weekend update


While the stock market acted like business as usual: the SPX opened the week at 1692 and ended at 1691. The US government shut down on Tuesday due to lack of a budget, and a potential default looms as the debt limit is less than two weeks away. The political circus – democrats v republicans – continue to push for next year’s election talking points, while holding the American public and the economy hostage. For the week the SPX/DOW were -0.65%, the NDX/NAZ were +0.55%, and the DJ World index was -0.4%. On the economic front negative reports outpaced positive ones for the first time in quite a while. On the uptick: the Chicago PMI, ISM manufacturing and Investors turned more positive. On the downtick: the ADP index, ISM services, the Monetary base, the WLEI and weekly Jobless claims rose. Next week we may, or may not, get reports on Retail sales, Consumer sentiment and the FOMC minutes. Best to your week.

LONG TERM: bull market

While most of us agree this is a bull market. After all the SPX/DOW recently hit all time new highs. The trifurcation between the DOW, SPX and NDX/NAZ has produced a number of general market counts in the blogosphere. Quite confusing for most we would imagine. At OEW we try to tune out all the noise created by following a number of indices and just concentrate on one. The bellwether. The index that has a one hundred plus year history, is not heavily traded in the futures markets, and gets quoted every night on the news: the DOW. Certainly we track the popular SPX, and even the other indices. But when the four major indices start taking on a life of their own we always rely on the DOW.

For this entire bull market the DOW has provided clean, clearly defined waves. The SPX, NDX and NAZ unfortunately have not. This trifurcation reminds us of 1999-2000. Then the major indices were like they are now: strength in the NDX/NAZ, weakness in the DOW, and the SPX caught up somewhere in the middle. When the DOW made its last downtrend of the bull market in late 1999 it bottomed at DOW 9976. The SPX hit 1234 and the NDX hit 2300. Then in January 2000 the DOW ended its bull market at 11750, gaining 18% in its last uptrend. The SPX looked like it was topping in January too but continued on to SPX 1553 by March, gaining 26%. The NDX was the reason. It topped in March 2000 at 4816, gaining 109% in the blow off dotcom bubble. Irrational exuberance. We all know what happened next.

The catalyst then was the “new economy” and easy money. Is the catalyst this time quantitative easing? There are quite a large handful of momentum stocks already selling at valuations that are discounting the next five to ten years of earnings growth. Twitter just filed for its IPO. They are not making any profits, nor have they made any profits, but they are valuing their company in excess of $9 billion. Sound familiar? It should. The way things currently look we could have quite a wild ending to this bull market.


For now we continue to track this five Primary wave Cycle wave [1] bull market in OEW terms. Primary waves I and II completed in 2011. Primary wave I divided into five Major waves with a subdividing Major wave 1. Primary wave III has also divided into five Major waves, but both Major waves 1 and 3 subdivided. Major waves 1 and 2 of Primary III completed by mid-2012. Major waves 3 and 4 completed by mid-2013. Major wave 5 was probably simple and just completed in September, ending Primary wave III. The recent decline appears to be Primary wave IV. When this concludes a simple Primary V uptrend should take the market to all time new highs to end the bull market. We are still expecting this to occur by late-winter to early-spring 2014 near the OEW 1779 pivot.

MEDIUM TERM: uptrend weakening

After the Intermediate wave iii, of Major 3, high in May all four major indices corrected into an Intermediate wave iv low in June. Since then, yes it has been that long, the NDX/NAZ have been displaying strength, the DOW weakness, and the SPX has been caught in the middle. We labeled the simple, five wave, Jun-Aug uptrend as Intermediate wave v ending Major wave 3. Then the market trifurcated. The DOW confirmed a downtrend and dropped 5.7%. The SPX dropped 4.9% and the NDX dropped only 3%. This is when a plethora of counts arrived on the EW scene.

While the downtrend was shorter than expected in the SPX/DOW. It was sufficient to trigger a downtrend which we labeled Major wave 4. Then the market shot right up quickly to new all time highs on non-taper rumors and the non-taper news. The day after the non-taper news the SPX/DOW made their highs and have been declining ever since. We can label that high as the end of Primary III, with Primary IV currently underway. The DOW has already dropped 4.9% and the SPX 3.5%. But the NDX/NAZ are less than 0.5% from their highs. Trifurcation.


For now we take the conservative count as posted on the SPX charts: Primary III done and Primary IV underway. We do offer an alternate count which is posted on the DOW charts. But until the SPX 1730 highs are exceeded we prefer the Primary IV underway scenario. Medium term support is at the 1680 and 1628 pivots, with resistance at the 1699 and 1779 pivots.


The decline from SPX 1730 looks like a double zigzag. The first zigzag, SPX 1730-1675, we labeled Minor a. The rally to SPX 1697 we labeled Minor b. Then the recent decline to SPX  1670 we labeled Minor c to complete Intermediate wave a. Under the Primary IV scenario we would expect a potential flat to form consisting of Major waves A, B and C. This first decline, SPX 1730-1670, should be the first wave of the three Intermediate waves creating Major wave A. Intermediate wave b, currently underway, is the second wave. Upside potential is SPX 1693 (38%), SPX 1700 (50%) and SPX 1707 (62%).


Short term support is at the 1680 pivot and SPX 1654-1665, with resistance at the 1699 pivot and SPX 1730. Short term momentum ended the week nearly overbought. The short term OEW charts are positive with the reversal level SPX 1688.


The Asian markets were mixed on the week for a net loss of 1.1%.

The European markets were also mixed but gained 0.8%. The FTSE is downtrending.

The Commodity equity group were mixed for a net loss of 0.7%.

