The market started the week by making new uptrend highs Monday/Tuesday. Then pulled back into Friday morning before rallying to end the week about unchanged. For the week the SPX/DOW were mixed, the NDX/NAZ were +0.85%, and the DJ World index rose 0.3%. Economic reports for the week were generally positive. On the uptick: FHFA housing prices, new home sales, durable goods orders, consumer sentiment and the monetary base. On the downtick: existing home sales, new home median prices, plus weekly jobless claims rose. Next week, a busy one, is highlighted by Q2 GDP, the FOMC meeting and the Payrolls report.
LONG TERM: bull market
While many have been worrying about hyper-deflation and hyper-inflation the economy has done neither. After the sharp downturn in 2008, the US government and the FED have been doing this deficit spending/quantitative easing balancing act. While corporations and consumers have been de-leveraging, the Government/FED has been partially filling the credit void. Even when the Government had to cut spending by $600bln in 2013. The FED stepped in, in late 2012, with an increase of $540bln in QE 3 to fill the void. Recently, however, the FED has been talking about tapering some of the $85bln per month QE 3. While the Republican led congress is talking about more budgets cuts for 2014 as a bargaining chip for an increase in the debt ceiling. With FED chairman Bernanke leaving in January 2014, this fine balancing act may completely unravel. This just might be the catalyst for the next bear market: a resumption of the deflationary forces of this Secular cycle.
In the mean time the market continues to make all time new highs as this Cycle wave  bull market unfolds. Thus far, Primary waves I and II, of this five Primary wave advance, completed in 2011. Primary wave III has been underway since then. Primary I divided into five Major waves with a subdividing Major wave 1. Primary III is also dividing into five Major waves, but both Major waves 1 and 3 have been subdividing into five Intermediate waves.
Major waves 1 and 2 of Primary III completed by mid-2012. Major wave 3 has been underway since then. Intermediate waves i and ii of Major 3 completed by late-2012, and Intermediate waves iii and iv completed by mid-2013. The Intermediate wave v of Major wave 3 uptrend is currently underway. When it concludes there will be a Major wave 4 downtrend creating a decline of about 10% in the market. Then an uptrend to new highs for Major wave 5 to complete Primary III. Then after a Primary IV correction, a Primary wave V uptrend will complete the bull market. We continue to see this all unfolding by late-winter to early-spring in 2014.
MEDIUM TERM: uptrend
After an abc Intermediate wave iv correction from May-June, Int. wave v began at SPX 1560. This uptrend reached all time new highs this week, stopping right at our OEW 1699 pivot before it started to pullback. When the uptrend began we expected it to unfold in five Minor waves, and reach a minimum target of the 1699 pivot by July, or a maximum target of the 1779 pivot by August. As the minimum price objective was met, we could only count three Minor waves at the high: wave 1 SPX 1627, wave 2 SPX 1605, and wave 3 SPX 1699.
After that high was hit on Tuesday the market pulled back 23 points to 1676 by Friday. Throughout this entire uptrend all the small waves, spare one, pulled back between 9 and 13 points. The largest was the 22 point Minor 2 pullback in early July. This recent 23 point pullback qualifies as a Minor wave 4 pullback. Minor wave 5 should now be underway. The short term technicals support this probability: see Friday’s update.
The question now arises; “Will Minor 5 make significantly higher highs, marginal new highs, or be a failed fifth wave?”. With the FOMC meeting this week, and the FED’s recent mention of tapering QE 3 in September. That answer appears to rest with the FED. Should they mention tapering in the FOMC statement a downtrend will likely begin. If there is no mention or hint at all, the uptrend should extend. Regardless of the outcome we have worked out some Fibonacci relationships for the rest of the uptrend. Medium term support remains at the 1680 and 1628 pivots, with resistance now at the 1699 and 1762 pivots.
Short term support is at the 1680 pivot and SPX 1658-1667, with resistance at the 1699 pivot and SPX 1717. Short term momentum ended the week slightly overbought. The short term OEW charts are positive with the reversal level SPX 1684. With Minor waves 1, 2 and 3 complete Minor wave 4 appeared to have bottomed on Friday at SPX 1676. Only a rally to SPX 1699 will confirm this scenario. A drop below SPX 1676 would suggest Minor wave 4 is still underway.
Should Minor wave 5 be underway, as expected, there are several overhead resistance levels on the way to the OEW 1779 pivot by August. The first is obviously the 1699 pivot range, where it closed on Friday. After that we see SPX 1717, SPX 1734, SPX 1743, and a new pivot at 1762, all before the 1779 pivot is reached. Naturally the FED could put a damper on this scenario by Wednesday afternoon. Suggest keeping a close eye on the market this week.
The Asian markets were mixed on the week for a net gain of 0.1%. Only Australia, India and Japan are in confirmed uptrends.
The Europeans markets were mixed as well but gained 1.2%. England, France, Germany and Switzerland are in confirmed uptrends.
The Commodity equity group were mixed on the week as well for a net gain of 0.4%. Canada and Russia are in confirmed uptrends.
The DJ World index is uptrending and gained 0.3% on the week.
Bonds continue to look like they are trying to uptrend but lost 0.5% on the week.
Crude is still uptrending since April, but lost 3.2% on the week.
Gold is also looking like it is uptrending and gained 2.9% on the week.
The USD appears to be downtrending and lost 1.1% on the week.
Monday: Pending home sales at 10:00. Tuesday: Case-Shiller and Consumer confidence. Wednesday: Q2 GDP (est. -0.7% to 1.1%), the ADP index, the Chicago PMI and the FOMC statement. Thursday: weekly Jobless claims, ISM manufacturing, Construction spending, and Auto sales. Friday: the Payrolls report, Unemployment rate, Personal income/spending, PCE prices and Factory orders. No speeches scheduled for the FED. Best to your weekend and week!