weekend update

REVIEW

The market started the week at SPX 2184. After a decline to SPX 2176 on Monday the market rallied to 2193. A pullback followed to SPX 2170 on Thursday, then a gap up opening on Friday, rally to 2188, selloff to 2160, then ended the week at 2169. For the week the SPX/DOW lost 0.75%, and the NDX/NAZ lost 0.40%. Economic reports for the week were mixed. On the downtick: existing home sales, Q2 GDP, consumer sentiment, and the Q3 GDP estimate. On the uptick: new home sales, the FHFA, durable goods orders, plus weekly jobless claims improved. Next week’s reports will be highlighted by monthly payrolls, ISM and the PCE. Best to your week!

LONG TERM: uptrend

The market continues to offer three basic long term counts, as we have been noting in recent weeks/months. Last week we gave the three counts an equal probability. After an additional week of watching the activity, and some improvement in the technicals, we are slightly raising the probability of one count and lowering the other two.

DOWweekly

The count we favor is posted on the DOW charts and it is the new bull market Primary III scenario. We do not expect many to agree, but we are raising its probability to 40%. The count suggests the market has only completed Intermediate waves i and ii, and possibility Minor wave 1 of Int. iii at the recent all time high. Since Primary wave bull markets unfold in five Major waves, and we are in the early stages of Major wave 1, this long term trend has a long way to go.

SPXweekly

The second count we favor is posted on the SPX charts and is the one we started with: an irregular Primary wave B. This one may be a bit more popular, but we are lowering its probability to 30%. This count suggests the major indices (SPX/DOW/NDX/NAZ) are making new highs during an ongoing long term bear market. As the new highs are part of an irregular counter-trend rally within an overall long term downtrend. The maximum upside potential for this count is SPX 2336 (1.618 times Primary A). Anything beyond that and the count is eliminated.

NYSEweekly

Our least favorite count is actually the most popular. It is posted on the NYSE charts and suggests the bull market from 2009 is still underway, and the market is currently in Primary V. We are giving this count a 30% probability as well. The current wave structure suggests Major waves 1 and 2 have completed, and Intermediate wave i of Major wave 3 may have topped at the recent high. This index, surprisingly, has not even made a new all time high yet. Even the Wilshire 5000 is outperforming the NYSE. We believe this due to its excess exposure to foreign stocks. Making it more of an international index than a US index.

MEDIUM TERM: uptrend may have topped

Since the trends of all US major indices generally follow each other, the remaining sections will be on the popular SPX. After the Br-exit low at SPX 1992 in late-June an uptrend was underway. We have been tracking this uptrend with five Intermediate waves: 2109-2074-2178-2148-2194. As it unfolded we noticed that wave iii (104 pts.) was shorter than wave i (117 pts.), which requires wave v to be shorter than both. Third waves cannot be the shortest. Thus far wave v is quite short compared to the other two: 46 pts. Less than half of wave iii.

SPXdaily

After the SPX 2194 high on August 16th the market became quite choppy, and entered a trading range between SPX 2169 and 2193. On Friday after a rally to SPX 2188 the market broke through the low end of the range, hitting 2160. This suggests, as expected, a downtrend has been underway. In fact, a downtrend confirmation is not too far away from current levels.

Since wave v was so small the likely downtrend support is not at wave iv, but between waves i and ii (SPX 2109-2074). Should the market correct that far, which is really only about 5%, the downtrend will have overlapped the previous uptrends in all the major indices. This overlap would help confirm the subdivisions noted in the DOW/NYSE counts in the long term section. For the SPX count, however, this creates a few more variables within the overall pattern of an irregular Primary B wave. We noted these variables on the daily chart. Medium term support is at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots.

SHORT TERM

From the potential uptrend high at SPX 2194 we can count a decline to 2169, a three wave rally to 2193, and now a three wave decline to 2160. This would suggest a small a wave at 2169, a small be wave at 2193, then a small c wave: 2170-2188-2160 so far. All of this activity is probably part of a larger a-b-c correction.

