By: Tony_Caldaro
What started off as a promising week for the equity markets ends mixed in the
US: SPX/DOW -0.3%, and the NDX/NAZ +0.2%. In between, the market gapped up
monday morning from friday’s SPX 1177 close. Then hit SPX 1231 on wednesday only
to gap down friday ending the week at SPX 1174. Economic reports continued to be
slanted to the downside. On the upswing: personal income/spending, PCE prices,
the Case-Shiller index, factory orders, auto sales, the m1-multiplier, and
jobless claims improved. On the downswing: pending home sales, construction
spending the Chicago PMI, ISM manufacturing, the ADP index, monthly Payrolls,
the monetary base, the WLEI, and consumer confidence plunged. Asian markets
gained 1.9%, European markets gained 1.7%, the Commodity equity group gained
3.7%, and the DJ World index rose 1.6%. Next week we have the FED’s Beige book,
ISM services, and Consumer credit.
BIG PICTURE: Secular bear cycle
Let’s look at the big picture, and put the process of getting there aside for
the moment.
We last published this chart in this piece, which was more about cycles in
humanity and politics than markets:
http://caldaro.wordpress.com/2010/11/04/politics-and-secular-bullbear-markets/.
The Saeculum turnings are described in the article. What is important now is the
Secular bull/bear markets. Notice the two boxed areas are 18 year Secular bull
markets. The next one is on the way, but we are not there yet. The three other
time periods are with choppy sideways activity: 1929-1949 (excluding the GSC
crash), 1967-1982 and 2000-2016(?). These are three Secular bear markets
alternating between deflationary forces (1929) to inflationary forces (1967),
and then back to deflation (2000). Wonder why Bond rates are so low? We’ve been
in a deflationary environment for over a decade now.
The typical Secular bear cycle unfolds as follows. The cycle begins at a
preliminary peak, i.e. 1967 and 2000. A bear market follows: i.e., the 1967-1970
Nifty 50 collapse and the 2000-2002 Nasdaq 100 collapse. The market then hits
its primary peak approaching the midpoint of the cycle, (all time high), i.e.
1973 and 2007. A nasty bear market follows creating the actual price low of the
cycle, i.e. 1973-1974 and 2007-2009. A short lived bull market then follows,
i.e. 1974-1976 and 2009-2011. Finally the market enters another bear market to
end the Secular bear cycle. We have entered that bear market now.
We omitted comparison to the 1929-1949 Secular bear cycle for two reasons.
First, the collapse between 1929 and 1932 was on a Grand Supercycle scale. The
market lost 89% of its value in just those three years. Events like that only
come along about every 200 years. The 2007-2009 bear market, for example, was of
a Supercycle degree as the market lost 58% of its value. It was certainly the
largest bear market since 1929, but not of the same degree. The second reason
was, the normal 16 year bear cycle was extended 4 years by World War II.
However, even that bear cycle matched up with the 13 year commodity bull
cycle.
Commodity bull markets only occur during equity bear Secular cycles. The
three commodity bull Secular cycles: 1933-1946, 1967-1980 and 2001-2014(?).
Notice how the previous equity bear cycles ended 2-3 years after the commodity
bull market ended, i.e. 1949 and 1982. This is exactly what we will be looking
for over the next few years to identify the beginning of the new equity 18 year
secular bull market. One could conclude they should be invested in equities
during its Secular bull market. Then wait a year or two and invest in commodites
during their Secular bull market. A year or two later and it’s back to equities.
What do you then do with all the spare time? Help others learn how to help
themselves. In this world it is not what you get that’s important, it’s what you
give.
LONG TERM: bear market highly probable
When we review the wave structure from the March 2009 SPX 667 low we can
count a detailed Primary wave I, then simple Primary waves II – V. Since Primary
wave IV (SPX 1249) did not overlap Primary wave I (SPX 1220) and Primary waves
II and IV alternated in wave structure, we have a clear five wave bull market
peaking at SPX 1371 in May 2011. The price activity since that high confirms
that five waves did complete in May. Even the technicals have switched from bull
market mode to bear market.
Notice how the weekly MACD remained above neutral during the last two bull
markets, then broke into negative territory after the following bear markets
began. Also notice during both bull markets the RSI never got extremely
oversold. But it gets extremely oversold during the bear markets.
Last weekend we posted a chart displaying how oversold this market had
become, even for a bear market, at the recent SPX 1102 low. We then assumed that
SPX 1102 was a significant low, and the market would now enter a two month
counter-trend rally retracing about 50% of the entire decline thus far. The
decline SPX 1371 to 1102 was 269 points. Therefore a 50% retracement would carry
the market to SPX 1237. Surprisingly, the market accomplished that task in only
three weeks when it hit SPX 1231 this wednesday. Don’t be fooled, B wave rallies
can often look like new bull markets.
