weekend update

REVIEW

The market opened higher this week, hit an all time new high in the opening minutes of Monday trading, then pulled back 25 points below that high by Wednesday afternoon. Then Thursday it recovered the loss and ended the week at all time new highs on Friday. For the week the SPX/DOW were +0.55%, the NDX/NAZ were mixed, and the DJ World index gained 0.1%. On the economic front negative reports again outnumbered positive reports. On the uptick: retail sales, business inventories, the WLEI and weekly jobless claims improved. On the downtick: m1-multiplier, NAHB, the CPI/PPI, Philly FED and existing home sales. Next week we get the Chicago PMI, Consumer sentiment and Housing.

LONG TERM: bull market continues

Quite a bull market recently! Prior to the SPX making an all time high in April corrections ranged from 7.4% to 22%, with the mean around 9%. Since April the SPX has only had two corrections of 7.5% and 4.9%. In fact, the last time this market had what would be considered a normal correction was over a year ago. Have we entered the bubble stage of a FED induced bull market? Or is this just an over reaction to the once in a lifetime oversold market in March 2009? Currently, we are still thinking the latter. However, if the market gets 10% or more higher we will certainly be in the bubble underway camp.

We continue to count this bull market as Cycle wave [1] of a new multi-generational Super Cycle wave 3 bull market. A Super Cycle wave 2 low occurred in March 2009 at SPX 667. Typically the first Cycle wave of the five Cycle Super Cycle bull market lasts about five years. This one will enter its fifth year in 2014. A Cycle wave [1] bull market consists of five Primary waves. Primary waves I and II completed in 2011. Primary III has been underway since then. Each rising Primary wave divides into five Major waves. Major waves 1 and 2 completed by mid-2012, and Major waves 3 and 4 completed this year. Major wave 5 has been underway since August. When Major 5 concludes it will end Primary III. The Primary wave IV that follows should be the biggest correction we have observed this year. When concluded, Primary wave V should take the market to all time new highs. Unless the market enters the bubble stage, we are still expecting a bull market top by late-winter to early-spring 2014.

MEDIUM TERM: uptrend

We continue to count this Major wave 5 uptrend, in the SPX, from the late august low at 1627. We have counted five Intermediate waves during this advance: 1730-1646-1775-1746-1805 so far. Each of the rising Intermediate waves have subdivided into five Minor waves. Intermediate wave iv: 1773-1761-1802-1777-1805 so far. As you can observe the market is currently in Minor 5 of Int. v of Major 5 of Primary III. Unless Minor wave 5 is going to extend, which it can since Minor 3 was larger than Minor 1 and even Int. iii was larger than Int. i, Primary wave III should be ending soon. The question should be does it extend or not.

When we review the technical data we definitely see some warning signs of an impeding top. The weekly RSI ended the week at an extremely overbought 89.49. The green line in the weekly chart displays all the previous overbought conditions during this bull market. This is about as overbought as it gets. Also the MACD is not confirming this additional 100 point rise in the SPX. On the daily chart above, and the hourly chart below, we are also seeing negative divergences in RSI and MACD. One can also add in a non-confirmation by market breadth in the NYAD. Plus the extended rise in the two-year tech cycle. In the past 20 years there have only been two periods when Semiconductors have risen for as much as 17 months after a two-year cycle low. The current rise will hit 17 months in December. Medium term support is at the 1779 and 1699 pivots, with resistance at the 1828 and 1841 pivots.

SHORT TERM

As noted above Minor wave 5 has been underway since Wednesday’s SPX 1777 low. At Friday’s high Minor 5 was within one point of equaling Minor wave 1 [28 v 27 pts.]. Should it continue higher at SPX 1818 it will equal Minor 3. After that we head into an extended wave. Also of note, all of Int. wave v will be 0.618 Int. wave i at SPX 1810, and 0.618 Int. wave iii at SPX 1826. After that we have extensions up to SPX 1849 and 1875. If one is overly bullish there is plenty left on the upside. If one is conservative one should be looking for a top to occur fairly soon. One last point, and this may help in the extension or non-extension possibility. The Minor wave 5’s during Int. waves i and iii were either the smallest Minor wave or equaled the smallest Minor wave, as it has done now.

Short term support is at the 1779 pivot and SPX 1746, with resistance at SPX 1804-1810, SPX 1818, and the 1828 pivot. Short term momentum ended the week with a slight negative divergence. The short term OEW charts are positive with the reversal level now SPX 1794. Best to your trading during the holiday shortened week!

FOREIGN MARKETS

The Asian markets were mixed on the week but gained 0.5%.

The European markets were also mixed on the week and gained 0.4%.

The Commodity equity group were mostly lower losing 0.3% on the week.

The DJ World index is still uptrending and gained 0.1% for the week.

COMMODITIES

Bonds appear to be downtrending, rates are uptrending, losing 0.2% on the week.

Crude is downtrending but gained 1.1% for the week.

Gold continues its downtrend losing 3.7% for the week.

The USD is uptrending but lost 0.2% on the week.

NEXT WEEK

Monday: Pending home sales at 10am. Tuesday: Housing starts, Building permits, Case-Shiller, the FHFA index and Consumer confidence. Wednesday: weekly Jobless claims, Durable goods orders, the Chicago PMI, Consumer sentiment and Leading indicators. Thursday: the Thanksgiving holiday. Friday: probably a half-session ending at 1pm. The FED has nothing scheduled. Let the holidays begin!

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