SPXhourly

If we apply the normal Fibonacci retracements to the SPX 1992-2194 uptrend we arrive with the following support levels: 2117 (38.2%), 2093 (50%) and 2069 (61.8%). Since SPX 2117 is only a 3.5% correction it is not likely to hold support. The other two levels are more in line with moderate corrections of late: 4.6% and 5.7%. With pivots at 2085 and 2070 these two levels also fit quite well.

Short term support is at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Short term momentum ended the week just under neutral.

FOREIGN MARKETS

Asian markets were mostly lower on the week for a net loss of 0.7%.

European markets were nearly all higher for a net gain of 1.7%.

The commodity equity group were mixed for a net loss of 0.8%.

The DJ world index lost 0.8%.

COMMODITIES

Bonds remain in a downtrend and lost 0.5% on the week.

Crude appears to be in an uptrend but lost 3.0% on the week.

Gold appears to be in a downtrend and lost 1.5% on the week.

The USD is trying to uptrend and gained 1.0% on the week.

NEXT WEEK

Monday: personal income/spending and PCE prices at 8:30. Tuesday: Case-Shiller and consumer confidence. Wednesday: the ADP, Chicago PMI and pending home sales. Thursday: weekly jobless claims, construction spending, the ISM and auto sales. Friday: monthly payrolls (est. 190K), the trade deficit and factory orders.

CHARTS: https://stockcharts.com/public/1269446/tenpp

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Friday update

SHORT TERM: the FED gives the market a pulse, DOW -53

Overnight the Asian markets lost 0.3%. Europe opened lower but gained 0.6%. US index futures were higher overnight, and at 8:30 the Q2 GDP estimate was lowered: 1.1% v 1.2%. The market gapped up at the open to SPX 2179, rose to 2182, and then pulled back to 2173 right after FED chair Yellen’s Jackson Hole speech was released: http://www.federalreserve.gov/newsevents/speech/yellen20160826a.htm. The market then rallied to SPX 2188 by 10:30. Also at 10am consumer sentiment was reported lower: 89.8 v 90.4. Right after the high of the day the market started to decline. The decline continued until 2:30 when the SPX hit 2160. Then the market rallied into the close to end the week at SPX 2169.

For the day the SPX/DOW lost 0.20%, and the NDX/NAZ gained 0.15%. Bonds lost 19 ticks, Crude was flat, Gold slipped $2, and the USD was higher. Medium term support remains at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Yesterday: the Q3 GDP estimate was lowered to 3.4% v 3.6%.

The FED speaks and the market comes alive. After a gap up opening and rally to SPX 2188, (post JH speech), the market broke through the 2169-2194 trading range to the downside. After three weeks of a 25 point trading range, the market ranged 28 points in just one day. Now maybe we can get back to the business of a trending market. Best to your weekend!

MEDIUM TERM: downtrend may be underway

LONG TERM: uptrend

CHARTS: https://stockcharts.com/public/1269446/tenpp

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Thursday update

SHORT TERM: lower open then trading range, DOW -33

Overnight the Asian markets lost 0.3%. Europe opened lower and lost 0.6%. US index futures were lower as well. At 8:30 weekly jobless claims were reported lower: 261K v 262K, and durable goods were reported higher: 4.4% v -4.0%. The market opened 5 points below yesterday’s SPX 2175 close, then immediately began to rally. By 11:30 the market had rallied to SPX 2179, but then started drifting lower again. Around 3:30 the SPX retested the 2170 low, then bounced to end the day at 2172.

For the day the SPX/DOW lost 0.15%, and the NDX/NAZ lost 0.15%. Bonds lost 7 ticks, Crude rose 55 cents, Gold slipped $1, and the USD was lower. Medium term support remains at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Tomorrow: Q2 GDP (est. +1.1%) at 8:30, consumer sentiment and FED chair Yellen much awaited Jackson Hole speech at 10am.

