After last week’s big gain SPX 1887 to 1965, the market rallied strongly again this week. Monday, however, started the week with a gap down to SPX 1951. The market then rallied to SPX 1991 just before the FOMC statement, ending QE 3, on Wednesday. Then after an initial pullback to SPX 1969, the market rallied for the rest of the week, helped by a gap up on Friday, to SPX 2018. For the week the SPX/DOW were +3.1%, the NDX/NAZ were +3.1%, and the DJ World index was +2.5%. On the economic front there was a higher than expected report for Q3, and positive reports ended slightly higher. On the uptick: pending homes sales, consumer confidence/sentiment, Q3 GDP, personal income, PCE prices, and the Chicago PMI. On the downtick: durable goods orders, Case-Shiller, personal spending, the WLEI, the monetary base, and unemployment claims rose. Next week will be highlighted by monthly Payrolls, ISM and Auto sales.
LONG TERM: bull market
The 2009 bull market continues to unfold, despite the fact that it turned in a surprising performance to the upside these past two weeks. We continue to count this bull market as Cycle wave  with five Primary waves. Primary waves I and II clearly completed in 2011. However, Primary III may not have topped in September as expected. In fact it may be extending again. While OEW can quantify the long term trend, and the medium term trends that create bull and bear markets. We can only offer wave counts based upon the wave formations, and their probabilities. Bull and bear markets can, and do at times, extend or truncate. While we do work diligently, using all information at our disposal, to provide the most probable/conservative count. We do get surprised from time to time.
While we have, successfully, been using a count that fit all four major indices for most of this year. Recent market action has brought it into question. We had counted five waves up from the February low and expected the September top to be the end of Primary III. The market did sell off, having its largest correction in more than two years. But it quickly turned, and has now rallied 12 successive days with higher lows and higher/equal highs. This kind of market activity has rarely occurred during this bull market. And, usually when it did the market was in either Major wave 3 of Primary I, or Major wave 3 of Primary III. With this in mind we must now consider an alternate count that fits with the current market activity.
MEDIUM TERM: uptrend
From the SPX 1821 low we have counted three waves up into the recent highs. The market has moved so quickly that it has been difficult to track the smaller waves within these three waves. Nevertheless, we will continue to carry the current Primary IV count, until such time as five waves appear in this uptrend. At that time we will favor the alternate count.
As noted above the recent downtrend was the largest correction in over two years. The 9.8% decline was more similar to the 10.2% correction in mid-2012 than any other correction since that time. All six corrections, since mid-2012, have been between 4.3% and 8.9%. This suggests the recent correction and the mid-2012 correction may be of a similar degree. Since that correction was Intermediate wave ii of Major 3. We started our analysis with the assumption that the recent correction could have been Intermediate wave iv of Major 3, and proceeded from there. When we took into account the technical features of this bull market, the wave structure, and then we arrived at an alternate count. A count that fits all four major indices.
This count suggests the market is currently in Intermediate wave v of Major wave 3. Notice how up until mid-2013 the wave structure was quite simple with: Major waves 1-2, Int. waves i-ii, and Minor waves 1-2-3-4. The most obvious count would have been to expect Minor 5 to complete during the following uptrend. It did not. Not only did it not complete it started to subdivide into five Minute waves. Then when Minute wave v appeared, it subdivided as well. Clearly this was impossible to anticipate regardless of the method. However, this does help explain the erratic behavior of the DOW during that entire period of time. The continuous overlapping waves were forming a diagonal triangle Minor wave 5. The charts of these alternate counts are at the extreme end of the public charts: link below. Medium term support is at the 1973 and 1956 pivots, with resistance at the 2019 and 2070 pivots.
After completing a somewhat complex zigzag from SPX 2019 to 1821 in three weeks, the market abruptly reversed into one of the best rallies during the entire bull market. We initially expected a choppy rally off the SPX 1821 low. But when it made such quick upside progress we quickly aborted that idea. Our upside targets were the OEW 1956 and 1973 pivots for this uptrend. The market took only seven days to clear the 1956 pivot. When it do so we noticed every trading day had a higher high and higher low than the day before. That trend continued throughout this week as well, even though Monday’s high only matched Friday’s.
We continue to count three waves up from the SPX 1821 low: 1898-1878-2018 so far. This third wave has already exceeded a 1.618 relationship to the first wave, when it passed SPX 2003. Quite frankly, this is looking more like a third wave up than a c wave of a larger B wave rally. As noted above, we will maintain two counts until either the market heads back down towards the lows, or continues higher to form five waves up. Should the market continue higher we see Fibonacci resistance in the SPX 2080’s area. This is just above the OEW 2070 pivot. If you have been playing this uptrend to the long side – kudos! Short term support is at SPX 2000 and the 1973 pivot, with resistance at the 2019 and 2070 pivots. Short term momentum continues to display negative divergences, but the pullbacks have been small.
Asian markets were all higher for the week, gaining 3.2%.
European market were mostly higher, gaining 1.6%.
The Commodity equity group were all higher, gaining 3.4%.
The DJ World index gained 2.5%.
Bonds appear to be down trending and lost 0.5% on the week.
Crude is still down trending and lost 0.9% on the week.
Gold resumed its downtrend losing 4.8% on the week.
The USD is still up trending and gained 1.4% on the week.
Monday: ISM manufacturing, Construction spending and Auto sales at 10am. Tuesday: Trade deficit and Factory orders. Wednesday: the ADP index and ISM services. Thursday: weekly Jobless claims, and a speech from FED governor Powell. Friday: monthly Payrolls, Consumer credit, plus speeches from FED chair Yellen and FED governor Tarullo. Busy week. Best to your weekend and week!