Stock Market Trends – Weekly Update 07/09/11 © ™

  • Very Long TermSince Jan 2000
  •  Step 2 Of 3 Down Completed, Rally Phase Underway
  • Follow Long Term Strategy
  • Long TermSince Mar 2009
  • Up Trend Is Intact
  • Hold
  • Intermediate TermSince Feb 2011
  • Large Step 2 Up Since July 2010 May Still Be Intact – Unconfirmed
  • Short Term Since June 15, 2011
  • Up Trend Underway & The Channel Is Defined
  • Buy Completed, Short Term Speculator Purchase
  • Action Status
  • Holding Short Term Buy
  • NO UPDATE MONDAY THROUGH WEDNESDAY (Monday possible but not likely)
  • See the sidebar for “Odds ‘N Ends” under the category Huh???  You will find a glossary and explanations.  Each week I add more items to “Odds ‘N Ends” and it’s important reading to understanding this blog.
  • For methodology, see the category Indicators.
  • The email update loses some of the formatting so you might want to visit the link after notification via email.

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SHORT TERM – NEW

Last week the market resisted a correction but the unemployment report on Friday was too much.  Considering the news on Friday I thought the market reacted pretty good.  It could have continued falling all day but instead cut the decline in half at the close.

Below is an interesting chart.  It shows the average duration of unemployment.  As you can see this time it is different. During the 1930s I’m sure this chart looked worse than this.  Too bad the government wasn’t tracking statistics at that time.

07-08-11 Average Duration Unemployment

The short term wave count is a little cloudy.  Below are two charts that have different wave counts.  The first chart is XLY, which is consumer discretionary spending.  XLY shows 3 steps up since June 23.  This  means that XLY should decline for a few days.  The second chart is the NASDAQ Composite and it shows 2 small steps up in the same time period.  The second chart should have another rally step before declining for a couple of days. Both scenarios could take place but the 3rd step rally in the NASDAQ would likely be short.

07-08-11 XLY 20 MIN BARS TREND LINES & COUNT

07-08-11 NASDAQ COMPOSITE 20 MIN BARS TREND LINES & COUNT

The best short term scenario

  • A bottom occurred on June 15 and we are in a rally phase that should return to the May 2nd peak.  I would expect resistance at the old high with a consolidation.  After that we will see if the market has the power to punch through for significant new highs.

The worst  short term scenario

  • The market is in a false rally and the market will turn down without significant new highs.

INTERMEDIATE TERM – New Chart

The rally that began in early July 2010 is long in the tooth and showing its age (12 months).  The market internals have been losing momentum and show that the market has been in a lengthy “topping” phase.  This topping can continue for months.

If the June 15 rally fails to make significant new highs, the market will have signaled a declining phase marking the end of large step two up.

The best intermediate term scenario

  • The market has resumed the rally in large step two that began in July 2010.

The worse intermediate term scenario

  • The decline since May 2nd is the first step down in a larger 3 step decline.  If true, this would call for a lengthy decline lasting many months.

Below is a chart that begins in late 2008.  The trend lines are converging and a breakout to the downside would not be pretty.  A break to the upside is possible but that doesn’t seem likely at this time.

There is always the distinct possibility that a break to the downside would stop on a line parallel to the top line.  This would define a normal channel.

07-08-11 NY COMPOSITE DAILY BARS SINCE 2008 TREND LINES

The chart below shows that we could be in step 5 up dating from July 2010.  The 4th step up ended with a truncated third step.  After 3 steps down, the market reversed and has been rising since June 16.  The truncated step shows a loss in momentum to the upside.  The current rally has been very powerful but that could be attributable to short-covering.

07-08-11 DJ IND DAILY TREND LINE & COUNT

LONG TERM

From the bottom in  March 2009: large step one up ended in May 2010 and was followed by the “flash crash”, large step two up may still be in force.

The best long term scenario
  • The long step up since July 2010 has not finished and higher highs are in the not too distant future.

The worst long term scenario

  • We have begun  the correction following the second large step up .

VERY LONG TERM

We have entered a very wide swinging market (megaphone formation) similar to that of 1966 to 1974. During that era we had three bear markets with two intervening bull market rallies.  Each bear market had a lower low than the previous bear.  The intervening bull market rallies saw new all time highs before the next bear market began.

Since 2000 we have had two bear markets, 2000 to 2003 and 2007 to 2009. Like 1966 to 1974, the recovery from the first  bear market saw a new all time high (2007 peak). It is possible that we may experience another all time high during the present recovery period.  At the conclusion of the present recovery we will have the third and final bear market. An estimated time for the conclusion of the final bear market is approximately 2018.

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