The DJ World index is still uptrending but lost 0.4%.


Bonds appear to be uptrending but gained only 0.1% on the week.

Crude is downtrending but gained 0.9% on the week.

Gold is downtrending and lost 1.9% on the week.

The USD is downtrending as well and lost 0.1% on the week.


Some of these reports may be delayed or not reported due to the government shutdown. Monday: Consumer credit at 3:00. Tuesday: the Trade deficit. Wednesday: Wholesale inventories and the FOMC minutes. Thursday: weekly Jobless claims, Export/Import prices, and the Treasury Budget. Friday: Retail sales, the PPI, Consumer sentiment and Business inventories. As for the FED there is a speech by FED governor Powell on Friday. Best to your weekend and week!

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

About tony caldaro

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194 Responses to weekend update

  1. looking for an ESZ low between 1657 – 1661, or a cash SPX low between 1664 – 1668: These are levels of interest to me, not predictions. If price reaches these levels overnight or tomorrow, and then reverses, closing positive, and in the upper half of its daily range, there will be a Big Up alert. If, on the other hand, those levels break and hold lower, then I would have to think that The ED did top 9/19,. and SPX is heading 1540 – 1576, and by Nov opex at the latest. A reversal higher with a Big Up probably gets to 1730- 50 by October opex.

  2. Interactive just raised margin requirements to 100% for small caps/

  3. pio27 says:

    you know this market just wants to fly higher when market has pulled back 3 % and cnbc has people asking if they should buy the correction. 3% or 4% are consindered corrections. LOL

  4. Igor says:

    Food for thought:

  5. Not comfortable with my shorts so just bought some cheap otm calls that expire at the end of the week…this could easily snap hard to the upside before going down again imho…GL to all.

  6. infantguru says:

    The summation has given a sell signal. It would need to stay that way till EOD, however.
    If so it will confirm the other indicator set that had given so back on the 25th of sept.

    Playing by the pivot will be wise .. my 2cents.

  7. Like I said Lee says:

    Hey Tony
    Pivot range held at days low and just now @ the nominal 1680
    Think well see the 1699 pivot again for the end of B up today ?

  8. Bullish Scalloping on rsi14 of the Dow… best seen as below on the Dow 4hr-fut chart…also of note is pos/div created by todays new low. If it does uncoil out of this, it will be very sharp to the upside imho…Dow-fut-4hours

  9. mjtplayer says:

    Markets are holding important levels, so far. Yen holding on to 97, a break send the Yen up to at least 94/95. S&P holding the 50day EMA at 1,676. VIX still below 20.

    All is well, so far. Of course, $3b of POMO today helps. $1.5b tomorrow, none Wed. Maybe we begin to accelerate lower on Wed with the absence of the invisible hand?

    In 2011, a week and a half prior to the debt ceiling, the market was also holding-up well in a “feeding the ducks” pattern, just like today. Right around now though, is when the market started to roll, with the plunge beginning 1 week prior (Thursday in today’s case) and dropping straight down until resolved 2 days prior (next Tuesday in today’s case). The VIX, during the same time period rose from 23 up to 48 in those 4 trading days (this Thurs to next Tues in today’s case).

    Food for thought…

  10. The relative under-performance of RUT and NDX versus SPX off of this morning’s low could be a subtle change of character from the price action of the past few weeks.

  11. budfox9450 says:

    It is looking like to me – the SP is way to high right now.
    So – what I see happening is – the market (SP500) will
    sell off. Starting as early as 2:30pm or 3:10 pm today.
    Then – breaking the 1670 will be and extending down leg.

  12. Overnight Breakdown line back-tested…..S&P-fut-30mins

  13. mjtplayer says:

    Still a complacent market, S&P only 3% from the highs thus far. VIX is moving up, but spot in the 18’s with Nov VIX futures in the 17’s still signal a complacent market.

    Perhaps we need a big down thrust in markets, DOW down 400+pts, to get the politicians motivated? Politicians are like old dogs sitting on the porch, you can ask nicely, yell or scream and they don’t move; sometimes you need to take a stick a whack them in the butt to get them to move.

  14. jklongspx1670 says:

    On the alternate DOW count.
    oew had 10/3 low as “a”.
    today DOW made a new low.
    Is it possible DOW “b” on last Friday?
    And today’s new low with 60m RSI positive divergence is :c” of ii? But “c” would be tiny in both size and time.
    If true, bullish iii to new record high should be coming?

    • tony caldaro says:

      would be the smallest C ever

      • jklongspx1670 says:

        10/3 low as “a”, 10/4 must be “b”?
        But still a valid C even though a smallest c?
        Notice oew almost always has very small C in a hurry.
        C of iv on June bottom is very small in both size and time.
        C of 4 in Aug bottom also is very small in both size and time.
        This kind of C only occur in oew?

        If this C of ii is true, DOW wave iii should make new record high.
        But it’s totally opposite to oew SPX very bearish Primary 4 primary count.
        This is a very interesting market, SPX may go down 20% as in primary 2, but the weaker DOW may go up to make new record high. It’s a may go up or may go down market.
        I like the DOW count and am holding SPX long from 1670, with minimum risk of 1668 stop.

  15. Golf and trading are my two favorite sports … and if you do not see the similarities between the two activities, then though you may participate, you do not understand either one or the other or perhaps both as deeply as each deserves.

  16. 16golfer says:

    Ian….love to watch you play!

  17. torehund says:

    they og belov my offer without giving me the goods, bootsy swindlers.

  18. Cheap short hear imho….(Blue line is Tonys Pivot)
    snp 5min

  19. Like I said Lee says:

    Morning all
    Golf is NOT a sport . Trade well

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