Market Summary

Not a pretty week in the markets. On the down side the Russell 2000 small cap index was down 9.76% for the week. Not a small decline by anyone’s measure. On the upside USO managed to make a 3.48% gain. I believe the upside gain in oil was due in part to being oversold and also to a decline in the US dollar. This Friday’s jobs report showed a loss of 651,000 jobs last month and as a result the dollar fell. I believe any sustainable rally in the market will be accompanied by a decline in the dollar and a rise in oil. What was going down will turn up and what was going up will turn down. This is the nature of cyclical markets and their relationships with each other. Click on table to enlarge.

Will the markets continue to decline? I think we are certainly closer to the bottom than to the top so while the market may decline more the upside potential is greater than the downside potential. GM closed the week at $1.45 a share and at prices that have not been seen since 1933. Will GM get back to the $90 range it saw in 2000? I think not, at least not anytime soon, but if it does survive it will have to raise its value above that of a penny stock. I do not expect a complete collapse of the markets. The graph below shows the performance of each of the sectors year to date. The fact that Technology is the strongest sector is a positive for the markets and especially for the Nasdaq which is heavily weighted in technology. Click on graph to enlarge.

The Elliott wave count of the markets is extremely interesting. While counting waves is subjective there are rules for guidance and waves do seem to create observable patterns. My wave count is that we are in the 5th wave on the daily time frame. The 4th wave began with the November lows and ended with the January highs back in the beginning of January. The current 5th wave began then and we are very close to its bottom. This 5th wave can be broken down into 5 sub waves. My wave count of the sub waves is that we are at the completion of the 3rd sub wave down of wave 5. This would indicate we can expect a 4th wave rally next week and a finally 5th sub wave finish to wash all the bulls out of the market with a decline to about 650. Alternatively, we could have made the bottom last week at the 666 level and any breakout, especially above 700, would be very bullish. We will just have to wait and see. Click on chart to enlarge.