Quite a volatile week. The market started the week trading from SPX 1843 to 1816 on Monday. Rallied to all time new highs at SPX 1851 on Wednesday. Then dropped to SPX 1835 on Friday, before closing the week nearly unchanged. For the week the SPX/DOW were mixed, the NDX/NAZ gained 0.65%, and the DJ World index gained 0.1%. Economic reports for the week were positive two to one. On the uptick: the treasury budget, retail sales, export prices, business inventories, the NY/Philly FED, the CPI/PPI, industrial production, capacity utilization, the WLEI, plus weekly jobless claims improved. On the downtick: import prices, the NAHB index, housing starts, building permits, consumer sentiment and the M1-multiplier. Next week will be highlighted by Housing and the Leading indicators.
LONG TERM: bull market
We continue to count this now five year bull market as Cycle wave  of Super cycle wave 3. Cycle wave bull markets unfold in five Primary waves. Primary waves I and II completed in 2011, and Primary wave III has been underway since then. This week Primary III not only exceeded Primary I in price, but now also time: 27 months v 26 months. Primary I divided into five Major waves with a subdividing Major wave 1. Primary III has also divided into five Major waves, but both Major waves 1 and 3 subdivided. Since we have been in Major wave 5, without any trend reversals, it is yet to be seen if this one subdivides as well.
When Major wave 5 does conclude, ending Primary III, we would expect the biggest correction since 2012. Then after that Primary IV correction ends we would expect a new rally to all time new highs to end the bull market. Currently we are expecting the bull market to top in Q3-Q4 2014 in the mid to upper SPX 1900’s.
MEDIUM TERM: uptrend
The Major wave 5 uptrend that started in the SPX in August, and the DOW in October, continues to unfold. This week the SPX made an all time new high. We have been counting this SPX uptrend quite aggressively, in an attempt to get the SPX and DOW back in sync. We have counted five Minor waves up from SPX 1627 to 1814 to end Intermediate wave i. Then after an Int. wave ii pullback to SPX 1767, we counted Minor waves 1 and 2 at SPX 1849 and 1816 respectively. Minor wave 3 announced its presence on Wednesday with a new high.
Since Minor wave 1 was 81 points, we would expect Minor wave 3 to at least equal it. This suggests it could reach the OEW 1901 pivot range before it tops. Minor wave 2 at SPX 1816, met all the technical parameters we were expecting. An oversold daily RSI, a negative cross on the daily MACD, an extremely oversold RSI on the hourly chart, and it found support around SPX 1814. Despite all the positives we have noticed a potential, more conservative, alternate count.
After this volatile week, and Friday’s decline, we just had a chance to take a closer look at the advance in the SPX from its Major wave 4 low in August. We also reviewed the uptrend in the DOW from its Major wave 4 low in October. As a result of the wave activity in both of these major indices we now have a new potential count.
The SPX has risen nine waves, with the ninth currently underway, from its Major wave 4 low. The waves SPX: 1729-1646-1775-1746-1814-1768-1849-1816-1851 so far. The DOW has risen five waves: 16175-15704-16588-16241-16505 so far. Five wave and nine wave structures are normal impulse waves, which could complete, when done, an uptrend. When we look closer at the SPX we observe two strong rallies, and three quite normal rallies. The strong rallies occurred in October and December. If we then consider these potentially third waves, of some degree, we arrive at a significantly different count.
Notice the October rally could be Intermediate wave iii, since the pullback after that rally did not overlap the previous high. Also notice, Int. iii was longer than Int. i, so Int. v can now be any length. The December rally could be Minor wave 3, since it was stronger than the previous rally, Minor 1, and its pullback did not overlap that previous high either. Also, since Minor wave 3 was longer than Minor 1, Minor 5, currently underway, can be any length. This count also displays alternation between waves: complex and simple pullbacks.
The DOW, not surprisingly, also offers a different count that would fit. If we count the recent 16,588 high as Int. wave iii, and the pullback to 16,241 as Int. wave iv, it is also in its fifth wave of this uptrend. Since 16,241 did not overlap 16,175, and the pullbacks were somewhat different, we have a potential five wave structure. The difference is, however, in this wave structure the DOW has limitations for its fifth wave. Intermediate wave iii was shorter than Int. wave i. So the upside limitation for the DOW would be 17,125, or 4% above Friday’s close. Should the SPX then track the DOW, we are probably looking at a high in that index in the low 1900’s. Medium term support is at the 1828 and 1779 pivots, with resistance at the 1841 and 1869 pivots.
Short term support is at the 1828 pivot and SPX 1816, with resistance at the 1841 pivot and SPX 1851. Short term momentum ended the week oversold. The short term OEW charts are negative, with the reversal level now SPX 1841.
After hitting the Minor wave 1 high at SPX 1849 on the last day of the year. The market pulled back for nearly two weeks to the Minor wave 2 low at SPX 1816. Then the market surged to a new high in just two days kicking off Minor wave 3. This rally to SPX 1851 can be counted as Minute wave i, with Minute wave ii currently underway. The low, so far, for Minute ii is SPX 1835. Typically waves of this degree, during this uptrend, have only pulled back 10 to 13 points. But there have been occasions when the pullback has stretched into the lows 20’s. So the OEW 1828 to 1841 pivots, which have overlapping ranges, should provide support. If the market were to drop all the way back to SPX 1816 the count will need adjusting. Best to your trading!
The Asian markets were mostly higher on the week for a net gain of 0.7%.
The European markets were also mostly higher for a net gain of 1.3%.
The Commodity equity group was mixed and ended unchanged.
The DJ World index is still uptrending and gained 0.1% on the week.
Bonds are still in a downtrend but gained 0.2% on the week.
Crude is still downtrending but gained 1.3% on the week.
Gold continues to try to confirm an uptrend and gained 0.4% on the week.
The USD is uptrending and gained 0.8% on the week.
Monday is a holiday and US markets are closed. Nothing gets reported until Thursday: weekly Jobless claims, the FHFA housing index, Existing home sales and Leading indicators wrap up the week. All in one day. The FED has nothing scheduled. A quiet week economically. Best to your extended weekend and week!