.

    Thanks for all your insights Tony – I keep checking pivots while I am getting thrashed!

  19. bolderbob says:

    Hi Tony,

    HTG! While looking at the waves, it appears we could be in a triple zig zag. Two are complete and we are in the B wave of zig zag 3. Taken another way…the entire move from the top is 9 waves movements and we are currently in the 8th. Perhaps this goes to the 200 DMA and then we get a final wave down. Do you feel this is a valid way to look at things and if not why not?
    Thank You!

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  21. torehund says:

    Anything can still happen, but the decline has manifested itself as a very reluctant abc and then a waterfall abc, the latter is the scary part; and could maybe be due to lack of buying or short interest. I sold some positions on Friday even if I knew the EW was favorable, and that tells me that I really feel its ann ugly decline, and bodes well for a rise. But I still have an uneasy feel…which is good !
    Its almost uncanny how the market can predict a bad happening (increased risk of something ugly is about to happen, when at inflection points). The Nikkei decline had a very, very possible end to a classic five wave structure just prior to the the nuclear accident.
    Yes like Tony says we are at an inflection point or near for it to occur. Nature, mind, and man all interconnected.

  22. pas1968 says:

    Great weekend report Tony.
    Much appreciated.
    Have a great weekend.

  23. CB says:

    Tony, thanks very much. Great info. Really appreciate it. Taking at ur $nyad chart – still cooperating nicely with your bullish view – no overlap so far..
    a surprise speech by Ben during a holiday week? -wow, he’s just gonna stop by, say hello and make sure that everyone fully understands that he’s the reason for this upcoming rally ..precious =)

  24. tuamotu says:

    Hi Tony,

    about FB, wednesday you wrote :

    FB has been a contrary stock since its IPO.
    Usually the market rallies and FB falls, and via versa.
    Still in a downtrendm despite today’s advance.
    Which was also odd: rallying with the release of 800 mln shares.
    Was quite nice of the market to give those sellers a better price, while the stock market was down over 1%.

    In your week end review you are saying that it is uptrending now …
    Dou you think it was just a short squeeze or we are in wave three now ?



  25. Tony, the probability of a bear market is high now. Don’t you feel that you have already given Major wave 3 long enough rope to accomodate the bull?

    • tony caldaro says:

      With QE 3 still underway, and a possible solution to the FC … no

      • Tony, being a wave interpretor you just interpret the waves as they occur and that’s what you have always said. Doesn’t it defeat the purpose when you incorporate external scenarios such as QE3 and FC in the mix. This is where I feel your bias colors the picture. If market is truly looking ahead then it already knows what’s next. It’s in no way to question your judgement but being a reader of this blog I can’t help but notice this at times.

      • tony caldaro says:

        The market displays the collective consciousness.
        The ingredients of which are vast.
        However, certain fundamental indicators/events affect everyone since no one has to read a chart to interpret them. Since these are a major factor in the CC, it is neccessary to observe the markets reactions to them, past and present.
        This is an observation based on facts, not a bias.

  26. rolandu11 says:

    Oha, I have to look more on this mid-term volume indi.

  27. M1 says:

    Thanks, Tony. Great weekend update !!
    It looks like the first buyers jumped into the market on friday. IMHO, picking at 1345 has been too easy to be real. So I am not so confident abt the very short term bullish scenario. Your suggested 9.1% decline for a possible interm wave ii may result more accurate.
    Have a wonderfull day and see you on monday.

  28. tb45 says:

    Great report Tony!
    I really appreciate the fact that you perform all the calculations for each wave and the parameters for positive and negative outcomes!
    Tom B

  29. rolandu11 says:

    Thanks Tony and congratulations for this excellent blog!

    NDX: Hmm, the pos. divergence still exists, but weakens (long-term volume indi). The NDX need support from DOW, SPX and have to go up now.


    In the SPX this indi looks not better, but there are signs of a recovering in other indicators on daily basis.


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