REVIEW:
A choppy week, as monday's selling rebounded with new highs in the cyclicals by wednesday. But when the techs failed to follow, slightly new lows for the week were made by friday. For the week, the SPX/DOW/NAZ closed 0.6% lower, and the NDX was 1.3% lower. Going into the previous week, the NDX/NAZ were coming off new bull market highs.
LONG TERM: bullish
The Oct 2002 bull market continues, as many have capitulated in recent months. Bullishness had reached its lowest level in over three years at the July 2006 lows, and is now back to normal levels. The bullish OEW wave count has remained the same since Oct 2002, (see weekly charts on CHART LINK). Primary waves I thru IV completed in Aug 04, and an extended Primary wave V is underway. Major waves 1 and 2 of Primary wave V completed in Apr 05, and a subdividing Major wave 3 is underway. Intermediate waves i and ii of Major wave 3 completed in July 06, and Intermediate wave iii is currently underway. In review of the NDX/NAZ, we have clearly defined Minor waves 1 and 2 of Intermediate wave iii at last months lows, and the growth sector should be in Minor wave 3. This, however, is not as clearly defined in the SPX/DOW, which appears to be extending in a Minor wave 5. Nevertheless, Intermediate wave iii is currently underway in the major indices. Each bull market has its own characteristics. This bull market has heavily corrected every first wave advance, with a small correction to every third wave advance, and the fifth waves have been weak. The only exception to this was during the very strong, (Mar 03 - Mar 04), Primary wave 3 advance. The corrections to both the first wave and the third wave of this advance were relatively minor. The reason I mention this, is that during this recent July 2006 uptrend, the NDX/NAZ are currently displaying a very small correction after the completion of Minor wave 1. And have already made new highs. If this comparison continues to hold we should see another very strong move higher over the next several months. Currently the market appears to be indecisive, or is building a base for the next thrust upward. It is still too early to determine which. If the NDX/NAZ start making new bull market highs again. I can clearly see the SPX advancing to its all time high levels of 1553, before, any substantial correction occurs. Either way, there is no reason not to continue to be long term bullish.
MEDIUM TERM: bullish
From the July 06 lows the market has made significant progress. The SPX has risen over 17%, the DOW over 18%, the NAZ over 24%, and the NDX over 27%, all within 6 months. The SPX has had its strongest uptrend of the entire bull market, nearly 220 points. For the past couple of months, however, the upside momentum has been waning, and the market has run into selling pressure on nearly every series of minor new highs. Normally, we should consider this a medium term topping process: new highs on weaker upside momentum. But we have already had a clearly defined OEW medium term trend reversal in the NDX/NAZ and several other indices. And many are now trending higher again! Throughout the bull market, the NAZ/NDX have not displayed any medium term OEW irregular corrections. Therefore, there is little reason to believe that this uptrend will turn into an irregular correction. With the NDX/NAZ only about 2% away from a trend reversal this appears to be a limited risk medium term buying opportunity for the tech sector. Remaining bullish.
SHORT TERM: choppy, and testing support
After putting in a short term positive NDX/SPX divergence at the beginning of the year, the NDX rallied to new bull market highs. The SPX followed about a week later, making new bull market highs of its own. However, at these highs, the NDX created a negative NDX/SPX divergence and the market pulled back. On friday both indices made lows together. The SPX became extremely oversold short term, while the NDX displayed a positive RSI divergence at the lows. The market appears to be readying for another rally. Maybe this one will finally get this uptrend going again. Many of the tech leaders have pulled back some, and a few are trying to rally. But the selling in the NDX and Apple in particular have kept a lid on things. This week I would keep an eye on Apple and the NYA, as they have played important roles recently. The techs sold off on Apple's earnings. Google reports earnings this week. Maybe the internet juggernaut will get things going to the upside again. With Q4 GDP on tuesday, and the FED's rate decision on wednesday. We should have a clear sign of the markets intentions by the end of the week.
FOREIGN MARKETS:
Australia's ASX and Canada's TSX continue to uptrend despite the selloff in Commodities. India's BSE and Japan's NIK continue to hold steady near recent bull market highs. China's SSEC is getting quite volatile and getting close to a medium term top. England's FTSE and Germany's DAX continue to hold steady in their uptrends as well.
COMMODITIES:
Bonds: Have been downtrending for some time now and should be getting close to a medium term low.
Dollar: The greenback has been uptrending and is probably getting close to a medium term high.
Crude: Is in a downtrend, and bounced somewhat this week. Expecting the downtrend to continue.
Gold: Held support at $600, ignored its relationship to the Crude/Euro and is now uptrending. Expecting Gold to move higher.
SUMMARY:
The cross currents continue in the equities markets, and should get resolved this week. This indecisiveness has been ongoing for about two months, despite the new highs in the major indices. It appears to me that market has been building a base as the overbought momentum has worked its way back to neutral. If this does work out, the market is only a few months away from new all time highs in the SPX. Best to your week!
