Stock Market Uptrend Looks Corrective

By: Tony_Caldaro

On a week to week basis it does not look like the market had done much: SPX 1355 last friday, SPX 1357 this friday. During the week, however, the market had quite a roller coaster ride. A gap up opening on tuesday was sold as the SPX hit 1362. Then the market hit its low for the week thursday morning at SPX 1325. A full reversal followed, and in just over 24 hours the week ended with a marginal gain. For the week the SPX/DOW were +0.10%, but the NDX/NAZ were -1.05%. Foreign markets were also mixed. Asian markets lost 1.9%, Europeans markets gained 0.3%, and the DJ World index was -0.6%. Economic reports for the week continued their winning streak, with positives outpacing negatives 6 to 5. On the uptick: consumer credit, the PPI, WLEI and the monetary base, plus the trade deficit and weekly jobless claims improved. On the downtick: wholesale inventories, export/import prices, consumer sentiment and the budget deficit expanded. Next week we get a look at industrial production, the FED’s beige book and housing.

LONG TERM: bull market

While most of the world’s stock indices are in bear markets. We’re still projecting an ongoing bull market in the US, and possibly England and Switzerland. The bull market that started in March 2009 at SPX 667, hit SPX 1422 in April and we project it will hit the mid-1500′s during 2013. Our wave count remains the same: a five Primary wave bull market underway to complete Cycle wave [1] of the new Supercycle.

Primary waves I and II completed at SPX 1371 and 1075 respectively, in May and October 2011. Primary wave III has been underway since then. Primary wave I divided into five Major waves, with Major wave 1 subdividing into five Intermediate waves. Major wave 1 of Primary III has also subdivided into five Intermediate waves. The only question now in the long term count is if Major wave 2 bottomed at SPX 1267, or is still in progress.

MEDIUM TERM: choppy uptrend continues

Four weeks ago the market generated a WROC buy signal. These signals usually precede uptrend confirmations and are better than 90% reliable. Shortly thereafter the market did confirm an uptrend as the SPX has risen from 1267 to 1375. These buys signals, however, do not differentiate between impulsive and corrective uptrends. Thoughout this bull market we have had 19 WROC buy signals. None of them have failed to occur during uptrends. However, there were two B wave uptrends during 2011, that were fully retraced, which also generated WROC buy signals. Therefore, the recent buy signal does not rule out the possibility that this uptrend is a B wave.

When examining in detail both rallies during this uptrend, SPX 1267-1363 and SPX 1309-1375, neither look that implusive. The first looks like an ABC: SPX 1336-1307-1363, as does the second: SPX 1334-1313-1375. This would suggest this uptrend is, thus far, a double zigzag B wave, and not the beginning of Major wave 3. In fact, after six weeks, this uptrend does not even have the look of a third wave. Third waves are typically strong impulsive moves. Just like Major wave 3 of Primary I, and the two Intermediate wave iii’s of Primary’s I and III. This uptrend is looking more and more like an Intermediate B wave of Major wave 2. The count posted on the DOW/NAZ charts. This would imply an eventual retest of the SPX 1267 low, when this uptrend concludes.

SHORT TERM

Support for the SPX remains at the 1313 and 1303 pivots, with resistance at the 1363 and 1372 pivots. Short term momentum ended the week quite overbought. Thus far the uptrend, as noted above, looks like a series of ABC’s rather than 5′s. The uptrend has unfolded in three waves: 1267-1363 (96 points), and 1309-1375 (66 points). Oddly enough, this uptrend is now also forming an upward rising channel, which is posted on the SPX daily and hourly charts.

The significance of this channel is threefold. Should the SPX break through the upper trendline, this uptrend could still advance in what was expected to be a Major wave 3. Should the SPX remain within the channel, the uptrend could make a higher high. Should the SPX break below the lower trendline, it is quite probable the uptrend ended as a corrective ABC at SPX 1375. Thus far this uptrend looks more like a day traders market, than an investors buy and hold market. With friday’s close just a bit more than 1% below the uptrend high it may be a good time to do some hedging.

Short term support is at SPX 1342/47, 1334/38 and 1324/27. Overhead resistance is at the 1363, 1372 and 1386 pivots. Short term momentum ended the week quite overbought, and a pullback can now occur at any time. The short term OEW charts swung positive again with the rally over the SPX 1346 swing point. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly lower on the week for a net loss of 1.9%. All but China remain in uptrends.

The European markets were mostly higher on the week for a net gain of 0.3%. All indices remain in uptrends.

The Commodity equity group were mixed for a net loss of 0.8%. All but Brazil are in uptrends.

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

COMMODITIES

Bonds have not confirmed a downtrend yet and continue to drift higher gaining 0.1% on the week.

Crude remains in an uptrend gaining 3.2% on the week.

Gold is in a choppy uptrend and added 0.2% on the week.

The USD continues to uptrend, but was relatively flat on the week.

NEXT WEEK

A full calendar ahead for the week. On monday Retail sales and the NY FED at 8:30, then Business inventories at 10:00. Tuesday, we have the CPI, Industrial production and the NAHB housing index. Wednesday, Housing starts, Building permits and the FED’s beige book. Then on thursday, weekly Jobless claims, Existing home sales, the Philly FED and Leading indicators. On tuesday and wednesday FED chairman Bernanke testifies before the Senate and House, respectively, on the semiannual monetary policy report. Best to your weekend and week!

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Copyright © 2012 Tony Caldaro - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

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