Provided by the OEW Group
August 17 2019
SPX started out the week with a gap down (same as last week) and continued lower for the rest of the day to close 9 points off Monday’s low at 2882. Last week’s close was 2919. Tuesday rallied sharply to the high of the week at 2943 within the first hour of trading, but then pulled back and traded in a range to finish the day at 2926. Wednesday gapped down big at the open, as the bond market reacted forcefully, apparently to the turmoil in Hong Kong. Within the first 10 minutes, SPX retraced the entire Tuesday rally, then proceed to decline for the rest of the day and close on the low at 2840. Thursday saw continued weakness as SPX declined to the low of the week at 2826 in the afternoon, followed by a rally back to 2855 before closing the day at 2845. Friday finally gapped up and rallied to a high of 2891 just before noon, then leveled off within a few points for the rest of the day to close the week at 2889. A third consecutive week of volatility!
For the week, SPX/DOW lost 1.03%/1.53% while NDX/NAZ lost 0.60%/0.55%.
On the economic front, CPI, Core CPI, Import Prices, and the Treasury Budget deficit all increased. Our Weekly Leading Indicator is down slightly from last week but holding firm at 49.5%.
Next week economic news comes from Existing Home Sales and Initial Claims.
LONG TERM: Uptrend
In the US, the long-term count remains unchanged with the Super Cycle SC2 low in March 2009. The Primary wave I high occurred in May 2015 and Primary wave II low in February 2016. Primary wave III has been underway ever since. Major wave 1 high of Primary wave III occurred in October 2018 and Major wave 2 low in December 2018. Intermediate wave i of Major 3 is now underway and is subdividing into Minor and Minute waves.
As mentioned last week, we haven’t yet seen any evidence on the long term charts to suggest anything more than a typical medium term downtrend in context of an ongoing bull market. However, the move in bonds this week pushed 3o year rates to new lows, prompting an additional subdivision and extension of our long term cycle low originally established by Tony back in 2016 (updated chart below).
This caused some concern and generated much discussion within the group. The general consensus was that even though tariffs may be a contributing factor, the root cause of such a shift is most likely based on worries over economic risk in Asia due to the Hong Kong protests and potential for recession in Europe. Nevertheless, it’s just not showing up broadly in the US markets yet. We discussed several options for alternate counts with more bearish outcomes and concluded that the probabilities are too low at this time to warrant adding these into the mix. We will continue to monitor and adjust our outlook on these alternates as more data comes in.
Currently we have all four of our core US markets and most US sectors in confirmed bull markets and trading not far from the highs. While RUT and TRAN are notable outliers, these indices have been in bear markets since December and have been struggling to regain their footing. It’s not unusual for TRAN to deviate from DOW like this, it happened exactly the same way back in 2012 coming off a deep 20% correction in 2011. One of our members has suggested that RUT in particular may be more susceptible than most to the bond rally due to higher weighing in rate sensitive shares. Still there’s historical precedence for these kinds of sideways moves as RUT moves in corrective structures whether in bull or bear mode. Consequently, we don’t consider these deviations either out of the norm or cause for concern. The bottom line here again is, there’s just not enough OEW evidence in the few sectors that are underperforming to change our long term outlook.
MEDIUM TERM: Downtrend
SPX opened lower for the third week in a row, rallied back on Tuesday to find resistance at the medium term EMA’s, then accelerated down from there to find support right at last week’s higher low of 2826. This is now the second test of the low established last week at 2922 and sets up a potentially completed pattern for Minute wave ii, with Micro wave a = 2822, Micro wave b = 2943 and Micro wave c = 2826. The 200+ point 6.5% decline mentioned last week is still intact. Although, the rally off the low is substantial, it’s still within range of countertrend moves in context of the existing downtrend. Consequently, caution is advised for a possible extension lower. Some in our group have noted that strength in NAZ and NDX may be a bullish indicator, since these are making higher lows relative to DOW and SPX. It’s possible, but could also be a case of the glass half full, since these may still have work to do on the downside. There’s just not enough evidence yet to mark the bottom for this downtrend. A SPX rally back above 2930 or so will further build confidence for the Minute wave ii bottom. However, a break below 2822 will signal Micro wave c is subdividing and brings into play alternate counts. We will report on those if/when price dictates. We’re still waiting till it becomes clear that a new uptrend is underway before updating our targets for Minute wave iii.
Medium term, RSI ended the week neutral and MACD is yet again trying to turn back up. DOW continues to show positive divergence based on the low this week.
SPX was never able to impulse higher off of last week’s rally, but instead failed at the 2943 high on Tuesday, after a corrective sequence of overlapping waves up from 2822, then collapsed to retest prior lows at 2826. This now suggests the irregular zig-zag pattern reported last week becomes our preferred count for Micro wave a, followed by an overlapping five wave structure for Micro wave b. Micro wave c is either underway with two small waves so far or completed as a failed flat at 2826. As mentioned in the previous section, the wave status at this juncture is unclear, so further waves are needed to sort it out. As always, we’re looking for an impulsive structure to develop using our short term techniques to help solidify a potential bottom. We can count one 68 point wave up to 2894 based on Friday’s rally, but so far, it’s inconclusive. If the market reverses lower, that will suggest the possibility of double three pattern and potential extension for Minute wave ii. Not much more to report until further price action clears up the near term picture.
Short term support is at the 2884 and 2858 pivots. Resistance is at 2929 and 2957 pivots. SPX is still holding within the same support and resistance levels as last week.
Asian markets (using AAXJ as a proxy) gained 0.33%.
European markets (using FEZ as a proxy) lost 1.48%.
The DJ World index lost 1.28%, and the NYSE lost 1.32%.
Bonds are in an uptrend and gained 1.04%
Crude oil is in a downtrend and gained 0.57%
Gold is in an uptrend and gained 1.00%
GBTC is in a downtrend and lost 11.35%.
The USD is in an uptrend and gained 0.70%.
Have a good week!