fwiw.....while this weekly update is now out of date, it does include a long range forecast which i thought was interesting (ie it fits in nicely with my understanding of armstrong's economic cycles).
19 January weekend update REVIEW: It was a disturbing week for most of us. The markets tumbled. The FED talked like it knew what was needed and did nothing. The administration spinned another tale of bailing out this, and fixing that, and came up with some temporary relief tax package. When a patient has a headache you give it an aspirin. When the patient is hemorrhaging, aspirin and talking is not going to help. For the week the SPX/DOW lost 4.7%, and the NDX/NAZ dropped 3.9%. Even the foreign indices lost ground; FTSE -4.8%, DAX -5.3%, ASX -4.2%, BSE -8.7%, HSI -6.2%, and the SSEC -5.6%. Monday we get a reprieve, the US market is closed for a holiday. LONG TERM: bearish For five years we have been tracking the bull market wave after wave, uptrend after downtrend. When it started, it was anticipated to be a five year advance with simple first and third waves, and an extended fifth wave. The October 2002 low was significant, it had ended a Supercycle bear market, similar to 1929-1932. The bull market commenced after 90% of the stocks were trading below their 200 day moving average. Something to remember in the future. Primary wave one was simple, and so was Primary wave three, as expected. When Primary wave four ended in August 2004, an extended Primary wave five was anticipated. Bearishness was rampant but we kept to the waves, and the scenario. In January 2006, a few months after we started the blog, I wrote the lessons for OEW. In lesson 7, the fibonacci relationships of the previous waves projected a potential target of SPX 1576. In August 2006, we posted a chart of the SPX (still in the photo section), projecting the likely scenario for the waves remaining in the bull market. This projection anticipated a top above SPX 1553. We had it right and got it wrong! Everything we anticipated occurred with one exception, the MMI failed to reach a significantly oversold level at the August 2007 lows. The MMI indicator had worked perfectly for over 25 years. It failed to work this time! Everything else fell into place as it should have, except Tony and his MMI. We had it nailed and I blew it, sorry. As a result the MMI is now just another indicator in the OEW arsenal, and the waves alone are paramount. As it should be, I suppose. Markets change and indicators come and go, but the waves continue to unfold. WHAT'S NEXT: Bull and bear markets have something in common. The long term trend is unidirectional. In bull markets one buys the dips, in bear markets one sells the rallies. At mid-week the long term waves confirmed a bull market reversal, and that a bear market has been underway. The economy may be in a recession, go into a recession, or may not even enter a recession. A bear market doesn't care about an economy, it only cares about liquidating excesses. Bull markets are fully retraced only when that particular long term wave was the end of an even larger structure. This one is not, it is the beginning of a Supercycle, from the 2000-2002 Supercycle low. Therefore it will unlikely be fully retraced. Bull markets also provide many details for potential scenarios in a bear market. Staying with the supercycle theme, and referencing: the last supercycle (1932-2000); the wave structure of this bull market; wave structures of other important bear markets; and current fibonacci relationships. We come up with a potential bear market scenario that has the highest probability of all the others. This bear market should take five years to unfold. A Primary wave A down in 2008, a Primary B wave up (that will look like a new bull market) into 2009, and then a gradual deteroriation for three years into a lower low in 2012. This first leg down is obviously sharp and swift, should unfold as an ABC, and find support near Primary wave IV: SPX 1061. This level also represents a fibonacci 61.8% retracement of the entire bull market. Posting a chart below illustrating the first two parts of this scenario, and applying the EW pivot points which have worked quite well. This is a potential roadmap, and not the only roadmap. News and events can alter the turning points, as they usually do. In general, this market is only about halfway done with its first Primary wave decline. Will post this chart in the photo section and update it from time to time as the bear market unfolds. MEDIUM TERM: indices still downtrending All of the US indices have been downtrending since the December highs. Many have already wiped out all of their gains for 2007. This is typical bear market activity. Eventually, during 2008, all of the gains for 2005 and 2006 should be wiped out as well. Bear markets can liquidate quite rapidly. Examining the market from the top at SPX 1576. The first wave down to 1406 took one month, the subsequent rally to 1524 took one month also. Now this next downtrend is also a month old and has already reached 1313. SPX 1316 is an important EW pivot that was established during the last bear market, and played an important part in this bull market as well. Expecting it to provide some significant support. During bull markets the weekly MACD generally stays in positive territory, but enters negative territory for the entire bear market. On a daily basis, the MACD tends to reach certain oversold levels, or potential sold out conditions during downtrends. On friday the market reached one of those levels (-30%). Should the market hold here, I would expect a sharp rally back to SPX 1438 in the coming weeks, as noted on the chart below. It is likely that we will not see that level again for quite some time. Our standard bull market technical tools are displaying a positive RSI divergence on the daily charts, and the most oversold condition on the weekly charts since 2002. Technicals and EW pivots suggest the market should bottom soon, and start an uptrend. SHORT TERM: After reviewing the activity from the SPX 1576 high. The first wave down does look like 5 waves, and this wave down looks like 5 waves as well. This sets up a classic abc zigzag formation (5-3-5) as noted on the hourly charts. Supporting this scenario is the information provided above, and the positive RSI divergence on the hourly charts, as well as, the extreme oversold condtion of the MACD. Also, reviewing the hourly chart: wave 1 = 90, wave 3 = 120 and wave 5 is nearly equal to wave 3. It's certainly symmetrical, and holidays are often turning points for trends. FOREIGN MARKETS: The Asian markets medium term are generally in downtrends, with the exception being China's SSEC. Each market is displaying its own particular potential. Australia's ASX certainly appears to have topped, but has not confirmed a bear market yet. India's BSE doesn't look as bad, but has potentially topped as well. Japan's NIKK has been in a bear market since 1989, with bear market rallies such as the one just experienced. Hong Kong's HSI and China's SSEC offer alternatives to this worldwide bearish scenario. China's SSEC started its bull market later than the others in mid-2005. In 2000, when most of the world's markets topped, the SSEC kept rising for another year into 2001. An economy that grows at 10% a year doesn't slowdown that quickly. Hong Kong may be able to continue to benefit from China's growth. Both markets appear to have incomplete waves patterns. While all the others do not. The European markets have been quite disappointing. England's FTSE displays a July top, a sharp selloff, and then a weak rally into the October high. If that was indeed the top, which is nearly confirmed, it was quite weak. Germany's DAX displays even a more bizzare pattern. Following the FTSE it topped in July, soldoff into August, and then displayed a rather quite strange pattern into the November high. The DAX may not be done with its bull market yet. Until the waves clear, posting a 'green' temporary end of Primary wave V. COMMODITIES: Bonds continue to be the best beneficiary of a credit contraction, and economic slowdown. Their recent uptrend continues, as rates keep falling. Crude made a run at $100 in November, failed, and then poked over it in the first week of the month. But has turned lower since. Gold continues in its very strong uptrend, now seven months old. Currently displaying a negative RSI divergence on the weekly charts. The Euro/USD continue their cross-currents. The Euro recently made a new high, but the USD failed to make a new low. The long term trend may be changing soon. Best to your extended weekend! CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987
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