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weekend update
Jan 03, 2009

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Tony

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REVIEW
The market surges as 2008 closed, and a new hope emerges for 2009. Certainly 2008 will be remembered as one of the worse wealth destruction years in recorded history. In retrospect, we all just experienced a once (or twice) in a lifetime anomaly. Let's hope it's the last. The nasty three month OEW downtrend from SPX 1313 in August, to SPX 741 in November, (a 43.6% decline), bottomed on President-elect Obama's appointment of Geithner to head the Treasury Dept. Since then the SPX has entered an OEW uptrend and rallied 26.2%. The focus remains on the anticipated $1 trln economic stimulous package currently being drafted by the administration-elect. This week consumer sentiment and ISM manufacturing were reported at multi-decade lows, but weekly unemployment claims contracted. Nevertheless the market surged having its best week since late November. The SPX/DOW were +6.5% and the NDX/NAZ gained 6.7%. Europe rallied 7.8%, and Asia gained 3.3%.

LONG TERM: bear market rally
The bear market of October 2007 continues to unfold, but we are now experiencing a rally from extreme oversold levels. This Cyclical bear market should unfold in three waves, an ABC, ending in either late 2009 or early 2010. The first wave down, Primary A, we believe ended at the November lows. Primary wave B should now be underway. In the previous Cyclical bear markets, (1929-1932, 1937-1942 and 1973-1974), after a 50% decline the market then retraced 50% of that loss. In the first two periods the rally took about five months before the bear market resumed. The 50% decline, 50% retracement, and then final low are three Primary waves. Our current Cyclical bear market has declined from SPX 1576 to SPX 741 (a 53% drop). A 50% retracement of this decline, suggests an upside target of about SPX 1160 by spring of this year. The SPX closed at 932 on friday. Our long term OEW pivots suggests a Primary wave B top at either SPX 1107 or SPX 1179, right in line with a 50% retracement scenario. And, we are also observing a strong move upward in overall market breadth. The NYAD has recently had its largest gain since the bear market began. The bear market is not over. It is, however, providing another opportunity to position ones portfolio before the C wave takes hold. The last opportunity was at SPX 1440. For now, the market should continue to rally for the next few months.
MEDIUM TERM: market uptrending
Our main OEW count suggests that Primary wave A ended in November. Primary wave A subdivided into three Major waves: Major A ended in January at SPX 1270, Major wave B ended in May at SPX 1440, and Major wave C ended in November at SPX 741. All three Major waves subdivided into three Intermediate waves. From the Major wave B high at SPX 1440: Intermediate wave A bottomed in July at SPX 1200, Intermediate wave B topped in August at SPX 1313, and then Intermediate wave C ended with the completion of Major wave C and Primary wave A at the November lows. As you can see, the bear market is unfolding in a series of three waves, within three larger waves, within three even larger waves. This is typical of the correctional activity of a bear market. Bull markets, inversely, unfold as a series of five waves within larger five wave structures. Assuming Primary wave A concluded we can now anticipate how Primary wave B should unfold as it works its way to the long term pivots (SPX 1107 and 1179). Our short term wave structure suggests it will unfold in another ABC. From the SPX 741 low we labeled the A wave concluding at SPX 919 in mid-December. This was a gain of 178 points. Then a small pullback to SPX 857 by late December ended wave B. Therefore wave C should now be underway. Applying Fibonacci relationships we arrive at the next three important levels: SPX 967 (wave C = 0.618 wave A), SPX 1035 (wave C = wave A), and SPX 1145 (wave C = 1.618 wave A). The first two levels should offer some resistance, and there are pivots right at these levels: SPX 967 coincides with a 961 pivot, and SPX 1035 coincides with a 1041 pivot. In another view we can apply Fibonacci to the decline of this last downtrend: SPX 1313 to SPX 741. If we use the retracement levels of 0.382, 0.50, 0.618 and 0.707, we arrive at the following targets: SPX 960, SPX 1027, SPX 1094 and SPX 1145. Notice how the SPX 961 and the SPX 1041 pivots come into play in both approaches, and both target SPX 1145. This last level nears the SPX 1160 50% bear market retracement, and fits within the SPX 1107 and 1179 long term pivots. Understandably this analysis is quite technical to most. However it does display that markets do not at all unfold in a series of random events.
SHORT TERM
Support for the SPX is now at 912 and then 848, with resistance at 935 and then 961. Short term momentum was quite overbought at the close on friday. The SPX 912 pivot should now act as support for any pullbacks. The pivot at 961, however, is likely to provide some significant short term resistance. Many of the indices we follow are now in confirmed uptrends, along with just about every one of the stocks we follow. Some of these indices/stocks have been in downtrends for months on end. This certainly supports the Primary wave B scenario. On monday most of the players will have returned from their extended holiday vacations. Be on the alert for volatility.
FOREIGN MARKETS
The European markets are in uptrends and gained 7.8% this week. Expecting them to follow/lead the US uptrend.
The Asian markets were the leaders in this international uptrend: China, Hong Kong and Japan bottomed in October.
The Commodity equity markets also has a good week +10.2%. Brazil has been leading.
COMMODITIES
Bonds topped in mid-December and are now in a confirmed downtrend as expected. This supports a rally in stocks.
Crude bottomed Christmas eve (December 24th) at $35.00 and has rallied to nearly $47. A rally into the $50's would be a 50% advance.
Gold remains in an uptrend but struggled this week +1.0%. Needs to break through that overhead downtrend line.
The Currencies were relatively quiet with the exception of monday. The Euro remains in an uptrend, USD downtrend.
NEXT WEEK
Monday starts the economic new year in earnest with Construction spending. Then tuesday, ISM services and Factory orders. On wednesday the monthly ADP employment figures, and thursday follows with the weekly Unemployment claims and Consumer credit. On friday, the much watched Non-farm payrolls and then Wholesale inventories. As for the FED, on tuesday the FOMC minutes. Best to your week and 2009!
CHARTS:  http://stockcharts.com/def/servlet/Favorites.CServlet?obj=ID1606987                               

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