Another good week for the bulls! The markets spent the first three days consolidating after the previous weeks big gains. Then, on wednesday the SOX index began to advance. This set the stage for another explosive rally, across the board, on thursday. On friday the general market: SPX/DOW continued to advance at a moderate pace, as the Techs: NDX/NAZ/SOX consolidated. Overall, up about 1 1/2% for the week.
Since this new leg up in the bull market began I have been posting more frequently. I'm not sure if this is good or bad. In my attempt to keep everyone abreast of what's happening in the markets on a day to day basis, I get the impression that it might be confusing some people, and I have received emails to the affect. Also, some feel that I am changing my opinion on the markets on a day to day basis. I appreciate the feedback. Comments are always welcome. To address these two issues I have decided to make some minor changes to the posts.
1. the Weekend Update will cover the long, intermediate and short term views.
2. the Daily Update only covers the short term, unless specified that the intermediate term trend is changing.
LONG TERM: bull market
We have been in a major bull market since Oct. 2002. Many perceive this three year advance as a counter trend rally in an ongoing Super Cycle bear market that started at the 2000 top. I disagree with that perception for basically two reasons: first...the Nasdaq declined 89% between 2000 and 2002. I have never seen, in the history of the stock market, a decline that severe not end a Super Cycle. If anyone knows of an instance when a bear market continued, please advise. Second...bear market counter trend rallies are always three waves, ABC. We had three waves up from the bottom: Oct. 2002 - Jan. 2004, but the market only corrected from there and we've been impulsing upward, in five wave patterns, ever since the end of that correction in Aug/Oct 2004. In fact, all major indices have since exceeded the highs of Jan. 2004. Thus, we are in a subdividing fifth wave up from Oct. 2002, and this is a bull market. If you review the "bullmkt" charts posted for the major indices, you will see the same exact EW count I have had since the bull market began. I have only updated the charts as the completion of waves occur.
Specifically, we are currently in wave V, and it has been subdividing into five waves 1-2-3-4-5. Wave 3 is also subdividing into fives waves i-ii-iii-iv-v. We are now in wave iii, of wave 3, of wave V. After this uptrend ends, the market will correct in a wave iv, followed by another uptrend like this one, to end wave v of 3, and thus ending wave 3. We will then witness a significant correction, wave 4, only to be followed by a major and last advance wave 5, which will end wave V and the bull market. Simply stated: there will be two more major uptrends, like the one we are experiencing now, before the bull market ends.
How can I be so sure? Objective EW has been functioning like clockwork for the past 20 years. I backtested it, for the entire history of the stock market in the early 1980's. That's how I knew it worked then. And, that's how I know it still works now.
INTERMEDIATE TERM: rising uptrend
Long term can be defined as a trend that lasts for years: i.e. 1982 - 2000 was a long term bull market. Intermediate term is defined as a trend lasting for several months: I have seen them last as little as six weeks and as long as almost a year. One never knows how long the market will take to complete an intermediate term uptrend, until it begins to near its final phases: fifth waves confirmed by weakening market momentum. The best time to be fully invested in the stock market is during uptrends, as 75% of all stocks rise. During downtrends, only about 25% of the stocks rise, thus a less invested position is warranted.
We are currently in an uptrend in all major indices. The NAZ/NDX started theirs on Oct 13th; the SPX/DOW on Oct 21st; the SOX index on Oct 28th. This is the reason for the choppyness in the early stages of this uptrend: the major indices we not in sync with each other. Now that they are, the advance has been explosive. This should continue until they start to diverge near the end of the uptrend.
Reviewing the "daily charts" you will notice the wave activity for the past year, and the EW labeling. Our current uptrend, wave iii is dividiing into five waves 1-2-3-4-5. Waves 1 and 2 appear to have already completed, and we are in wave 3. I state appear, simply because the activity thus far might all be part of wave 1. It's too early to tell. I always start off with the most conservative count and adjust accordingly if need be. In either case we are impulsing five waves up, and we are in the third wave.
Since this is a third wave (iii), and third waves are usually the strongest. I am anticipating that this advance will exceed the previous one, wave i, in strength and percentage of increase. This is accomplished by what is termed an extension. An extension occurs, when a five wave structure continues to subdivide without any appreciable correction. We witnessed one major extension between Mar 2003 and Jan 2004 in the NAZ. Typically, wave 3 starts to subdivide into lesser and lesser degrees of waves, thus extending the entire uptrend. I'm not looking for anything similar here, just a normal extension. Thus, I've set some upside targets for this uptrend, using fibonacci relationships, for the two major indices: NAZ 2355 - 2560, SPX 1280 - 1345. The first number represents a relationship of wave iii = wave i, the second is wave iii = 1.618 x wave i. These are just general guidelines to assist in watching the uptrend unfold. Hopefully, wherever the top is, we'll recognize it when it arrives.
I'll be posting the short term view separately this weekend because of the length of this post. In the future, I'll post them together again. In summary: We're in a BULL market and the trend is UP for at least another month, maybe longer.
