weekend update

REVIEW

An expected volatile FOMC/Options expiration week did not disappoint. The market started the week with a gap up opening, held those highs on Tuesday, then spiked when FED chairman Bernanke did not taper QE 3 as was expected. Then the unwinding of that spike unfolded during Thursday and Friday’s expiration. For the week the SPX/DOW were +0.95%, the NDX/NAZ were +1.45%, and the DJ World index was +2.0%. Economic reports for the week ended positive. On the uptick: industrial production, the CPI, existing home sales, the Philly FED, leading indicators, the monetary base and the WLEI. On the downtick: the NY FED, the NAHB, housing starts, building permits, and weekly jobless claims rose. Next week: Q2 GDP (est. +2.5%), PCE prices and more housing reports.

LONG TERM: bull market

With the markets inflection point out of the way, and the much anticipated QE 3 taper a non-event, we can concentrate on the long term count. The recent August correction only declined about half of what was expected. The three previous Major wave corrections, during this bull market, had ranged between 7.4% and 17% in the SPX and 6.7% and 14.9% in the DOW. So we expected something about in the middle, around 10%. At the August low, however, the SPX had only corrected 4.9% while the DOW corrected 5.7%. This correction, being the smallest of the four Major wave corrections, could not be anticipated in advance. Our error, we got it wrong.

SPXweekly

While there has been some discussion of a more bullish count long term. We are maintaining our conservative bull market count as we have been reporting now for a few years. This bull market remains Cycle wave [1] and should unfold in five Primary waves. Primary waves I and II ended in 2011. Primary wave III has been underway since then. Primary I divided into five Major waves with a subdividing Major wave 1. Primary wave III has also be dividing into five Major waves, but both Major waves 1 and 3 subdivided. Major waves 1 and 2 of Primary III ended by mid-2012, and Major waves 3 and 4 appear to have just ended in mid-2013. Major wave 5 of Primary III should now be underway. When this uptrend concludes it should end Primary wave III. Then after Primary IV correction, the next uptrend, Primary wave V, should end the bull market. We still expect a bull market top by late-winter to early-spring 2014.

MEDIUM TERM: uptrend

It was a disappointing August downtrend for many traders as the market only declined to the 1628 pivot, found support, and began to rally. However, the downtrend was sufficient to trigger a confirmation in the bellwether DOW which retraced over 80% of its previous uptrend. As a result of this OEW activity we have labeled the recent low as Major wave 4 in both the SPX and DOW. The uptrend, which has been underway since the late August low, is Major wave 5.

SPXdaily

Since Major wave 5, of Primary I, was the shortest of those Major waves, and did not subdivide. We are expecting Major wave 5, of Primary III, to be a one trend advance. A subdividing Major 5, however, can not be totally ruled out, since Major waves 1 and 3 have subdivided. But to anticipate something that is uncharacteristic of this bull market is not being objective, nor conservative. When this uptrend concludes the next correction should give us the answer. Typically, after a large five wave advance the market should have a significant correction. Primary wave II declined 22%. That was somewhat extraordinary for a bull market, as many turned long term bearish the exact day it bottomed. Typical corrections during this bull market have been about 10%. Medium term support is at the 1699 and 1680 pivots, with resistance at the 1779 pivot.

SHORT TERM

Since we are expecting a one trend Major wave 5, we have been labeling its advances in Intermediate waves. Intermediate wave i was a leading diagonal from SPX 1627-1662. Intermediate wave ii was a sharp decline, which often occurs after diagonals, to SPX 1641. Intermediate wave was a simple five wave advance to SPX 1730. Intermediate wave iv should be underway now, as the market has pulled back 21 points from its high. This is the same length as the entire Int. wave ii decline. After this decline concludes the market should rally to new highs to complete Int. wave v, Major wave 5, and Primary III.

SPXhourly

Short term support is at the 1699 and 1680 pivots with resistance at the 1779 pivot. Short term momentum ended the week quite oversold. The short term OEW charts remain positive with the reversal level now SPX 1692. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly higher on the week for a gain of 2.1%. All indices uptrending.

European markets were mostly higher on the week for a gain of 1.4%. All uptrending too.

The Commodity equity group were all higher for a gain of 2.1%. All uptrending as well.

The uptrending DJ World index gained 2.0%.

COMMODITIES

Bonds had a good week gaining 1.2%, but have not confirmed an uptrend yet.

Crude sold off this week losing 3.5%, and should be confirming a downtrend soon.

Gold lost only 0.2% on the week, thanks to Wednesday’s rally, but appears to be downtrending.

The USD was also in the red this week -1.2%, and is now downtrending.

NEXT WEEK

Tuesday: Case-Shiller, the FHFA housing index and Consumer confidence. Wednesday: Durable goods orders and New home sales. Thursday: Q2 GDP, weekly Jobless claims and Pending home sales. Friday: Personal income/spending, PCE prices and Consumer sentiment. The FED has only one speech on its agenda: FED governor Stein on Thursday in Germany. Best to your weekend and week!

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

About tony caldaro

Investor
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224 Responses to weekend update

  1. blubrd67 says:

    Is “Dr. Doom’s” enthusiasm for stocks one of the signs that market is topping?

    “Prominent economist Nouriel Roubini, who is known as “Dr. Doom,” on Monday offered a negative take on gold and certain emerging markets, along with kind words for U.S. and Japanese stocks and the dollar.”

    Although, he is in line with Tony on commodities.

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  2. bcm52 says:

    Question for the group. Because we are in a long term uptrend or bull market, is it wise to short counter trend waves such as 2’s and 4’s? Or should one just stand aside and wait for the decline, then go long? Not sure if that makes sense. I have a tendency to think I need to be in the right direction for every wave, but is that necessary? Thoughts? Thx.

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    • zvyezda says:

      BCM, base it on your own comfort level and the wave degree and point change to be expected. The shorter ones can be very tricky and not worth the risk – especially in options. I am trying to overcome that inclination myself. Try to have at least two magnitudes of waves and preferably three lined up as a force multiplier to work in your favor and to make up for any slippage in timing entries and exits.

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    • hucky2 says:

      “All losses in the stock market are entirely attributable to not investing with the PRIMARY trend.” – Quote

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    • tony caldaro says:

      In a bull market, if one buys too early, they will recover and profit sooner or later.
      If one shorts too early, it may take weeks, months, years, or possibly decades to recover, if ever.

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    • glacialspeed says:

      BCM, I would say it depends entirely on your time frame. I would prefer to invest and not trade and still struggle with the question of which wave is “big enough” to worry about. Guess I’m a slow learner. It took me awhile to realize investing and trading are not the same thing.

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  3. zvyezda says:

    Tony, under your stewardship, the board seems to have settled down for the purpose you have always intended, so that we can help each other. I don’t think we should have any major problems going forward. Many thanks as always!

    But just in case, thought for today!

    “If you cannot make yourself what you would wish to be, how can you bend others to your will? We want them to be perfect, yet we do not correct our own faults. We wish them to be severely corrected, yet we will not correct ourselves.”

    http://www.ccel.org/ccel/kempis/imitation.ONE.16.html

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    • tony caldaro says:

      thank you Zvy
      and nice words!

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    • torehund says:

      Follow some wise Words from the bible (or similar texts), and attempt to refrain from projecting any negative energy toward other bloggers (thats like begging for something in Return, and a Vicious circle is created). Other traders strive With problems of their own, and needs support not harassment.
      ……And if both the Fish and the Fisherman get “hot headed” they will eventually separate.

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