MEDIUM TERM: downtrend low may have been SPX 1102
We expect the current, highly probable, bear market to unfold in three
Primary waves ABC. The two legs down, A and C, can take the form of five waves
down or three. The B wave will always be three waves up. After careful review of
the technicals we had posted our preferred three wave down count on the SPX
charts, and our alternate count of five waves down on the DOW charts. After this
week’s activity we still feel the SPX count is the preferred count.
The market downtrended from SPX 1371 to 1258 in June, and we labeled that
wave Major wave a. The uptrend that followed to SPX 1356 in July was labeled
Major wave b. The next downtrend, from that high, we anticipated ended in August
at SPX 1121 (orthodox low SPX 1102) and have labeled ‘tentatively’ Primary wave
A (Major wave c). Until we get an OEW uptrend confirmation we can not be
certain. We counted that decline as five waves down, just like Major wave a, but
with a failed fifth wave.
After that low we observed an abc rally to SPX 1231 this wednesday, and then
a decline to 1171 on friday. This decline confirmed its was an abc rally when it
overlapped SPX 1191. This three wave rally we labeled Major wave a of Primary
wave B. Since we have not had an uptrend confirmation yet there is also another
possibility. SPX 1102 may have only ended Intermediate wave iii of Major wave c,
and all the activity up to 1231 was Intermediate wave iv. We have added that
count, in green, on the SPX charts. A decline below SPX 1121 would confirm that
count, and a continuation of the downtrend.
Focusing on the preferred count. With a three month Primary wave A completed
at SPX 1121. We should now observe an abA-B-abC two month Primary wave B. The
recent rally to SPX 1231 fits the abA scenario and we labeled it Major wave A.
The Major wave B pullback part should be underway now. Then, when it completes,
we should get another abc rally to complete Major wave C and Primary wave B. This could occur this month, it’s still a fast market, or next. After Primary
wave B completes we should start the next three wave (trend) structure down. We
did some fibonacci work and this scenario aligns quite nicely with our two
support zones for the bear market: SPX 1011 and SPX 869. When we get more market
data we’ll post that information.
SHORT TERM
Support for the SPX is at 1168 and then 1146, with resistance at 1176 and
then 1187. Short term momentum ended the week extremely oversold. The recent
rally from SPX 1121, Primary A, took the form of an abc (1191-1136-1231). Wave c
was 1.382 times wave a. The total rally was 110 points, and we labeled it Major
A. Normal retracement levels for Major B are 50% (SPX 1176) and 61.8% (SPX
1163). On friday we hit right in between those two levels, which also represent
the 1176 and 1168 pivots. With an extremely oversold short term condition there
is a good chance the market will either bottom here, to complete Major B. Or,
rally and then make a slightly lower low for a positive divergence low. Since
the US market is closed on monday we’ll get a better idea after the foreign
markets close.
The current decline can go all the way down to the OEW 1136 pivot, which was
the previous Intermediate wave A decline and not change the potential Major wave
B scenario. However, if that pivot’s range were to fail then the alternate
Intermediate wave iv high at SPX 1231 would come into play, and the market would
then be in Intermediate wave v of an ongoing downtrend. We’ll keep you posted,
as usual, day by day as this market unfolds. Best to your trading!
FOREIGN MARKETS
The Asian markets were mostly higher for a net gain of 1.8%. No confirmed
uptrends yet.
The European markets were mostly higher for a net gain of 1.7%. Again no
confirmed uptrends yet.
The Commodity equity group were all higher for a net gain of 3.7%. No
confirmed uptrends here either.
The DJ World index gained 1.6%.
COMMODITIES
Bonds rallied to new uptrend highs this week gaining 0.8%. The 10YR yield
closed at 1.996%, and the 30YR is down to 3.31%.
Gold rallied again this week, +3.0%, with all of it on friday’s 3.2% rally.
Silver and Gold are getting very close to extending their uptrends.
Crude gained 1.3% despite a 2.3% decline on friday. It remains trying to
establish an uptrend.
The USD gained 1.3% on the week and is now uptrending. The EUR lost 2.0% on
the week, and the JPY declined 0.6%. We’re looking for a major reversal in the
currencies to be underway soon.
NEXT WEEK
A light economic calendar heading into the holdiay shortened week. On tuesday
ISM services at 10:00. On wednesday the FED’s beige book, then on thursday
weekly Jobless claims, the Trade deficit, and Consumer credit. Friday ends the
week with Wholesale inventories. As for the FED. FED chairman Bernanke gives a
speech on thursday, in Minn. on the US Economic Outlook. With two FED governors
coming out this week for QE 3, this speech could be a market mover. Best to you
and yours this holiday weekend!
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