Saturday, 29 December 2012

Weekend Update - Weekly Index Cycles

The market saw its first weekly decline in six weeks, with most indexes declining around 2%. Certainly, its nothing dramatic yet, but if what we saw from the November low was a wave'2, then we're now seeing the first phase of a collapse wave. Primary target remains the low sp'1200s.

IWM (representing Rus'2000 small cap)

The R2K lost almost 2%, but is still very close to taking out the September highs. The underlying momentum is still to the upside, and there is nothing bearish yet.

Bears will need to see a break <80 for confirmation that the 5 week up wave really is over. A break of 80 will open up the 76/75 zone, and I don't expect that to hold.

Primary downside target for IWM is 70/69.

Nasdaq Comp

The tech sector has been especially weak, and has essentially traded sideways for the last 5 weeks - despite the main market rallying. It appears underlying momentum is rolling over again, and first target will be the November low in the 2800s.

Primary downside target for the Nas' Comp' is 2550/500.


The Dow is showing the weakness clearer than any index. This weeks loss of almost 2% confirms the two previous spiky candles. The weekly close <13k is especially significant - as many recognise.

The November low of 12471 should quickly fail, and then a test of the June low of 12k.

I believe there is a VERY high chance the June low will eventually be broken after a number of attempts, and that will open up the primary target zone of 11400/300.


The master index declined by 1.5% across the week, but - like the R2K, is awfully close to those September highs. There is the first sign of a rollover on the underlying momentum MACD (blue bar histogram), but we're still slightly positive.

First downside target will be the low 7800s. A break into the 7700s will open up the primary target of 7400. It will be especially difficult for the June low of 7200 to be taken out.


The sp' also lost almost 2% this week, but managed to just hold over the big 1400 level. Yet, we do have a close below the important 10MA of 1405. The next soft target will be the lower bollinger of 1370 - which seems very reasonable this coming week.

The underlying MACD (blue bar histogram) momentum is rolling over, and we avoided a bullish cross (black line crossing above red).

First target is the Nov' 1343 low, we might see a small bounce off that level, but it surely won't hold for very long. A break of 1343 will open up a very fast and scary fall to test the June 1266 low.

If the market really does get in a mood, it is very possible we'll see at least some level of break under the 1266 low, the monthly charts highly suggest somewhere around 1225.

A full retrace back to the Oct'2011 low of 1074 is possible, but right now, that is not something I am expecting.


The tranny was the weakest index this week, losing 2.24%. However, it remains very close to the critical 5400 level. Bears need a 4% drop just to get down to the 5k level.

First target is 4800, if that fails, it will be the key signal I've been talking about all year. It would be the first decisive break outside of an exceptionally tight trading range that now spans (incredibly) a full year.

A break <4800 will open up the primary target - as suggested by the monthly charts, of 4500.


A 2% weekly decline for the US market is indeed nothing for the bears to get rampantly excited about, but its a good start.

Lets consider the original bearish outlook...


1. QE3 marked the high @ sp'1474

First target was a wave down to the lower bollinger on the weekly chart @ 1345.

We floored @ 1343.

2. A significant bounce to around 1400/25.

*I did note at the time that due to the seasonal 'Santa' factor, the third wave might be delayed by some weeks, and that we might even go briefly higher.

As it was, we have seen 5 weeks up, and briefly moved into the 1440s, peaking @ 1448.

3. Primary down wave..with a target of 1225 - as based on the monthly charts. This is projected to take anywhere from 2-6 weeks.

All things considered, I'm very pleased with how its turned out so far. Although I'll be a hell of a lot more pleased if we do decline into the low sp'1200s in Jan/Feb.

Increased printing in spring 2013

-I'm expecting Bernanke to increase monthly purchases from 85bn (as at January 2013).. to around 125/150bn in March/April. I expect this will be done on the basis of what could easily be a US recession.

If I am right, I'd guess the market will rally from the low 1200s to at least 1350/75 across the subsequent 2-4 months.

First things first though...lets see if we can get down to the 1200s.

Sunday night futures

I will post updates (as necessary) this Sunday from 6pm EST onward, if there is any serious action in the overnight futures session.

With the SPY falling almost 1% in Fridays AH trading, we are set to open Monday around sp'1390 - where the important 200 day MA is lurking.

*I should be able to post full updates on Monday, with my new backup mobile Internet.

Have a good weekend