weekend update

REVIEW

In a bull market full of surprises this one has definitely had its share. The week started off innocent enough with a small decline to SPX 1708 at the open. Then after a retest of SPX 1708 on Tuesday the market headed lower, in a very choppy fashion, for the rest of the week ending with a gap down opening on Friday. For the week the SPX/DOW were -1.2%, the NDX/NAZ were +0.2%, and the DJ World index lost 0.6%. On the economic front it was a good week. On the uptick: Case-Shiller, FHFA housing prices, durable goods, new home sales, Q2 GDP, personal income/spending, PCE prices, consumer sentiment, the WLEI and weekly jobless claims declined. On the downtick: consumer confidence, pending home sales, the M1 multiplier and median new home prices declined. Next week we get reports on the monthly Payrolls, ISM and the Chicago PMI. Best to your week!

LONG TERM: bull market

The market closed just under SPX 1700 this week. A long way from the bear market low of SPX 667 in March 2009. While many did not believe it was a bull market, even three years into the rise. Most are apparently on board now, and feel the FED will monetize debt indefinitely. Forcing asset prices and the stock market to continue to rise. The Elliott Waves suggest a different outcome.

We have been counting this market as a Cycle wave [1] bull market unfolding in five Primary waves. Primary waves I and II completed in 2011. Primary III has been underway since then. Primary I divided into five Major waves with a subdividing Major 1. Primary III has also divided into five Major waves, but both Major waves 1 and 3 have subdivided. Major waves 1 and 2 completed by mid-2012, Major waves 3 and 4 completed by mid-2013, and Major wave 5 (completing Primary III) may have just ended. Should this be correct a Primary wave IV correction would be next. After the conclusion of Primary IV a one uptrend Primary V should end the bull market. We continue to target a top between late-winter and early-spring 2014 around the SPX 1780 area.

MEDIUM TERM: uptrend erratic and weakening

If one takes a look at the weekly RSI, in the above chart, you will observe a triple negative divergence at the recent high. Normally a single negative divergence is good enough to end an uptrend. Also of note is the negative divergence in the weekly MACD. This usually occurs at significant tops. On the daily chart below, the MACD appears to be headed for a negative crossover after the RSI hit an extremely overbought condition. Another sign of an impending top.

The uptrend from SPX 1627 to 1730 was quite short in time, but good enough in price to push the market to new all time highs. Since it was so quick, at first we had a difficult time counting five waves up. But there is a five wave pattern there. So it is not likely to be a B wave of an irregular Major wave 4. It does, however, look like a completed uptrend or an uptrend that is pulling back and preparing to extend.

Since most fifth waves, during this bull market, have been relatively short. Probabilities suggest a completed Major wave 5 high at SPX 1730. We posted that count originally on the DOW charts, and have moved it to the SPX charts for clarity. The DOW charts now display the alternate count. Which is the uptrend is preparing to extend. Medium term support is at the 1680 and 1628 pivots, with resistance at the 1699 and 1779 pivots.

SHORT TERM

We have counted the uptrend as a five wave series of Intermediate waves completing Major wave 5 and Primary III. The recent activity, since the SPX 1730 high, looks quite similar to the beginning of the last downtrend:  a quick drop followed by choppy activity with a downward slope. Right after the initial decline the market setup a positive divergence. But has spent the entire week drifting lower despite maintaining this divergence. This sometimes occurs during corrections, and rarely during uptrends.

Short term support is at the 1680 pivot and SPX 1654-1665, with resistance at the 1699 pivot and SPX 1730. Should the market fall through the lower end of the 1680 pivot range: SPX 1673, a correction is most probably underway. As long as this pivot holds an uptrend extension has a possibility to follow. Should the market be in a Primary IV correction, it may some time to unfold as the Tech sector has remained relatively strong. This also occurred during the early stages of the Primary II correction back in 2011. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly lower on the week for a net loss of 1.2%.

The European markets were also mostly lower but lost only 0.1%. The FTSE is close to confirming a downtrend.

The Commodity equity group were mixed on the week for a net loss of 0.9%.

The DJ World index is still uptrending but lost 0.6% on the week.

COMMODITIES

Bonds appear to be in an uptrend gaining 0.6% for the week.

Crude is down trending and lost 1.9% on the week.

Gold has nearly confirmed a downtrend but gained 0.8% on the week.

The USD remains in a downtrend losing 0.3% on the week.

NEXT WEEK

Monday: Chicago PMI at 9:45. Tuesday: ISM manufacturing, Construction spending and monthly Auto sales. Wednesday: the ADP index. Thursday: weekly Jobless claims, Factory orders, and ISM services. Friday: the monthly Payrolls report. The FED returns to activity this week. On wednesday: FED chairman Bernanke gives an speech at 3:30. Thursday: FED governor Powell speaks at 1:30. Friday: FED governor Stein speaks at 9:30. Best to your weekend and week!

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

Filed under: weekend update