Stocks, Bonds, U.S. Dollar Index, Precious Metals and Special Opportunities
Stocks, Bonds, U.S. Dollar Index, Precious Metals and Special Opportunities
[Bottom Line]: A Primary degree rally remains underway from early March and should carry prices higher in
the coming weeks. The main stock indexes retain several options over the near term.
The stock market made a Primary-degree low, Primary 1 (circle), on March 6 (intraday) and 9 (close).
Primary wave 2 (circle) started from 666 in the S&P and 6470 in the DJIA. With March now over, we can
state conclusively that stocks recorded a bullish reversal month, the first of Cycle wave c from t he October
2007 high. This is exactly the type of behavior one would expect at a Primary wave 1 (circle) low. The bear
market rally should last weeks and likely months and correct the decline from the October 2007 peak. The
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news remains grim now, but by the time wave 2 (circle) up enters its latter stages, optimism should be back
and in full bloom.
EWFF properly cited the waning downside momentum (see chart p.4 March issue), as well as the record
extreme in pessimism (DSI and AAII) as evidence that the stock market was in the latter stages of wave 1
(circle). The burst through the two-four line confirmed the bottom and as long as prices do not delve too
deeply back into the previous channel, our confidence remains strong that wave 2 (circle) up should carry
prices higher.
Near term, there is simply no way to finesse this, it’s a very tough call as to what will unfold in the coming
day or two. The market still has varied options, as it did Monday night. We had been expecting an “up-down”
sequence to draw prices to new lows, which would complete the downward correction, wave 2. Yesterday’s
rally looked like the “up” portion, and today’s weak open held the promise of being the “down” portion. But
the only index to make a new low, at least so far, was the MidCap 400, which leaves open several differing
Monday’s low could mark the bottom of a shallow wave 2 decline, which traced out a flat (see EWP, pp.45-
46). Wave c (circle) was 1.618 times the length of wave a (circle), a common relationship, and the rally from
this low looks like a “five,” at least in the NASDAQ. This view implies that this morning’s early sharp drop was
a second wave and the rise throughout the afternoon was the start of a third wave up. Any break of this
morning’s low, 783.32 in the S&P and 7484 in the DJIA, would eliminate this option.
Here’s how I am approaching the analysis of tomorrow’s session: a strong rally above 821.50 in the S&P, in
conjunction with the Dow (above 7825) and NASDAQ (above 1565), will raise the odds considerably that
wave 3 up is indeed underway. The reason is that pushing above this level will carry the index above the
.786 retracement of the decline from last Thursday, as well as negate the parallel channel and fill the gap
from Friday. I reserve the right to change my mind based on the evidence (breadth, volume, Ticks, other
indexes, etc…), but for now, this is what I’m looking at. As long as the index remains in the channel and
doesn’t materially breach today’s high (813.62), prices could still come down toward the two-four line in a
deeper downward correction.