REVIEW:
Lots of economic data this past week, which was all relatively positive for the economy. The FOMC meeting produced the most economically accommodating statement since Bernanke took office a year ago. The SPX hit 1449 for the first time since Sept. 2000, and the DOW/TRAN/NYA/R2K all hit all time new highs. Small caps, large caps, and the cyclicals are leading this bull market. For the week, the TRANsports led with a 6.2% gain, the SPX/NYA were up 1.8%, the NAZ/R2K +1.7%, the NDX +1.4% and the DOW was up 1.3%. Was a good week for stocks as the bull market continues.
LONG TERM: bullish since Oct 2002.
While the DOW continues to make all time new highs, and the SPX continues to move closer to its all time high at 1553, this market has finally received the recognition of being what it has been all along: a bull market. As one of our OEW group pointed out, SPX 1383 seemed to be the pivot point of no return for the bears. The market has come a long way in its 4+ year rise. The NDX/NAZ have risen 120%, the SPX 80+%, and the DOW over 70%. Typically, when a bull market gets general recognition it is usually more than half way through its positive investor psychology cycle. And this one is no exception! In fact, this bull market has probably completed more than two/thirds of its anticipated advance already. But it is still far too early to be looking for a top, as several more significant uptrends are ahead of us. Also none of the three negative critieria I review for signs of an approaching major top have been triggered: increased volatility, the TRANsports failing to make new highs, and the NYA failing to make new highs. Volatility remains contained, and the TRAN/NYA made all time new highs this week. In addition, the OEW wave count, which has perfectly tracked this bull market since Oct. 2002, indicates we are at the mid-point of Primary wave V. And, the MMI (market momentum indicator), which tracks the investor psychology cycle, displays that the market is more than 50% but less than 75% through its completed cycle. All these indicators suggest that there is much more to come on the upside in 2007. For the specific OEW wave count for the SPX/DOW/NDX/NAZ and many others, please click the CHART LINK, in gold under All OEW Charts.
MEDIUM TERM: bullish.
In OEW terms, the SPX/DOW have had an extraordinary uptrend since the Jul06 lows. This SPX uptrend, in particular, has exceeded every SPX uptrend since the bull market began. As of friday, the SPX has risen from the Intermediate wave ii low of 1225 to 1449, (an 18% increase), with hardly more than a 2% correction at any time. During this uptrend, at each long term EW pivot point, (1383 and 1438), it has run into resistance, pulled back some, and then turned higher again. The next long term EW pivot is at 1462, about 1% under fridays close. I have been targeting this SPX 1462 pivot as the likely top for this uptrend. Many consider this conservative, and rightly so. However, as we approach this level the market appears a bit fragmented. Certainly the cyclicals have been strong, but the growth sector has been lagging of late. Also, the internal SPX wave count has become a bit sloppy since the 4th wave low at the beginning of Nov06. I recently added an uptrend line to the SPX daily chart, displayed below. This trendline is KEY to the SPX maintaining this uptrend, and to go above and beyond 1462 to the next EW pivot at 1530, and then to the all time high at 1553. If the NDX/NAZ kick into gear to the upside, those higher targets are likely to be met before any significant correction occurs. The NDX, however, appears to be responding to the price activity of cRUDE oil. There appears to be a fundamental relationship of disposable income/capital expenditures to the price of Crude oil. Lately this relationship has been quite obvious. With Crude in a bear market its long term trend is down. Short term however, any additional strength in the price of Crude could continue to dampen the enthusiasm for techs stocks, which could end our SPX uptrend around the 1462 pivot point. If Crude, were to turn over and head lower, which I suspect. Then the techs should rally, and the upper EW pivots should be met. Below is a two year chart of the NDX.cRUDE relationship. All the US indices we track SPX/DOW/NYA/TRAN/NDX/NAZ/R2K are in uptrends, with the exception of the SOX index. Overall the market continues to look good.
SHORT TERM:
The market has rallied strongly from 1417 at the Jan 26th lows, to fridays high at 1449, but short term momentum is beginning to wane. The cyclical SPX/DOW/NYA all appear to be in the third to fourth wave of this recent rally. Possibly a small, quick pullback here before they turn higher again. Updated the SPX15min chart (below) to reflect this possibility. The NDX/NAZ look a bit sloppy but with an upside bias short term, as they continue to be the wild card to the strength of the general markets uptrend. Best to your trading!
FOREIGN MARKETS: bullish.
The Asian markets all remain in uptrends, but China's SSEC has pulled back sharply and may continue this correction.
The Europeans markets remain in uptrends, as well as Canada's TSX.
COMMODITIES:
CRUDE Continues its two week rally, closing the gap down on Jan 3rd and is now short term overbought. Expecting it to turn lower.
GOLD: Just completed a nice short term rally, pulled back some on friday, but should turn higher again soon to continue its uptrend.
BONDS: Appear close to a medium term bottom, as they rallied after the FED's statement. Expecting them to turn higher soon.
DOLLAR/EURO: Beginning to get more and more bullish on the Euro longer term. The Euro appears to be gaining on the US Dollar as the world's currency of choice. Expecting both to test their late 2004 extremes later this year. Short term, the Dollar's uptrend seems to be weakening.
SUMMARY: The stock market looks good and the index uptrends are progressing moderately. Will be keeping an eye on Crude, the NYA, GOOG, AAPL and the SOX index this week. Best to your week.
