capitulation not yet, page-9

another weekend read.

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28 June
weekend update
REVIEW
Stocks slumped for the second week in a row, SPX/DOW -3.6% vs. -3.5% last week. The DOW was the first major index to make new bear market lows, now -19% from the October 2007 high. Yet, under the radar, the KBE banking index has now fully retraced its entire 2002-2007 bull market. The NDX/NAZ dropped 3.8% as some started to realize that techs are cyclical too. Bonds gained 1.2%, Crude rallied 3.6%, Gold confirmed a new uptrend +3.1%, and the Euro gained 1.2%. Crude, the CRB (2.0%) and CCI all made new all time highs. Economic reports continued flat to negative, and housing was reported down 15.3% year over year. The FED remained on hold.
LONG TERM: bear market
For a comprehensive review of the entire stock market from 1932 to present, please refer to last weeks weekend update. After the five year bull market topped in October 2007 at SPX 1576, the market declined in a series of waves into the March low at 1257. These waves all took one month each (Nov-Dec-Jan-Feb-Mar). A two month rally followed into a May high at 1440. After spending just two hours at that level the next wave (downtrend) began. We have labeled the Jan low as the orthodox OEW low Major wave A, and the May high as the end of Major wave B. An alternate count on the DOW charts, uses the actual March price low as a 5 wave Major wave A decline, then the May high again as Major wave B. Should the market follow the same pattern during Major wave C. We should expect another series of waves down (Jun-July-Aug-Sept-Oct). Upon completion this would terminate Primary wave A, of a potential five year Primary ABC, or Cycle wave [2], bear market. Our eventual target for the end of Primary wave A is just below SPX 1100. Upon conclusion of Primary wave A, an explosive counter-trend bullish like rally should occur, retracing as much as 61.8% of Primary wave A. Certainly a buying opportunity! For now, we will just continue to track Major wave C, which was confirmed by the DOW making new bear market lows this week. And when the waves and the technicals set up, a few months from now, we'll turn bullish for that rally.
MEDIUM TERM: downtrend continues
From the SPX 1440 Major wave B high the first downtrend has been underway for about six weeks now. Many negative technical signals were displayed at the high. This downtrend appears to be unfolding in five waves, similar to the first two downtrends in the bear market, which bottomed in Nov (170 pts) and Jan (250 pts). The current downtrend reached 168 points at friday's lows. So you can see that it is similar in length to the Nov wave, thus far. Counting from the high Minor wave 1 was 67 pts at 1373 in late May, and Minor wave 3 was 75 points at 1331 mid-June. Therefore Minor wave 5, to complete this downtrend, can be any length. Since Minor wave 4 ended at 1367, it has already reached 95 pts in length, longer than either waves 1 or 3. If we now take the total move of waves 1 thru 3, we find the length was 109 pts (1440 - 1331). Subtracting 109 points from 1367 provides the next fibonacci target of 1258. The SPX closed at 1278 on friday. When the SPX hit 1440 in May it topped right at our OEW 1438 long term pivot. Now if the downtrend bottoms near 1258, it will have also stopped at an OEW pivot 1261. The daily RSI/MACD indicators are close to downtrend low readings, as is the weekly RSI. If 1261 fails to hold next week, 1240 is the next support pivot.
SHORT TERM
Support for the SPX is at 1261 and then 1240, with resistance at 1287 and then 1316. Short term momentum is oversold, and the near term indicators are the most oversold they have been during this entire downtrend. From the Minor wave 4 high at 1367 we count two minute waves: Minute i at 1304 and Minute ii at 1334. Minute wave iii has already reached 1272 (64 pts), as compared to Minute wave i (63 pts). Minute wave iii came within 2 pts of the Jan 1270 low, a psychological support level. When Minute iii ends we should experience a quick 30+ point rally. The rallies during this downtrend have been 33, 38 and 32 respectively. Then minute wave v should complete Minor wave 5 and end the downtrend. Should the SPX set up holding above the Mar 1257 low, this would place a positve divergence between the SPX and the DOW. A similar positive divergence in March kicked off an uptrend. We would then expect an uptrend retracement back to SPX 1344 - 1364 before the next downtrend took out all the lows and closed in on 1100. Best to your trading!
FOREIGN MARKETS
The Asian markets are all in downtrends, as India's BSE and China's SSEC have made new lows.
The European markets are still in downtrends, following the western markets, and a nearing new bear market lows.
The Commodity markets are still mixed with Canada's TSX in an uptrend, and Brazil's BVSP in a downtrend. Expecting both to make new highs when the worldwide downtrends reverse.
COMMODITIES
Bonds, the 10YR rate has declined from 4.32% to 3.99% as stocks have dropped. When stocks bottom rates should resume their climb.
Crude made another new high this week trading over $140 as its bull market uptrend continues.
Gold certainly came alive after the FED failed to take any action at their FOMC meeting. It is now uptrending again in its bull market.
The Euro gained 1.2% this week and is close to starting another uptrend, not good for the USD medium term, nor long term.
NEXT WEEK
End of month and the end of Q2 occur on monday. The Chicago PMI is released on monday just after the open. On tuesday June ISM manufacturing and Construction spending, then ADP employment and Factory orders on wednesday, followed by June non-farm payrolls and ISM services on thursday. Friday is a national holiday in the US. The only FED speech on the calendar is FED governor Mishkin on wednesday in Israel. Best to your week!