wednesday update

SHORT TERM: gap down post election decline, DOW -313

Overnight the President was re-elected. Asian markets gained 0.4%. European markets opened higher, but lost 2.9%. US index futures were sharply lower when it appeared BHO would be re-elected, rallied to positive overnight, and then were sharply lower heading into the open. At the open the SPX gapped down to 1416, declined to 1406, bounced to 1411, and then made lower lows. All in the first half hour of trading. The SPX had closed at 1428 yesterday. Around 11:30 the market had declined to SPX 1388, the 1386 pivot range, and then started to rally. At 2:00 the SPX hit 1402, pulled by to 1397 by 3:00, then rallied to 1403 by 3:30. At 3:00 Consumer credit was reported still expanding: $11.4 bln vs $18.1 bln. Then heading into the close the SPX declined to 1395 and closed there.

For the day the SPX/DOW were -2.35%, and the NDX/NAZ were -2.50%. Bonds gained 26 ticks, Crude dropped $4.10, Gold added $2, and the USD was higher. Medium term support remains at the 1386 and 1372 pivots, with resistance at the 1440 and 1499 pivots. Tomorrow: the ECB meets before the open (rate cut?), then weekly Jobless claims and the Trade deficit are reported at 8:30.

The market gapped down at the open today and continued to fall until it hit medium term support in the OEW 1386 pivot range. The short term support area, SPX 1422/27, was gapped over. Then the other short term supports at SPX 1413/16, 1402/03 and 1396/98 all gave way before 11:30. The SPX has declined 45 points from yesterday’s SPX 1433 high at 12:00 to this mornings low at SPX 1388. The last time a 24 hour decline of this magnitude occurred, was the day before the Major wave 2 low in early June. That decline was 43 SPX points. And, the downtrend bottomed the next day.

We have been looking for a lower low so that all four major US indices could get realigned before the next uptrend got underway. We thought thursday/friday’s rally to SPX 1434 was a bit out of the ordinary, and it was sold off. And, monday/tuesday’s rally to SPX 1433 was as well. It was sold off today. Now our short/medium term counts are in alignment.

This downtrend has now hit the first important level of support at the OEW 1386 pivot. At this level the SPX has now retraced 38.2% of the previous uptrend, and Minor wave C = 1.618 Minor wave A. After monitoring the charts today we observe positive divergences on the DOW hourly chart, the SPX/DOW/NDX/NAZ daily charts, and oversold conditions on the weekly charts. Since we have been expecting a downtrend low to occur right around Election day, this could be it.

Looking ahead. We would like to see the OEW 1386 pivot range, SPX 1379-1393, hold support. Then the market rally back into the SPX 1430’s again. This should indicate the downtrend is over. Should the 1386 pivot fail, we have lower support at the 1372 pivot and the 1363 pivot. Worse case support is at SPX 1345/46. We continue to count this downtrend as Intermediate wave ii of Major wave 3.

Short term support is at the 1386 and 1372 pivots, with resistance at SPX 1396/98 and 1402/03. Short term momentum was quite oversold today and remained oversold at the close. The Short term OEW charts swung negative again at the open, with the swing level now around SPX 1417. Best to your trading!

MEDIUM TERM: downtrend may be bottoming

LONG TERM: bull market


About tony caldaro

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56 Responses to wednesday update

  1. Pingback: AIG approaching cycle lows | Wall Street Stocks

  2. rc1269 says:

    a little discouraging that there is no attempt at a strong bounce here. i guess we must want to blast through the 200ma

  3. ronini3 says:

    I will sell the next overbought in the coming weeks..wish me luck!

  4. kvilia says:

    Either we have not seen anything yet or volatility tools can be thrown away. Take your own personal guess.

  5. pooch77 says:

    To be or not to be….long 1380 bottom?

  6. rc1269 says:

    very strong 30yr auction at 1pm est today. as i’m sure you’ll notice in TLT, etc… large indirect bids.

  7. pbnj123 says:

    VIX surprisingly subdued with today’s price action

    • pbnj123 says:

      Is it VIX options experation tomorrow?
      Still down and that is only thing I can think of for the red along with equities down.

  8. pooch77 says:

    Ouch 1386 pivot holding on for dear life

  9. jaja2121 says:

    TONY- in your zzzDOW bear alternate chart- would you entertain the possibility of replacing the green 3 with C?

  10. Tony, next levels for AAPL if any? It went below 543 today.

  11. H D says:

    uh Oh It’s quiet again…….

  12. pbnj123 says:

    Price appears to be wedging on the lower lows – Tony I know it’s not OEW but can ii’s be ending diagonals?

