friday update

SHORT TERM: gap up opening sold again, DOW -8

Overnight the Asian markets gained 0.2%. Europe opened higher and gained 0.6%. US index futures were much higher overnight until the disappointing jobs report: 74k v 203k. However, unemployment is nearing the FED’s 6.5% goal: 6.7% v 7.0%. The market gapped up at the open to SPX 1843 then almost immediately started to pullback. The SPX closed at 1838 yesterday. By 10am the SPX had dropped to 1834, when the FED released this: Also at 10am Wholesale inventories were reported higher: +0.5% v +1.4%. A bounce to SPX 1838 followed by 10:30, then a lower low to 1832 by 11:30. Then the market started to rally. At 12:30   the FED released this. then at 3pm the FED released this: The rally carried to SPX back to 1843 by 3:30. Then a dip to SPX 1842 ended the week.

For the day the SPX/DOW were mixed, and the NDX/NAZ were +0.40%. Bonds gained 30 ticks, Crude rose $1.05, Gold rallied $18, and the USD was lower. Medium term support shifts to the 1841 and 1828 pivots, with resistance at the 1869 and 1884 pivots. Last night the FED reported a decrease in the Monetary base: $3.666tn v $3.670tn. Today the WLEI was reported higher: 52.5% v 51.8%.

The market gapped up at the open for the fourth day this week. Quite a rare occurrence. But immediately pulled back, just like it had done twice previously this week. Choppy market! After the open the SPX hit Thursday’s 1843 high, dropped to 1832, then hit 1843 again heading into the close. The short term count from the SPX 1849 high now displays a simple three wave Minute a decline: 1828-1838-1824, then a Minute b double three rally: 1840-1831-1843-1830-1843-1832-1843. We would assume when this last leg up concludes Minute c down should be underway next.

Short term support is at the 1841 and 1828 pivots, with resistance at SPX 1849 and the 1869 pivot. Short term momentum stayed around neutral most of the day before touching overbought near the close. The short term OEW charts ended positive with the reversal level now SPX 1836. Best to your weekend!

MEDIUM TERM: uptrend

LONG TERM: bull market


About tony caldaro

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17 Responses to friday update

  1. lunker1 says:

    why do you put so much faith in the Shiller PE Method?

    from University of Pennsylvania’s Jeremy Siegel….

    “Changes in the accounting standards in the 1990s forced companies to charge large write-offs when assets they hold fall in price, but when assets rise in price they do not boost earnings unless the asset is sold. This change in earnings patterns is evident when comparing the cyclical behaviour of Standard and Poor’s earnings series with the after-tax profit series published in the National Income and Product Accounts (NIPA).

    For the 2001-02 and 2007-09 recessions, S&P reported earnings dropped precipitously due to a few companies with huge write-offs, while NIPA earnings were more stable. Yet before 2000, the cyclical behaviour of the two series was similar. Downward biased S&P earnings send average 10-year earnings down and bias the Cape ratio upward. In fact, when NIPA profits are substituted for S&P reported earnings in the Cape model, the current market shows no overvaluation.”

    if there is no overvaluation then what about flat revenue’s you say? well…I guess it depends if you see a glass half full or empty. For 2014 I see improvement in the US (no government shut down) and Asia in Europe vs 2013. Maybe you do not?

    • ewtoriginal says:

      Lunker, I am a grad of U Penn Wharton School and consider Jeremy Siegel a clown and his work utterly worthless. minus the effects of the Fed, nothing he says would be true or work. He likes at 5,000, 10,000, 15,000, or 50,000…irrespective of PROPER valuation techniques. Don’t let the professor thing stand in the way of proper financial analysis. I am also a CPA and traded options professionally for most of my career as a market maker.Changes in the 90s in accounting standards? LOL. Those impairment write downs were always the case under GAAP.The only change came with the write down of goodwill. Accounting games are perpetual,Who would allow non-GAAP reporting for public entities? Sheer nonsense . Are you assuming that write downs of assets as one time “charges” are not real? Who said those “assets will be sold at higher than book ever again?” The averaging of earnings over 10 year period allows for the extra overstated earnings reported on a normal period to be reduced by write downs of assets to value if they no longer produce. Failure to to do so overstates the multi-year cycle and calling the write down extraordinary non-recurring one timers is a true distortion and precisely what Siegel finds appropriate.
      Now, allow me to post from ZH the note from Kostin of GS (I acknowledge that the rule of thumb for two decades is “Do the opposite of what GS tells everyone to do”):
      Kostin’s full “market is now overvalued” note:

      We believe S&P 500 currently trades close to fair value and the forward path of the market will depend on the trajectory of profits rather than further expansion of the forward P/E multiple from the current 15.9x. We forecast a modest price gain of roughly 3% to our year-end 2014 target of 1900. We expect S&P 500 will climb to 2100 by the end of 2015 and reach 2200 by the end of 2016 representing a gain of 20% over the next three years.

