I confess to being a little befuddled by the market action of late. The nasty reversal on Tuesday was neatly canceled by the yesterday's 200 Dow point reversal. Wednesday morning's CPI number provided an ample reason for a big sell-off, and the Dow was quickly off 100 pts. Then the market rallied around midday and never looked back, finishing up 90 pts in the Dow.
I still consider the overall market direction to be in a downtrend until there is a higher high on the S&P (>1396). I'm still looking forward to a re-test of the January lows. Below is my Elliot Wave [EW] count on the S&P which would have us just into wave 5 of a 5-wave decline. [An alternative count is that we're finishing wave 4, and are soon to enter wave 5. However, it doesn't substantially change my near-term views.]
I've been going back to the Armstrong cycle which garnered a lot attention as it predicted a cliff-dive last February with pin-point accuracy. It shows an intermediate low on Mar 22 followed by a corrective rally into next April, and then another nasty leg down into Jun 2011. As far as applying it to the stock market, we should note that stocks made higher highs well after Feb '07. Armstrong called his cycle the "global business cycle," so it may not coincide with market cycles. My feeling is that should one use it a a timing tool, it's should viewed as a kind of oscillator. At any rate, a decline into late March that takes out the January lows would be consistent with the EW count presented above.
While the overall stock market may be pausing before another decline, commodities are forging ahead. With oil above $100/barrel, the strength in the CRB index pointed out in the previous post has continued.
However, with the exception of precious metals, they're getting into overbought territory and a pull-back is to be expected. Speaking of precious metals, the Amex Gold Bugs Index (HUI) finally broke out of the down channel I drew here, so to repeat a phrase being aired hundreds of time in the last two days: Houston, we have lift-off!