  13. Igor says:

    Over the last 2 days I posted updated P&F charts and analysis on the SPX. Those who want to look at the current trend development in the S&P 500 from another angle, you are welcome. It’s free! 🙂

  14. rc1269 says:

    gonna be hard for the mkt to stage a good rebound without aapl. and aapl just can’t seem to catch a bid

  15. fibretrace1618 says:

    All major averages below 200 day except S&P. We’re going down and going down hard!! Chili Palmer says:” Get Shorty”

  16. pbnj123 says:

    Good morning Tony
    Just thought about it – we are setting up for a iii of 3 of 3 – correct?
    That/this should be very nice if correct.
    Thank you

  17. alexh110 says:

    Tony, there’s something that’s been bothering me about your long-term forecast:

    You called a bottom in short-term bonds last year, ending a 71 year cycle that began in 1940. Looking at the charts, the long-term bond didn’t bottom until 6 years later in 1946.
    The narrowing yield-spread between 1940 and 1946 caused capital flows into risk assets, leading to a strong uptrend in the Dow between 1942 and 1946, as well as an uptrend in inflation.

    That suggests we should see the same pattern repeat between 2011 and 2017; but that doesn’t fit with your EW forecast, which has the stock market downtrending in a deflationary Cycle Wave 2 from 2013 to 2017.

    Perhaps my analysis is flawed; but I can’t see where I’ve gone wrong?

    • tony caldaro says:

      After Bond rates bottomed in 1946 they rose for 35 years into a 1981 peak. Since then Bond rates have been generally declining now for 31 years. This is a very long cycle. Normally, we would have expected Bond rates to bottom in 2014: exactly 68 years from the 1946 low.

      • alexh110 says:

        Thanks Tony.

        Where I would disagree with your article is your statement that the 30 yr bond should bottom shortly after the 1 yr bond.

        Have a look at this chart:

        I’ve marked the bottom of each cycle in pink to show the lag between the short and long-bond lows. This lag has been growing larger with each cycle.
        In the 1940s the lag was 6 years: so I don’t expect the 30 yr bond to bottom until 2017 or later (assuming you’re correct that the 1 yr bond bottomed in 2011).
        Unless WWII somehow caused the lag to extend?

        Even if the lag is shorter this time, we would still get a narrowing yield-spread over the next few years, which ought to drive capital into the stock market. So I don’t see how we can get to the bear cycle you’re predicting for 2013-17?

    • tony caldaro says:

      I do not think they were trading interest rate futures in the 1940’s.
      Our analysis of the 1 year rates, in recent decades, suggest they drive the FED’s Fed Fund rates. We have written about this in the past, i.e. 2010.
      When comparing the 1YR to the 30YR, over the past many years, short term rates appear to lead long term rates by about six months. This was also written up on the blog.
      Can not comment on the impact of a narrowing yield spread on the general stock market. Have not researched it in a deflationary secular cycle.

      • alexh110 says:

        The actual figures for 30 yr bond yield at the cycle lows were:
        1853 4.02%
        1899 3.24%
        1946 2.53%

        I note it’s getting lower with each cycle, the gaps are: 0.78% and 0.71%.
        That would imply a low of around 1.785% this time round.

        However this cycle is longer than the last one (71 years compared with 47 years for the 1899-1946 cycle). That would suggest a yield low less than 1.785%.
        The 2012 low was around 2.47%: so we have quite some way to go yet.

        I like the fact you can draw a line on the chart touching all the yield lows.
        Extending this line should give some idea where the yield may bottom this time, but I haven’t tried this yet.

        In the 1890s and 1940s we saw a gentle decline into the 1899 and 1946 lows, forming a bell-shaped bottom: so I think we have several more years before the cycle ends.

      • tony caldaro says:

        Not expecting a sharp upturn either.
        It should be a gradual process.

  18. In the SPX Daily, you have 1266-1460 upmove labelled as Intermediate i of Major 3 of Primary III, with a failed 5th at 1470 (top 1474). You mentioned in your weekend review that this may be characteristic of this Primary III. Question is, is it common to have failed 5th’s in the 3rd wave of any degree? Also, doesn’t a failed 5th generally mean complete retracement of the entire 5-wave move? Appreciate your thoughts, Tony.

    • tony caldaro says:

      Hi Raissone,
      If the DOW were failing that would be a concern.
      But since this is the SPX we do not see this as a problem.
      Failed, or weak 5th waves, usually retrace back to between the 1st and 2nd wave of the trend.

  19. Tony, what do you look to measure short term oversold conditions? Daily stochastics are hardly oversold.

  20. tony caldaro says:

    Of course, you are still short =)

  21. M1 says:

    Thanks, Tony.
    I like your worse case support at 1345/46. =)

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