LONG TERM: OEW patterns bullish
The year 2011 has been a difficult one on many fronts. The year started off with the bull market still underway from the Mar09 SPX 667 low. The market made a new bull market high in February at SPX 1344. Then after a one month correction to SPX 1249 in March. The bull market made new highs in April and hit SPX 1371 on May 2nd. After that the market started to get choppy as foreign markets were declining. This was our first signal the US market could be headed for trouble. When the SPX bottomed in June at 1258, and then rallied in a choppy wave pattern into a July 1356 high we turned defensive. A nasty July/August market plunge followed. When many foreign indices had confirmed bear markets we felt a bear market confirmation was highly probable in the US.
We could count five waves up from the Mar09 Supercycle low: an extended first wave, then a simple third and fifth wave. At first we labeled it the end of Cycle wave
After a review of our historical charts we realized a 26 month bull market is actually too short for a Cycle wave, and relabeled the May11 high as Primary wave I.
As the European debt crisis deepened equity markets, worldwide, became quite volatile. After hitting a low in August at SPX 1102, the market experienced wild swings of 100 SPX points nearly every week to two weeks for the next two months. After an uptrend high in late August at SPX 1231 the market started to make new lows in October. We had identified four previous waves heading into those lows, and counted it as the fifth wave. On October 4th the SPX hit 1075 and started to reverse. The EU announced they were going to re-capitalize european banks and fix the sovereign debt crisis.
Over the next two days the SPX rallied nearly 100 points. We then identified a diagonal triangle fifth wave at the October low and expected a full 50%, possibly 61.8%, retracement rally of the entire decline from May11 at SPX 1371 to Oct11 at SPX 1075. This retracement was expected to take the SPX into the 1250′s. The market rallied from SPX 1075 to 1293 in just 18 trading days. Exceeding our expectations, but also rising in an impulsive fashion. The latter was quite surprising. Bear market rallies should be corrective in nature, not impulsive. This market activity offered another potential count: a Primary wave II low at SPX 1075. The deciding factor would be how the next downtrend unfolded. If it was impulsive the bear market was resuming. If it was corrective the bull market had resumed.
The market corrected down to SPX 1159 on November 25th. Then it gapped up on monday November 28th, the next trading day, starting another strong rally. This one also looked impulsive. This week the DOW, our US bellwether, confirmed a new uptrend. This signalled the previous correction was over and it was corrective. As a result we turned long term bullish. All along, while the May11-Oct11 correction was unfolding, our technical analysis suggested a 2008 repeat was not in the cards. Currencies were not as weak as they were then, Bond risk was rising but modestly, internal market momentum was displaying a somewhat normal corrective pattern, and our long term indicators were holding sway.
Also, and probably most important, the European equity markets were displaying the greatest upside strength after the October low while surrounding the epicenter of the debt crisis. And, they continue to display that strength. Currently six of the seven European indices we track are in confirmed uptrends again. While the, less confident, other worldwide indices we track are only displaying confirmed uptrends in five of the thirteen. European investors are apparently more convinced of a positive resolution to their own debt crisis than the rest of the world. Quite interesting from an OEW perspective.
MEDIUM TERM: DOW in confirmed uptrend
The year 2011 has been a difficult one on many fronts. The year started off with the bull market still underway from the Mar09 SPX 667 low. The market made a new bull market high in February at SPX 1344. Then after a one month correction to SPX 1249 in March. The bull market made new highs in April and hit SPX 1371 on May 2nd. After that the market started to get choppy as foreign markets were declining. This was our first signal the US market could be headed for trouble. When the SPX bottomed in June at 1258, and then rallied in a choppy wave pattern into a July 1356 high we turned defensive. A nasty July/August market plunge followed. When many foreign indices had confirmed bear markets we felt a bear market confirmation was highly probable in the US.
We could count five waves up from the Mar09 Supercycle low: an extended first wave, then a simple third and fifth wave. At first we labeled it the end of Cycle wave
After a review of our historical charts we realized a 26 month bull market is actually too short for a Cycle wave, and relabeled the May11 high as Primary wave I.
As the European debt crisis deepened equity markets, worldwide, became quite volatile. After hitting a low in August at SPX 1102, the market experienced wild swings of 100 SPX points nearly every week to two weeks for the next two months. After an uptrend high in late August at SPX 1231 the market started to make new lows in October. We had identified four previous waves heading into those lows, and counted it as the fifth wave. On October 4th the SPX hit 1075 and started to reverse. The EU announced they were going to re-capitalize european banks and fix the sovereign debt crisis.
Over the next two days the SPX rallied nearly 100 points. We then identified a diagonal triangle fifth wave at the October low and expected a full 50%, possibly 61.8%, retracement rally of the entire decline from May11 at SPX 1371 to Oct11 at SPX 1075. This retracement was expected to take the SPX into the 1250′s. The market rallied from SPX 1075 to 1293 in just 18 trading days. Exceeding our expectations, but also rising in an impulsive fashion. The latter was quite surprising. Bear market rallies should be corrective in nature, not impulsive. This market activity offered another potential count: a Primary wave II low at SPX 1075. The deciding factor would be how the next downtrend unfolded. If it was impulsive the bear market was resuming. If it was corrective the bull market had resumed.
The market corrected down to SPX 1159 on November 25th. Then it gapped up on monday November 28th, the next trading day, starting another strong rally. This one also looked impulsive. This week the DOW, our US bellwether, confirmed a new uptrend. This signalled the previous correction was over and it was corrective. As a result we turned long term bullish. All along, while the May11-Oct11 correction was unfolding, our technical analysis suggested a 2008 repeat was not in the cards. Currencies were not as weak as they were then, Bond risk was rising but modestly, internal market momentum was displaying a somewhat normal corrective pattern, and our long term indicators were holding sway.
Also, and probably most important, the European equity markets were displaying the greatest upside strength after the October low while surrounding the epicenter of the debt crisis. And, they continue to display that strength. Currently six of the seven European indices we track are in confirmed uptrends again. While the, less confident, other worldwide indices we track are only displaying confirmed uptrends in five of the thirteen. European investors are apparently more convinced of a positive resolution to their own debt crisis than the rest of the world. Quite interesting from an OEW perspective.
MEDIUM TERM: DOW in confirmed uptrend