The market opened lower again today, hit SPX 2170, rallied to 2179, then hit 2170 again before bouncing into the close. Looking back the SPX has now spent the last 15 trading days in a 25 point range (2169-2194). Must be some sort of record. Looks like the market is awaiting a catalyst. Again not much has changed on the short term count, except that 2169/70 seems to be some sort of support and 2193/94 the resistance. Short term momentum ended the day with a positive divergence. Best to your trading!

MEDIUM TERM: uptrend may have topped

LONG TERM: uptrend

CHARTS: https://stockcharts.com/public/1269446/tenpp

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Wednesday update

SHORT TERM: pullback continues, DOW -66

Overnight the Asian markets ended mixed. Europe opened lower but gained 0.4%. US index futures were lower overnight, and at 9am FHFA prices were reported higher: 0.2% v 0.2%. The market opened three points below yesterday’s SPX 2187 close, ticked up to 2187, then started drifting lower. At 10am Existing home sales were reported lower: 5.39M v 5.57M. The market continued to decline throughout the day, except for a four point bounce during midday, and hit SPX 2171 around 3:30. Then a bounce into the close ended the day at SPX 2175.

For the day the SPX/DOW lost 0.45%, and the NDX/NAZ lost 0.75%. Bonds ended flat, Crude dropped $1.30, Gold slid $14, and the USD was higher. Medium term support slips to the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Tomorrow: weekly jobless claims and durable goods orders at 8:30.

The market opened lower today following yesterday’s small pullback, bounced to unchanged, and then declined for most of the day. We continue to observe a lot of choppy activity since the wave iv low at SPX 2148. Three waves up to SPX 2194, a decline to 2169, three waves to 2193, and now another decline. It all looks corrective after a two month uptrend, and a downtrend may be underway. A drop back to SPX 2148 would confirm. Short term support drops to the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Short term momentum was quite oversold at the close. Trade what is in front of you!

MEDIUM TERM: uptrend may have topped

LONG TERM: uptrend

CHARTS: https://stockcharts.com/public/1269446/tenpp

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Crude and the Commodity cycle

Over the years we have written many times about the 34-year commodity cycle. Generally commodities rise as a group in a 13-year bull market, which is followed by a 21-year bear market. Each specific commodity has its own particular cycle which generally fits within the broader 34-year commodity cycle.

A bullish phase of this cycle started about two decades ago in 1998, and ended in 2011. A bear market, lasting about 21-years, has been underway since then. Sorry gold bugs! During the bull market phase some commodities rise in five waves. During the bear market phase all commodities decline in three larger waves. Naturally, just like there are corrections in bull markets, there are rallies in bear markets. Commodities, in general, are currently in one of those bear market rallies.

Crudeblank

When one looks at a Crude chart covering nearly 50-years, one can clearly see two periods of rising prices and two periods of declining to sideways prices. While these rising and declining periods may look sporadic, they are actually quite regular when one knows what to look for. As we will explain in the following chart.

Crude

The two rising periods were actually five wave 10-year bull markets, i.e. 1970-1980 and 1998-2008. These two bull markets were separated by an 18-year bear market, i.e. 1980-1998. The rise during the bull markets were quite spectacular. Well over 1000% in such a short period of time. Price rises like these always lead to excess-capacity events. And these events are normally followed by nearly as spectacular declines. Which eventually cuts capacity until supply/demand reaches an equilibrium. We are in one of those equilibrium periods now.

With Crude 8-years into its bear market, and at least a decade away from starting a new bull market, we can already see a pattern unfolding which is relative to its previous bear market. To see this pattern one needs to review the larger waves first. During the last bear market Crude declined from 1980-1986, rallied to 1990, then declined from 1990-1998. A 6-year decline, then a 4-year rally, followed by an 8-year decline.

