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G4 Weekly Market Wrap 19th November 2010

  • Written by Syndicated Publisher 47 Comments47 Comments Comments
    November 20, 2010


    During the past week the S&P500 managed to drop 2.19% by Tuesday and by Friday had recovered it all and finished up +0.04% for the week.  During the same period the XJO dropped 1.65% and remained 1.35% down by the end of the week.

    Since the recent low in the S&P500 on the 1st July 2010 the index on Friday closed up 18.7%.  Since the recent low in the XJO on the 6th July 2010 the index on Friday closed up 10.7%.  The Australian economy is booming by comparison with the US economy and yet the US equities market outperformed the Australian market by some 8%.

    Last week I mentioned the effect of the US dollar on measuring reality.  We can certainly explain the above quandary when we realize that on the 1st July 2010 the AUD closed at  84.68 US cents whereas on Friday it closed 99.03 US cents……..a change of 16.9%!!!!

    US MARKET

    In last weekend’s market wrap I suggested that the S&P500 was entering the 4th wave in the final rally leg of what will eventually be the end of the rally leg that commenced in March 2009.  We can see from the chart below that we have now moved down from the termination point of wave 3.

    Note that I have marked the level (dashed red line) at which wave 1 terminated.

    Provided wave 4 does not move below the 1129.24, the above wave count will remain valid.  I also suggested that wave 4 would have a high probability of being either a Flat pattern or a Triangle pattern.  As I don’t anticipate forming a top until February at the earliest, my personal preference is for the pattern for wave 4 to be a Triangle as this pattern chews up more time than a Flat pattern.

    For newcomers to Elliott Wave principles the Triangle pattern looks similar to the diagram below.  Note that there are many types of Triangle patterns but the important point is that they are a 5 wave pattern.

    Note also that in the above pattern the lowest point is point A.  In my last market wrap I suggested that we would get a low for wave 4 sometime between the 22nd and end of November.  What is not clear at this point in time is whether the low actually occurred last week.  If the low is still to come then next week should be when it happens.

    Once the low is in then I expect that the market will tend to trend upwards (even if in a somewhat up and down fashion) to the next intermediate cycle high which will possibly occur towards the end of December to early January.  So a Christmas rally is on the cards.  A Triangle pattern for wave 4 would give investors the impression that the market was moving sideways but the trend definitely should be up once wave 5 commences.

    AUSTRALIAN MARKET

    The lead from Wall Street currently has the ASX200 futures contract up 6 points in spite of the ADRs on the NYSE having BHP down 1.25%, RIO down 1.02% and WBC down 1.16%.

    The 90 minute chart below is indicating that the 4620 level is a very strong support level. We can see that it was tested several times and on each occasion the index was moved back up above that level.

    Once again various cycle analysis methodologies have the XJO bottoming around this time period so if it hasn’t already done so then the time is not far off.  Note also that the W%R14 indicator is starting to form higher highs and higher lows.


    Note that the XJO daily chart has the index riding on the bottom of the lower Bollinger Bands which again is a good sign for a bottom nearing for this index.


    In last week’s market wrap I mentioned that the planetary lines in the Astro charts are similar to Fibonacci levels in that they very often provide levels of support and resistance. A follow up on last week’s Astro chart is shown below.  Note that the rising Saturn line provided good support for the XJO on the weekly chart.


    This again is another indication that the current level could well be a bounce level.  If not then the Uranus lines around 4467 and 4533 would be the next level of support for the XJO weekly chart.  Note that the last week’s candle on a weekly Astro chart is always shown in the colour blue.  On traditional candle charts it would be shown as a red candle because last week was a negative week.

    Randall (our G4 Astro expert) goes into much more detail on the thread called Astrology and Stock Markets found at the following link:

    http://forum.incrediblecharts.com/messages/427230/2618643.html

    Materials Sector (XMJ)

    Whilst the upward direction for the XJO has not been very spectacular since early July there is no doubt that it is the materials sector that has done all of the heavy lifting.

    We can see from the following daily chart that it has made a significant move upwards. In fact from the 21st May 2010 it has moved up 26.4%.  It is true that there has been a recent retrace from the 14000 level however it is possible that the 13333 level may be some sort of support in future price action.  Currently the LBB is located at around the 12910 level however the W%R14 indicator is quickly approaching the oversold territory so if we haven’t found support yet, it is not far off.


    Financials excl. Property Sector XXJ

    The following daily chart of the XXJ clearly shows us that the sector has basically been trading sideways since the middle of May 2010 and in the last couple of months it had started a slow trend downwards. If the overall Australian market is going to form new market highs around the 5426.37 level (61.8% retrace of 2007/2008 plunge) as we anticipate then it is going to need the help of the XXJ sector.

    As we expect a low for the overall market by the end of November 2010 at the latest then it is feasible that the XXJ may also be reaching a bottom as well.

    The daily chart shows the sector riding the LBB (even if it is trending down) and the W%R14 indicator is showing signs of an approaching bottom.


    Summary

    A combination of traditional technical analysis, cycle analysis and Astro charts indicate that whilst there may be some more negativity next week there is a high probability that either the US and Australian markets have already put in a low for the current correction or it is not far off.  All the indications are that December should in the main be a positive month for our equity markets.

    Join us daily at our Elliott Wave Watching thread and see what the EW enthusiasts are saying about the US and Australian markets. Simply click on the link below:

    http://forum.incrediblecharts.com/messages/427230/2591748.html

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