REVIEW: The big economic event this week was not the free checks from the government, but the January ISM services report on tuesday. The report suggests that the largest part of the economy, services, took the steepest month to month drop (54.4% to 41.9%), and registered its lowest reading since the last recession. Stocks tumbled on the news. For the week the SPX/DOW lost 4.50%, and the NDX/NAZ dropped 4.45%. By thursday, however, the SPX hit an important support level at 1316, and held that level on friday as well. As reported last week, the cyclical sectors: housing, financials, banks, consumer discretionary and the transports all rallied from extreme oversold levels. Now if the oversold Tech sector can rally from its lows, the market could get another leg up from the SPX 1270 low posted in mid-January. LONG TERM: bear market At the 2000 Supercycle bull market blowoff top we anticipated what the next decade should look like, based upon historical references. Quite remarkably, the scenario has unfolded as expected. Since the 1987-2000 bull market in OEW terms, was even longer than the 1921-1929 blowoff top of the last Supercycle. We were convinced that the Supercycle ended, and a nasty three year bear market would follow. That bear market ended in October 2002, after 34 months. Then we expected a five year bull market, to kick off the next Supercycle. That bull market ended a few months ago lasting exactly five years, 60 months. Next we expected a five year bear market in OEW terms. Where the first leg down would be swift, lasting about one year. Then a bull market looking uptrend would follow, for also one year. Only to be followed by a longer three year bear market. This five year scenario, of course, has yet to unfold. The bear market just started four months ago. When reviewing the 2000-2002 bear market in detail. We labeled the entire bear market as a triple zigzag (abc-x-abc-x-abc). Since the first leg down in this bear market should not be as steep or as long, only one year. We anticipate that it will take the form of a double zigzag (abc-x-abc). Thus far, only the first two waves (ab ...) have been confirmed as completed trends. Each quantified trend, in OEW terms, is an actual significant wave. This is the main difference between EW and OEW: all significant waves are quantified waves. In other words, one just can't put a label on any wave because it looks right. It has to be right! Following the double zigzag scenario (abc-x-abc). It is possible, but as of yet unconfirmed, the first zigzag bottomed at SPX 1270. If the market can rally in the coming weeks, then it would be confirmed, and this rally from the 1270 low would be the 'x' wave. Then another 'abc' zigzag should follow, taking the SPX to its low for this part of the bear market: SPX 1100. After that, a one year bull market looking advance should follow. The market will not make new highs, but should retrace a major portion of this entire decline. This is our roadmap for the next two years. A chart generally displaying this scenario is posted in the photo section. MEDIUM TERM: As mentioned last week. Currently there are several cyclical sectors in uptrends, yet none of the major indices have confirmed an uptrend from the SPX 1270 low. In order for the rally from SPX 1270 to be a significant wave, and not just part of the decline from the B wave high at SPX 1524. An OEW uptrend confirmation has to occur. Thus far, the rally from that low was 126 points (1270-1396), and the selloff this week was 79 points (1396-1317). This selloff found support at our EW 1316 pivot point, and it also represents a fibonacci 61.8% retracement of that rally. Certainly that should be good support. Some short term technical indicators were quite oversold at that level as well, and have barely budged since. If the 1316 pivot holds, the market should rally to at least 1364 and possibly higher. In bear markets traders react to news and technical indicators. As has been demonstrated for the past four months. Starting wednesday with retail sales, then Bernanke's Senate appearance on thursday, and finally options expiration on friday. Any positive news, out of these events, could certainly help the market to rally. SHORT TERM: Support for the SPX remains at 1327 and then 1316, with resistance at 1344 and then 1364. Short term momentum put in a positive RSI divergence at the 1316 low, just like it did at the 1270 low last month. Thus far, from that low it has just vacillated in the neutral zone as the market has tried to consolidate. This activity looks similar to the wave 2 activity just after that mid-December low. That low also bottomed with a reading of -10 on the MACD. If the SPX can take out 1347, the reaction high on thursday, the rally should be well on its way. If your trading, the 1316 pivot makes for a good stop. If your investing, any decent rally provides an opportunity to lighten up positions before the next major leg down. FOREIGN MARKETS: The Asian markets, that were open all week, did not do as badly as the US: declines ranged from 2.7% to 4.3%. The SSEC and HSI have been closed since mid-week for the lunar new year. Yet, all their chart patterns look very similar to the chart patterns in the western world. The European markets reacted to the US market with sharp drops tuesday - thursday, and then a slight bounce on friday as well. COMMODITIES: BONDS spent the week in a two point trading range, while short term rates continued to decline. The 1YR is currently at 2.05%, with fed funds at 3.0%. CRUDE remained in a downtrend, but spiked on friday's announcement of a $12 bln dispute between Exxon and Venezuela. GOLD gained a bit of ground in its now eight month uptrend, as it has gained nearly 50% from the June 2007 low. The EURO/USD continued their divergences: EURO made new highs, while the USD failed to make new lows. And have now reversed medium term trends. After the past few months of consolidating, possibly the long term trends in these two currencies is in the process of reversing. Best to your weekend and week!
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