As mentioned on Thursday, the rally from the week's low may have changed the outlook for the stock market over the next week or two, but the jury is still out regarding anything longer-term than that. There are some indexes that look quite bullish at the moment like the NDX, but there are other indexes that look equally bearish, like the SOX. It is not surprising to see the market under such duress, as decisions made here may have long term implications for the path of this Bear. Below we'll look at some charts and see where they lead us. Also, it's time to check in with Gold stocks and Bonds.

The NDX and SOX

The last time there were cross-currents this strong in market was in the spring of 2002. Then, the Nasdaq had topped several months earlier and had already declined 20% off its high, but the Dow had merely corrected and went on to make a new high in March. The S&P 500 was caught in the middle, and could be counted a number of ways. The spring of 2004 can be characterized in much the same way. The Nasdaq looks like it may go one to make a new high, but the SOX remains in a bearish stance, having decline 20% off its January high. The short-term charts of the Dow in Thursday's update remain valid, and below are short-term charts of the NDX and SOX.

There are several valid bullish and bearish ways to count the NDX here, and the above chart shows a bullish count. The current rally off the March low may either be a corrective A-B-C, with wave C in progress, or it may be waves 1 and 2 of what will eventually be a much larger advance. The decline off the early April high was overlapping in both the NDX and the Dow, which suggests it was a correction. But as shown in Thursday's Dow chart, it may have been a wave B correction. In the next week or two it will be easy to distinguish the correct count: if the NDX rallies next week above its early April high (labeled "1 or A" in blue on the above chart) and then goes on and breaks it January high, the more bullish count is correct; but if the NDX reverses and declines below its low last week at 1434, the bullish count will have to be put on hold. We will trade the QQQ accordingly.

The NDX chart is probably the most bullish, but other charts are not. The below chart of the SOX is one example. Like the NDX, the SOX may have traced out an A-B-C correction off its January high, but it also may have traced out a 5 wave decline like the Dow - which is shown in the chart below. The rally off the March low ended right at the 61.8% retrace of that decline, and unlike the NDX and the Dow it looks like the SOX may have traced out a 5 wave decline off its early April high (in grey).

The SOX's tepid rally off last week's low while the other indexes were quickly making headway may be a sign that the last week's low was in fact the end of a small-degree 5 wave decline and trend in the SOX is down. If also may have been due to trend line resistance, as the week closed right below the blue trend line shown on the above chart. This divergence could disappear if the SOX breaks above that trend line in the next week and plays catch-up with the NDX, but for now the decline off the April high and its advance off last week's low looks bearish.

This divergence between the NDX and the SOX is representative of the entire market right now. There are some indexes that look like they are on possibly their way to new rally highs in the next few weeks, like the NDX, while others like the Dow and SOX look more bearish. In times such as these, being whipsawed in and out of positions can lead to far greater losses, so we will wait for confirmation either way before acting.

The XAU

Below is the XAU chart published in April's Market Focus, 3 weeks later and 15% lower. The correction that ended at 106 - right above the 61.8% retrace of January's decline - gave to April's nasty slide to last week's low at 87. If this decline from the January high has been an A-B-C correction the downside may be complete or nearly so, but there are indications that this is the start of a much larger move down in Gold stocks, represented by both the XAU and the HUI. If so, this decline is only the beginning.

The buy signal mentioned in February for the HIU never materialized, and unless the HIU and the XAU rally above their early April highs long positions in the miners look very exposed to further downside. In May's Market Focus, we will look at some long-term charts of the HUI and XAU that strongly suggest it is time to forget about trading mining stocks on the long side for the time being - possibly for the next few years.

Bonds

Bonds have finally broken down over the last month, and there is every indication that there is more to go. The 30-Year Bond chart below shows that the decline off the March high has traced out 5 waves and it may currently be in a wave 2 correction of that decline. A retrace back up to the Blue trend line would not be out of character at this point, but these moves have been notoriously fast on the impulsive and short on the corrective side, so I would not bank on a significant correction. The trend is down on the 30-Year, and if we break longer-term trend lines in the next few weeks (which looks probable) it may have considerable downside ahead. The 10-Year has already broken through a significant trend line, and a rise to 5.8%-6.0% is expected.

Summary

The next week or two will likely provide good information about the intermediate-term trend in the stock market. As mentioned above there are some significant long-term decisions the market may be making right now from an Elliott Wave perspective, decisions about the nature of the Bear market and how it will unfold. This will all be covered in detail in May's Market Focus, which will be available in a week or two.