Interesting split-week to start 2014. The market started the week ending 2013 and closing within one point of all time new highs. Then it began 2014 with a gap down opening and finished the week negative. The last time the market had a down opening and a down week to start the year was 2008. All years, 2009 through 2013, had up openings and up weeks. This could be the signal for a bull market top this year. For the week the SPX/DOW were -0.3%, the NDX/NAZ were -0.8%, and the DJ World index was -0.50%. On the economic front it was a quiet week, which came in split. On the uptick: Case-Shiller, pending home sales, construction spending and the M1-multiplier. On the downtick: ISM manufacturing, auto sales, the WLEI and weekly jobless claims ticked up. Next week’s reports will be highlighted by ISM services, the FOMC minutes and the Payrolls report.
LONG TERM: bull market
We continue to count this bull market as Cycle wave  of a new multi-decade Super cycle 3 bull market. The previous Cycle  of SC 1 lasted five years: 1932-1937. The current one just entered its fifth year: 2009-2014. At the beginning of this bull market we thought getting back to the SPX 1576 all time high, from SPX 667, would be an accomplishment in itself. The FED, however, has surprised everyone with its massive liquidity programs. Which has raised its balance sheet from just over $800bn to recently $3.7tn.
Despite all this liquidity the waves continue to unfold in a recognizable OEW pattern. We have been expecting a five Primary wave bull market. 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, however, has also divided into five Major waves, but both Major waves 1 and 3 subdivided. Plus we are now in an extended Major wave 5.
Currently Primary III is already about 10% longer than Primary I: 774 pts. v 704 pts. So theoretically Primary III can now end at any time. However, usually there is some sort of Fibonacci relationship between waves and the internal waves, plus a proper completed wave structure. Ten percent is not a Fibonacci relationship, nor have we a completed wave structure. As a result, the worse case scenario for a Primary III high would be around SPX 1869 and best case around SPX 1970. With the Major wave 5 trend still rising the market should make higher highs soon.
MEDIUM TERM: uptrend
We have been counting this Major wave 5 uptrend from the August low in the SPX, and October low in the DOW. At the late November high in both indices we observed a five Minor wave pattern from their respective lows, and have labeled it Intermediate wave one of Major wave 5. The pullback that followed into mid-December was about 23.6% of that advance, and then the market spiked higher.
This Thursday we marked the recent all time high at SPX 1849 as Minor wave 1 of Intermediate three. Minor wave 2 should be underway now. As long as the market stays above SPX 1768 this count remains valid. Typically waves of this degree get, or approach, oversold on the daily RSI. And, the daily MACD crosses below its moving average. Which it has yet to do. After Minor wave 2 concludes we would expect a Minor wave 3 rally to at least equal Minor 1 (81 pts.). Medium term support is a the 1828 and 1779 pivots, with resistance at the 1841 and 1869 pivots.
Short term support is at the 1828 pivot and SPX 1814, with resistance at the 1841 pivot and SPX 1849. Short term momentum ended the week around neutral. The short term OEW charts are negative with the reversal level now SPX 1835.
With the recent Minor wave 1 topping at SPX 1849 it travelled 81 points. This makes looking for pullback levels relatively simple. A 23.6% retracement occurs at SPX 1830, a 38.2% at SPX 1818, a 50% at SPX 1808, and a 61.8% at SPX 1799. The 1828 pivot just about covers the first two, SPX 1814 the next one, and SPX 1800 the last one. These are the three levels we will be observing during this pullback.
Also of note, previous pullbacks of this degree, during this uptrend, have hit extremely oversold readings on the hourly RSI (10). And they have taken anywhere from one to three weeks to unfold. Since this rally took two weeks to unfold, we would not expect this pullback to last more than two weeks. So we are probably looking at support for Minor 2 between SPX 1800 and 1814 in the next week or two. The market could continue to bounce around, as it has in the first two days, until then. Best to your trading!
Asian markets were mixed on the week for a net loss of 0.6%.
European markets were also mixed and ended overall unchanged.
The Commodity equity group were all lower losing 0.4%.
The DJ World index remains in an uptrend, but lost 0.5%.
Bonds continue their downtrend but gained 0.1%.
Crude sold off 5.9% this week as it looks like it is back in a downtrend.
Gold is trying to confirm an uptrend gaining 1.9% on the week.
The USD is uptrending gaining 0.7% on the week.
Monday: Factory orders and ISM services at 10am. Tuesday: the Trade deficit. Wednesday: the ADP index, FOMC minutes and Consumer credit. Thursday: weekly Jobless claims. Friday: the Payrolls report, Unemployment rate and Wholesale inventories. The FED has nothing else scheduled at this time. Wishing you all, and yours, a healthy and prosperous New Year!