Friday, April 16, 2010

MTU Weekend Ed - Turning (4/16/10 Close)

April 16th is the anniversary of the post-crash bear market rebound top in 1930. From Nov-1929 to 4/16/30, the Dow rallied 52.14% and retraced 53.43% of the Sep29-Nov29 stock market crash. However, the bear market resumed after that day and had subsequently fallen 86.34% to the 7/8/32 bottom.

On this anniversary in 2010, the Dow dropped 1.13% on news that SEC charges Goldman Sachs (-12.79% on Friday) with fraud. Friday’s market decline has erased most of the gains for the week, leaving the Dow up only 0.19% over the past week.

As discussed in A Potentially Major Turning Point (4/9/10), the stock market is in the process of a major turn. Even if there should be another recovery high in coming weeks, the big-picture message remains unchanged. See discussions below.

Update on FTSE100: Topping
In last week’s commentary, I concluded that there should be less than 5% upside potential for the FTSE100 based on either bullish or bearish counts (Chart 1, reproduced, not updated). Chart 2 updates the wave count for the advance since early February. The red labeled count calls for a completed ED and the top. The blue labeled count suggests a final wave [v]-up after wave [iv]-down is complete. Note that the FTSE100 and SP500 have been highly correlated and have very similar wave structures.

Update on SPX: Turning

The advance since early February could have already ended or there could be one more small-degree 5th wave up (Chart 3). The decline on Friday has not yet revealed enough wave structure or broken all support levels to offer confirmation (Chart 4). We should be able to have clarity early next week.

From last Friday’s low to this Friday’s high, the VIX index has surged 29.34% or 4.43 points. The VIX has clearly broken out of its near term base channel (Chart 5). It’s an indication how vulnerable the market can be at this late stage of the bear market rally.

Chart 6 and Chart 7 offer detailed squiggle counts based on the short term bearish and bullish count discussed above. To support the immediately bullish scenario (Chart 7), which interprets Friday’s decline as (iv)-down of [v]-up with respect to the early February low, the 1170-1175 range needs to hold.

In terms of the big picture, odds favor the coming turning point as the end of the rally since last March, and the end of a triple-three wave structure (Chart 8). The competing count is that the coming turning point is only A of (Z), with another rally to new highs following a moderate near term pullback (Chart 9). The profile of the expected near term decline will help us identify the right scenario.

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