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weekend update
Sep 07, 2008

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Tony

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REVIEW
Investors greeted the first week of September by selling Tech, Commodities and eventually the general market. The only markets that escaped selling were the USD and Bonds. Economic reports were mixed, both ISM's reported slightly positive results, auto and retail sales were lower, and unemployment hit a 5 year high at 6.1%. For the week the SPX/DOW were -3.00%, and the NDX/NAZ were -5.15%. Bond rates declined 15 bps, Crude dropped 6.7%, Gold -3.8%, the CRB -6.1%, and the Euro lost 3.0%. Many new downtrends were confirmed in the various equity indices, both in the US and abroad.

LONG TERM: bear market
The bear market in equities continues to track our 2008 projection. The chart is posted in the photo section, upper right corner of webpage. We anticipated that the first decline in this multi-year bear market would take about one year. The decline would be labeled Primary wave A, and would consist of three Major waves labeled ABC. Each Major wave would also subdivide into three Intermediates waves. Upon completion of Primary Wave A, possibly in October 2008, a strong counter-trend bear market rally would follow into 2009. We also included some general price projections based upon the OEW pivots. Reviewing the market since the October 2007 bull market high, this projection continues unfold as expected. Major wave A took the form of three Intermediate waves and bottomed in January at SPX 1270. Major wave B was a bit more complex than expected, but was also three Intermediate waves and topped in May at SPX 1440. This complexity can often occur during bear market rallies. Major wave C is also taking the form of three Intermediate waves. Intermediate wave A completed in July at SPX 1200; Intermediate wave B completed in August at SPX 1313; and the last downtrend (Intermediate wave C), before the anticipated Primary wave A bottom, was just confirmed this week. Our expectation, all along, has been that Primary wave A would end somewhere near the Primary wave IV low of 2004 at SPX 1061. Bear markets that follow bull markets with extended fifth waves, usually retrace back to the Previous fourth wave. It is also important to observe that a fibonacci 61.8% retracement of the entire 2002-2007 bull market occurs at SPX 1077. Therefore these two levels, SPX 1061 and 1077, would appear to be of significant technical importance. If the current Intermediate wave C equals the recent Intermediate wave A (240 points), then it should bottom at 1313 minus 240 = SPX 1073. And this falls right in the middle of that important technical range.
MEDIUM TERM: downtrend from SPX 1313 high
After Intermediate wave A bottomed at SPX 1200 in mid-July, the market rallied in an abc pattern to SPX 1313 by mid-August. When it failed to generate any more upside progress, and negative divergences started to appear. We anticipated that the uptrend had topped or was nearing a top, and a break below the SPX 1261 pivot would confirm, short term, that the uptrend had concluded. The following week the market pulled back to 1261 and then rallied. The next week it did exactly the same thing. On tuesday, this second rally ended at SPX 1303 and again the market pulled back. This time, however, it broke through the SPX 1261 support pivot and confirmed a new downtrend. The selling continued, unabated, into friday morning when the monthly jobs report was released. At 11:30 the market made an extremely oversold low at SPX 1217, and then rallied into the close. This initial decline of the new downtrend, wave one, from SPX 1303-1217 (86 points) is similar to most of the initial declines during downtrends of this bear market. Typically, the bounce off the wave one low, or wave two, retraces more than half of the entire decline. This would suggest a rally back to the 1261 pivot, or possibly the 1287 pivot, before the downtrend resumes. In example, wave one of the November downtrend was 86 points, with a 62 point retracement. Wave one of the January downtrend was 88 points, with a 63 point retracement. Lastly, wave one of the July downtrend was 67 points, with a 33 point retracement. The strength of the retracement is dependent upon how quickly the market gets overbought, and of course the economic news. Speaking of which. We may get an announcement from the Treasury/FED on sunday in regard to the FNM/FRE funding.
SHORT TERM
Support for the SPX is at 1240 and then 1219, with resistance at 1261 and then 1287. Short term momentum was extremely oversold at fridays lows, suggesting the end of wave 1 of the downtrend. The near term indicators were the most oversold they have been since March, suggesting the same scenario. Short term momentum rallied back above neutral during the day. Yet, near term momentum is still below neutral. Expecting the latter to get overbought when wave 2 ends. So early in the week we should expect a short term rally back to the breakdown pivot 1261, or possibly higher. Then the downtrend should resume.
FOREIGN MARKETS
The Asian markets have remained weaker than the western markets, and most are in confirmed downtrends.
The Europe markets confimred new downtrends this week as well.
The Commodity markets failed to sustain any sort of uptrend recently, and their downtrends continue.
COMMODITIES
Bonds are certainly being helped by the rally in the USD. Rates have declined from 4.32% in June to 3.66% on friday. Divergences are now in place for a trend reversal in rates and Bond prices.
Crude continues under selling pressure as OPEC meets this tuesday. Might need a cutback in production to halt this selling wave.
Gold continues under pressure as well, but has held recently against the USD and Crude. It's as oversold as it has been since 2001. 
The Euro remains under pressure as the USD extends its uptrend. Divergences appearing here as well.
NEXT WEEK
The week probably starts on sunday with an announcement from the Treasury/FED. Monday consumer credit will be announced at 3:00. Tuesday July pending home sales and wholesale inventories. Then thursday, the weekly unemployment report and the twin deficits trade/budget. Friday is retail sales and the PPI. As for the FED one speech on the agenda, FED chairman Bernanke tuesday at 9:00. And one panel discussion with vice chairman Kohn on thursday at 2:45. Best to your week!
CHARTS: http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987 

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