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Tuesday's resumption of the S&P (June) rally above the 19Apr PH reveals
that the decline into the 17Apr low was a w.C on the daily and not a w.3
impulsive decline which tells us that SP is in correction mode. So far
at least, the rally in SP has the appearance of another ABC ... this
because the decline into the 24Apr retracement was so modest (38%)
rather than the 50%-62% which is common for the first retracement in a
new 5 wave impulse. With TL resistance at 1515, 78% retracement level at
1523, and the prior PH at 1543.70, the odds are strong that this rally
phase is due to run out of steam within a few more day or week at most.
We will then look to see if the 1433 PL of 04Apr provides enough support
to form a H&S or other type of bottom around the 50%-62% retracement
level of the rally from the 17Apr PL. Keeping in mind the longer term
view from the weekly charts, odds are strong that the correction will
continue for some weeks.
Monday's retest of the NASDAQ lows gave us a bullish divergence in the
NASDAQ models as well as a buy signal. Given the overall appearance of
the NASDAQ models and daily/weekly price charts, it is highly likely
that the correction of both time and price will resume in due course.
Other items worth some attention. First, corporate high grade bond
yields have resumed their rise across the entire yield curve - keep in
mind that these yields never fell in tandem with treasury yields.
Second, the dollar has risen squarely into AGet MOB resistance on the
weekly chart on the same day that the Euro currency sagged sharply to
new lows. A weekly MOB is often quite strong and the ECB is unlikely to
allow the Euro to continue declining. There is probably only one way to
arrest the decline of the Euro and that is for the ECB to raise interest
rates to a degree well beyond anything expected in the currency
markets - an act which is unlikely to be popular politically in Europe
since it is likely to slow the economy and arrest the rise in European
markets. Bottom line: the Fed's rate increases will be joined by the ECB
creating a wider band of rising rates and more currency volatile which
will not be positive for equity markets. The Nikkei has already given
back its 15% gain for 2000 and there is probably more to go.
Not much I'm enthusiastic about ... I've done a bit of nibbling on
copper, corn and the British Pound recently. I suspect that the rallies
in copper and corn may not have long legs. My long and short term charts
suggest BP may be approaching an important bottom.
Earl
----- Original Message -----
From: "Earl Adamy" <eadamy@xxxxxxxxxx>
To: <realtraders@xxxxxxxxxxxxxxx>
Sent: Sunday, April 16, 2000 6:44 AM
Subject: [RT] Market Outlook
> Friday's break of 3191 (June ND contract) appears to have confirmed
the
> view that an incomplete 5 wave structure is unfolding in the NASDAQ
and
> that there is reasonable probability that the decline will eventually
> reach the 2457 projection, if not nominally lower. The NASDAQ models
are
> in such deep do do that I would expect to see another attempt at a
> rally; however any such attempt should not be trusted as a bottom.
When
> the models get into such deeply bearish territory while taking out
> consecutive pivot lows (in breadth), it takes a rally followed by a
> decline to higher pivot lows before a good bottom is in place - this
is
> what kept us from buying the March and April "bottoms" in the NASDAQ.
> Even then, one must examine the structure of the completed correction
> for signs of an exhausted impulse. I would reiterate that the w.3
> advance was over 24 months and that it will require both price and
time
> to complete any correction. "Correction" assumes that NASDAQ has not
> entered a multi-year bear market - a case for which we have ample
> precedence but no evidence. Along with the NASDAQ, the small cap index
> (June RL - Russell 2000 contract) also appears to be finished as the
> long and carefully constructed Cup and Handle bottom has been
terminally
> violated.
>
> Turning to the SP daily (June), Friday put us into either a w.c or a
w.3
> with the violation of the 100% expansion at 1403 putting the odds
> strongly into the w.3 camp which provides a likely 162% expansion
> projection of 1315. This appears to fit with the corrective pattern
> unfolding on the weekly where 23Jul to 22Oct99 appears to be a 3 wave
> decline (W.A typically 3 or 5 waves) and 22Oct to 24Mar00 which
appears
> to be a 3 wave rally (w.B typically 3 waves) which would lead into a
w.C
> decline (typically 5 waves). The initial confirmation of this was the
> decline below 1382 which was the 100% expansion of w.A. If this is a
> w.C, price is likely to (eventually) decline to 1263 before new highs
> are seen. In summary, the SP price action since Jul99 appears to be
> corrective and it appears that the correction has more to run in time
> than in price - the 1263 projection lies just above the Oct99 low at
> 1242. The S&P TB/EY ratio closed the week at 1.3, down from 1.6 but
> still far above the levels at which all prior major declines have
taken
> place so we must be alert for the probability that the corrective
> structure could turn into a bear market. A break of the Oct99 weekly
low
> at 1242 would be a strong clue that the structure is turning impulsive
> and has significantly more downside.
>
> It is interesting to note how the price pattern continues to provide a
> roadmap. Following the 24Mar high on the daily following a very strong
> rally, the structure suggested significant new highs in SP. The deep
> retracement on 04Apr told us that we were unlikely to see anything
> better than a double top - a strong clue to take money off the table.
> The failure of the subsequent rally at the 72% retracement was the
first
> confirmation that the rally had failed. The worsening situation was
> confirmed by deterioration in the NYSE breadth models which
subsequently
> joined the NASDAQ model in sell territory.
>
> Earl
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