REVIEW Interesting week. Market rallies early, sells off mid-week, then rallies to close out the week with good gains. Economic reports were mixed: ISM manufacturing and services, plus pending home sales rose; weekly and monthly employment figures, plus auto sales declined further. There are some signs of increased risk taking as short and long term rates are rising, techs continue to uptrend from their November lows, and 67% of the key stocks we follow are in uptrends. For the week the SPX/DOW were +4.4%, and the NDX/NAZ rose 8.0%. Bonds were -0.7%, Crude -3.6%, Gold -1.5% and the Euro +0.9%. LONG TERM: bear market At the onset of this bear market we anticipated it to be a multi-year affair consisting of three Primary waves abc. Each Primary wave would unfold in a series of three Major waves, with each of these Major waves subdividing into Intermediate waves. At the conclusion of Primary wave A, a strong 50% retracement rally would unfold to complete Primary wave B. Then another series of abc's would take the market into its final lows and complete Primary wave C. In tracking this bear market, now in its 16th month, we have maintained two OEW counts; the SPX count as described above, and a slightly different alternate DOW count. Near the November 2008 lows, the SPX count suggested that Primary wave A concluded, and the 50% retracement Primary wave B rally was underway. The SPX did rally from 741 to 944 (27%) into early January, but then weakened into mid-January creating a trend reversal. When this occurred it increased the probability for the alternate DOW count, which suggests that Primary wave A needs one more new low to conclude. These charts are posted in the chart link below. While both the SPX and DOW were in confirmed downtrends, the NDX and NAZ were maintaining their uptrends from November. Since it would be unlikely that the SPX/DOW would make new bear market lows without the NDX/NAZ in downtrends. The Primary wave B scenario remained intact, as long as, the NDX/NAZ continued to support the general market. The key price level we have been observing since October has been the pivot at SPX 848. It has been an important pivot in determining the general sentiment of the market. It is quite apparent once you review the daily price action since October 2008. When the market is trading above SPX 848 it's in a postive mode, and below, a negative. The market rallied and closed above 848 on friday. As long as the SPX remains above this pivot the Primary wave B scenario is preferred. MEDIUM TERM: downtrend, but rallying After the SPX topped at 944 on January 6th, it sold off to 804 by Jan 20th. This selloff created a trend reversal and both the SPX/DOW, along with several other indices entered downtrends. Several other important indices, however, failed to confirm a new downtrend, i.e. NDX, NAZ, R2K, SOX and WLSH. While the banks (KBE) and Financials (XLF) were pressuring the general market, these other indices were supporting it. This week the NDX/NAZ took over the leadership and they rallied nearly every day, as their leaders AAPL, GOOG and RIMM were making new highs for their respective uptrends. Also, Goldman Sachs (GS) a leading bank holding company, quickly reversed its downtrend and is also currently uptrending. This is a positive sign for the financials and banking stocks. Should these stock leaders, and the Tech indices continue their upside momentum. They may pull the SPX/DOW out of their downtrends into a new uptrend, and our Primary wave B target of SPX 1100+ may be reached in the months ahead. Naturally, the SPX needs to hold the 848 pivot as support, it closed at 869 on friday. SHORT TERM Support for the SPX is at 848 and then 789, with resistance at 912 and then 935. Short term momentum is quite overbought. Expecting two market events to be announced either this weekend or early next week. First the Presidents $900 bln stimulus 2.0 package, and second the Treasury's $500 bln bank bailout 2.0 package. Yes, the original 1.0 stimulus and bank bailout plans were completed only last year under the Bush administration. And, if these do not work, the government will pour more money down the drain later this year. The main problems with the economy are credit and consumption. Banks have contracted credit despite a ballooning $800 bln in excess reserves: http://research.stlouisfed.org/fred2/series/EXCRESNS?cid=123. Consumers have contracted consumption because of the nationwide collapse in the housing market, their greatest asset, and fear of job loss. Yet, the housing issue still remains unaddressed by the government. A doctor does not cure a patient by treating the symptoms, but by addressing the cause of the symptoms. Until the housing issue is addressed, and prices stabilize. This continuous transfer of debt-money from the public sector to the private sector is only making matters worse. Now, and for future generations. FOREIGN MARKETS The Asian markets are mostly in downtrends as they gained 2.0% on the week. The only exception is China's SSEC. The European markets are mixed, with the DAX in a downtrend and the FTSE in an uptrend. They gained about 5.2% on the week. The Commodity equity markets are still in uptrends, as they gained 6.2% on the week. COMMODITIES Bonds are getting close to our target as they continue to downtrend, losing 0.7% on the week. Crude remains in its downtrend and may need to retest the lows, -3.6% on the week. Gold (-1.5%) appears to have completed five waves up from the October lows. Unless it extends, it's due for a correction. Currencies remain in their respective trends USD up, EUR down. The Euro gained 0.9% on the week. NEXT WEEK As noted earlier we may get some news on the new bailout plans. Otherwise, tuesday starts the week with wholesale Inventories. Then wednesday we have the Deficit twins of trade and budget. Thursday, the weekly Jobless claims, Retail sales and Inventories. Then friday, another Consumer sentment reading. The FED week starts with Bernanke on tuesday addressing Congress, and then a speech from FED governor Duke on wednesday in NYC. Best to your week!
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