      However, many clients argue that the multiple will continue to expand in 2014 leading to another year of strong US equity returns. A forward multiple of 17x or 18x is often cited, with others suggesting 20x is reasonable given the strengthening US economy and low interest rates. Many on the buy-side have year-end 2014 targets between 2000 and 2200 reflecting a price gain of 9% to 20%, well above our more modest projection.

      The current valuation of the S&P 500 is lofty by almost any measure, both for the aggregate market as well as the median stock: (1) The P/E ratio; (2) the current P/E expansion cycle; (3) EV/Sales; (4) EV/EBITDA; (5) Free Cash Flow yield; (6) Price/Book as well as the ROE and P/B relationship; and compared with the levels of (6) inflation; (7) nominal 10-year Treasury yields; and (8) real interest rates. Furthermore, the cyclically-adjusted P/E ratio suggests the S&P 500 is currently 30% overvalued in terms of (9) Operating EPS and (10) about 45% overvalued using As Reported earnings.

      Reflecting on our recent client visits and conversations, the biggest surprise is how many investors expect the forward P/E multiple to expand to 17x or 18x. For some reason, many market participants believe the P/E multiple has a long-term average of 15x and therefore expansion to 17-18x seems reasonable. But the common perception is wrong. The forward P/E ratio for the S&P 500 during the past 5-year, 10-year, and 35- year periods has averaged 13.2x, 14.1x, and 13.0x, respectively. At 15.9x, the current aggregate forward P/E multiple is high by historical standards.

      Most investors are surprised to learn that since 1976 the S&P 500 P/E multiple has only exceeded 17x during the 1997-2000 Tech Bubble and a brief four-month period in 2003-04 (see Exhibit 1). Other than those two episodes, the US stock market has never traded at a P/E of 17x or above.

      • mcmasoniam says:

        “We believe S&P 500 currently trades close to fair value and the forward path of the market will depend on the trajectory of profits rather than further expansion of the forward P/E multiple from the current 15.9x.”

        And this represents the big change in mindset, beginning now. Companies had better show good profits, not simply bottom line, else I believe this market will turn. Time for earnings; there’s been enough cutting.


      • 16golfer says:

        Really appreciate your input EWT! So very helpful.

  2. Thanks Tony. For sure it looks like complex b-wave. Can’t wait to see this week end’s update.
    In this Week end’s update, I wish you give us some insight into how does a topping process look like in the market and do you see any such symptoms in this market.

    My EEM position stopped out but still holding regional banks and Citi. I think EEM got knee jerk reaction today. When C wave starts this is going to go down much further.

  3. Thanks Tony!
    Difficult market to decipher. P4 getting closer.
    I notice that Dow Transports made a convincing ATH after 4 straight winning Days, while DJI have been on the loosing side the last 3 Days. The strong transport index might weaken the downward momentum in DJI, imho.

    Best wishes Sverker

  4. Who bought ICPT at the close on Wednesday at $70 and sold today at close $445 .. OMG up almost 600%.. in 2 days.

  5. M1 says:

    DJT, XLV, NYAD at all time highs.

  6. Greg Polites says:

    Hi Tony; Frustrated with today’s price just a quck observation:

    Technically today the equity indexes especially the SP500 left the next direction of the market on a cliff. See the 10 minute chart for the SP500 at the Stochcharts link below which annotates a triple top (bearish formation) in the last two days which is also contained within a rising triangle (bullish formation). And with a gap left to fill at SP1846 the market could break either way on Monday. If it breaks up it will likely fill the 1846 gap and test for a new high around the 1860 range. If it breaks down the triple top formation predicts a bottom around the previous low of 1824. Next week will be interesting. Details at:

    GWE all, Greg

    • tony caldaro says:

      thanks Greg,
      Not sure if they ran the last 5-6 points on “buy on close” orders, or not.
      They started the year with a gap down after closing near the high on “buy on close” orders.

  7. mcmasoniam says:

    Thanks Tony! Is the 1800-1814ish levels for bottom of minute C the most likely stopping place in your opinion?

    • mcmasoniam says:

      Sorry Tony. Someday I’ll learn not to ask such questions on the Friday Update, as your WEUpdate will answer them automatically on Sat. morning. Have a good evening.

  8. fishonhook says:

    Well Tony I think a lot of us are short based on your C call. At what level would you throw the count out and cover? I would probably consider a new high as failure.

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