Stock Market Uptrend Continues

By: Tony_Caldaro

After the July 4th holiday the market seemed to struggle this week. Tuesday and wednesday were about flat. Then thursday gapped up ending with a new uptrend high, and friday gapped down giving all of thursday’s gains back before a rally into the close. The economic news seemed to reflect the market action ending with 4 positive reports and 5 negative. On the positive side: factory orders swung back into the black, the ADP index was up nicely, wholesale inventories improved, as did the weekly jobless claims.

On the negative side: ISM services, consumer credit, the WLEI and the payrolls report declined, while the unemployment rate ticked up to 9.2%. For the week the SPX/DOW were +0.45%, and the NDX/NAZ were +1.75%. Asian markets gained 1.5%, European markets lost 2.0%, the Commodity equity group lost 0.5%, and the DJ World index gained 0.1%. Next week looks like a thriller, highlighted by: the Twin deficits, FOMC minutes, Retail sales, Industrial production and friday’s Options expiration.

LONG TERM: bull market

This week the market rallied to within 1% of the bull market high, which happens to be over 100% above the bear market low, and some are still calling this a bear market rally. Bull markets climb a wall of worry, while bear markets slide down the slope of hope. The stock market has been climbing higher for over two years now. The wall of worry seems to appear in the first half of the year, and then magically disappears in the second half. We are in the second half of the year now.

Technically the market continues to look good. We did get unusually oversold recently in the weekly RSI, but the MACD stayed well above neutral and turned up this week. The OEW wave count cleared up a bit with the confirmation of the current uptrend. After a simple five Major wave Primary wave I, and a three month 17% correction Primary II. Primary wave III has gone into its customary extension/subdivision mode. Major wave 1 was quite strong: up 33% in seven months. Then a mild 7% correction for Major wave 2. After that a somewhat tricky subdivision for Major wave 3: Intermediate waves i and ii. This uptrend should now be Intermediate wave iii of Major 3 of Primary III. Thus far we have had an 8% rally off the June 16th SPX 1258 low. We continue to anticipate a bull market top, around the previous all time highs, in 2012.

MEDIUM TERM: uptrend high SPX 1356

After a sluggish beginning from the SPX 1258 low: Minor 1 1299, and Minor 2 1263; Minor wave 3 exploded to the upside. This week it hit SPX 1356, just two weeks after the Minor 2 low. Market momentum remained extremely overbought for about a week before dropping to neutral, and then oversold this week.

We have been tracking some projections we have made for this uptrend. First, we expected some resistance in the 1339-1344 area. Second, a Minor wave 3 to top around the OEW 1371 pivot. Third, the uptrend high would reach the OEW 1440 pivot by September. Thus far, the market did run into resistance at SPX 1341 and pulled back. However, friday’s larger pullback from SPX 1356 was somewhat unexpected. After the reviewing both the SPX and DOW short term charts we feel Minor wave 3 may still be unfolding. Our Minor wave 3 target may still be possible. We posted this count on the SPX hourly chart, and an alternate, (Minor wave 3 top), on the DOW hourly chart. The timeframe for the hourly charts have been shortened for easier tracking of Intermediate wave iii.

SHORT TERM

Support for the SPX remains at 1313 and 1303, with resistance at 1363 and then 1372. Short term momentum just touched slightly oversold and has risen past neutral. The count we are tracking is as follows: Minor 1 SPX 1299 and Minor 2 SPX 1263. Minor wave 3 then divides as follows: Minute i SPX 1284, Minute ii SPX 1267, Minute iii SPX 1356, Minute iv possibly ended at SPX 1334, and Minute v may be underway now.

Should this be the market’s count Minute v, (Minor 3), would end in the OEW 1371 pivot range. Then a similar 20+ point pullback like we just experienced for Minor 4. After that a rally to the OEW 1440 pivot range for Minor wave 5 to end Intermediate wave iii. This is just a potential roadmap.

FOREIGN MARKETS

Asian markets were all higher on the week gaining 1.5%, and three of the five are in confirmed uptrends.

European markets were mostly lower on the week losing 2.0%. Here three of the five are in confirmed uptrends too.

The Commodity equity sector was mixed on the week for a loss of 0.5%. Only one of three indices are in a confirmed uptrend.

The DJ World index is uptrending and gained 0.1% on the week.

COMMODITIES

Bonds are downtrending, but had a big rally on friday for a net weekly gain of 1.4%.

Crude has yet to confirm an uptrend but gained 3.6% on the week.

Gold is still in a downtrend and has been a bit tricky of late: up 4.0% on the week.

The USD is still uptrending and gained 2.0% on the week.

NEXT WEEK

This week could be a thriller. Lots and lots of economic data and options expiration as well. On tuesday, the Trade deficit is released. Then on wednesday, Export/Import prices, the Budget deficit, and the FOMC minutes. On thursday, weekly Jobless claims, Retail sales, the PPI and Business inventories. Then on friday, Options expiration, the CPI the NY FED, Industrial production and Consumer sentiment. As for the FED. FED chairman Bernanke gives his semi-annual monetary policy testimony to Congress on wednesday, and then the Senate on thursday. Best to your weekend and week!

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After about 40 years of investing in the markets one learns that the markets are constantly changing, not only in price, but in what drives the markets. In the 1960s, the Nifty Fifty were the leaders of the stock market. In the 1970s, stock selection using Technical Analysis was important, as the market stayed with a trading range for the entire decade. In the 1980s, the market finally broke out of it doldrums, as the DOW broke through 1100 in 1982, and launched the greatest bull market on record. 

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Copyright © 2011 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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