Since the current bear market just had an 8-year decline, 2008-2016, we should look into the last 8-year decline. Then the 8-year decline unfolded in three waves [1990]: 1994-1997-1998. Now the 8-year decline has also unfolded in three waves [2008]: 2009-2011-2016. Notice 1990: 4dn-3up-1dn, and 2008: 1dn-2up-5dn, nearly the exact reverse or mirror image. If we consider this a completed pattern, and we do, the next thing that should occur is a choppy 4-year bear market rally, i.e. 1986-1990 or 2016-2020. Therefore the $26 low should be the low for at least the next four years.

How far could Crude advance? During the last bear market all rallies, excluding the aberration from the Kuwait invasion, retraced 38.2%, 50.0%, or more of the previous larger decline. This suggests an upside target between $70 and $85 by the year 2020. Then, after that, a six-year decline into the final bear market low, which should be around the $26 area. In summary one should expect a price range between $25 and $85 over the next decade. Unless there is a supply-event, which could push the upper range higher.

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Tuesday update

SHORT TERM: gap up opening then market stalls, DOW +18

Overnight the Asian markets lost o.2%. Europe opened higher and gained 0.7%. US index futures were higher overnight and the market gapped up to SPX 2192 at the open. The SPX had closed at 2183 yesterday. At 10am the SPX hit 2193, new home sales were reported higher: 645K v 592K, and the SPX hit 2193. Then the market started to pullback. The pullback continued throughout the day into a SPX 2187 close. Fairly quite after the open.

For the day the SPX/DOW gained 0.15%, and the NDX/NAZ gained 0.25%. Bonds lost 1 tick, Crude rose 55 cents, Gold was flat, and the USD was higher. Medium term support remains at the 2177 and 2131 pivots, with resistance at the 2212 and 2252 pivots. Tomorrow: FHFA housing prices at 9am and Existing home sales at 1oam.

The market gapped up at the open for the first time since August 11th. After the opening the market ticked up a point and then began to pullback. The August 11th gap up led to the SPX 2194 high two days later. It is possible the ending diagonal fifth wave scenario is underway. If correct we have a possible scenario for the five abcde waves: 2194-2169-2197-2183-2200. Thus far only 2194 and 2169 have completed. Short term support is at the 2177 and 2131 pivots, with resistance at the 2212 and 2252 pivots. Short term momentum was quite overbought at the open then eased back to neutral. Best to your trading!

CHARTS: https://stockcharts.com/public/1269446/tenpp

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Monday update

SHORT TERM: lower open then choppy day, DOW -23

Yesterday FED vice chair Fischer gave a speech: http://www.federalreserve.gov/newsevents/speech/fischer20160821a.htm. Overnight the Asian markets gained 0.1%. Europe opened higher but lost 0.4%. US index futures were choppy overnight and the market opened at SPX 2178, 6 points below Friday’s close. In the opening minutes the SPX hit 2176, then the choppy activity began. At 10:30 the SPX hit 2185, 2177 by 11:30, 2185 again by 12:30, 2178 by 1:30, then ended the day at 2183.

For the day the SPX/DOW lost 0.10%, and the NDX/NAZ gained 0.10%. Bonds gained 9 ticks, Crude dropped $1.70, Gold slipped $2, and the USD was higher. Medium term support remains at the 2177 and 2131 pivots, with resistance at the 2212 and 2252 pivots. Tomorrow: the new home sales at 10am.

The market opened lower today, hit SPX 2176, bounced to 2185, then remained in that range for the rest of the day. With the narrow trading range nothing has changed with the short term count. It still looks like a medium term high at SPX 2194, or an ongoing ending diagonal underway for the medium term high. Short term support is at the 2177 and 2131 pivots, with resistance at the 2212 and 2252 pivots. Short term momentum ended the day where it started, at neutral. Best to your trading!

MEDIUM TERM: uptrend may have topped

LONG TERM: uptrend

CHARTS: https://stockcharts.com/public/1269446/tenpp

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