The recently awaited downtrend kicked in this week after the SPX made a fifth wave failure at 1985 on Tuesday. After that the rest of the week was downhill with the SPX hitting 1916 on Friday. For the week the SPX/DOW were -2.75%, the NDX/NAZ were -2.20%, and the DJ World index was -2.35%. Economic reports were also biased to the negative. On the uptick: Consumer confidence/sentiment, Q2 GDP, personal income/spending, PCE prices, ISM manufacturing and auto sales. On the downtick: construction spending, the WLEI, pending home sales, Case-Shiller index, ADP, the Chicago PMI, monthly Payrolls, and both the unemployment rate and weekly jobless claims were higher. Next week, economically a much quieter one, we get reports on ISM services, Consumer credit and Wholesale inventories. Best to your week!
LONG TERM: bull market
The March 2009 continues to unfold as labeled. Primary waves I and II completed in 2011 and Primary wave III has been underway since then. While Primary I had a subdividing Major wave 1 and simple Major waves 3 and 5. Primary III has alternated with a simple Major wave 1 and subdividing Major waves 3 and 5. Major waves 1 and 2 ended in late 2011, and Major waves 3 and 4 ended in early 2014. Major wave 5 has been underway since that February low.
During Major wave 5, Intermediate waves i and ii ended in March and April. Intermediate wave iii recently peaked at SPX 1991/1985, and Intermediate wave iv is underway now. When it concludes we should get an Intermediate wave v uptrend to new highs. This will complete Major wave 5 and Primary wave III. Then we should see the largest correction since 2011 for Primary wave IV. After it concludes we still have Primary wave V to take the market to new highs again. Choppy year so far, but the bull market is still making progress.
MEDIUM TERM: downtrend
The topping process for the Intermediate wave iii uptrend was somewhat complex, and somewhat similar to the last two uptrend highs: a peak, some consolidation, then another peak to end the uptrend. The downtrends following those uptrends also look quite similar: after the final peak a sharp selloff. We experienced the selloff after the Int. iii uptrend peak this week. And, the SPX/DOW/NAZ all confirmed downtrends. So where are we now?
Since the recent Int. wave ii downtrend was only a 4.4% decline, we are not expecting a large decline for Int. wave iv either. One reason is that a large decline would probably overlap the Int. wave i highs at 1884/1897. Since we are counting Major 5 as an impulse pattern we are not expecting an overlap. Another reason is that waves of similar degree tend to have similar declines. So something in the neighborhood of a 4.0% to 4.5% decline would fit; i.e. SPX 1901 to SPX 1911. A Fibonacci 50% retracement of the entire uptrend (SPX 1814 to 1991) equals SPX 1903. These are the reasons we have been expecting a downtrend to find support between the 1901 and 1929 pivots. Friday’s low was SPX 1916.
The weekly chart displays an RSI that is currently about oversold as it was during Int. wave ii. The daily chart displays an RSI that has not been this oversold since Major wave 4 in February. Plus the daily MACD is also more oversold than it was during the Int. wave ii downtrend. This market has already hit some momentum extremes in only its first week of real selling. As a result we estimate we either made the downtrend low on Friday, or completed wave A of a three wave decline that should end next week. Medium term support is at the 1901 and 1869 pivots, with resistance at the 1929 and 1956 pivots.
Short term support is at SPX 1916 and the 1901 pivot, with resistance at the 1929 and 1956 pivots. Short term momentum ended the week just below neutral. The short term OEW charts remain negative with the reversal level now SPX 1935.
We are counting the uptrend as having topped with a fifth wave failure at SPX 1985. Just below the actual SPX 1991 top. We have counted a three wave decline to SPX 1962 (1970-1979-1962) and labeled that A. Then a B wave rally to SPX 1976. This was followed by a three wave decline to SPX 1916 (1925-1937-1916). At SPX 1916 this second three wave decline was exactly a Fibonacci 2.618 times the first. Also at SPX 1916, as we noted on Friday, it was the June print low and it displayed a double bottom in ES right at the S1 support pivot. After the market hit that level it had its best rally since the decline from SPX 1985 began.
The last two downtrends spent a few days retesting the low before the next uptrend finally took off. Review the daily chart above. With this in mind we feel either the low is in for Intermediate wave iv, or possibly a push down to the 1901 pivot range should end it. A rally into the 1956 pivot range would currently suggest SPX 1916 was the downtrend low. Best to trading!
The Asian markets were mixed for a net gain of 0.4%.
The European markets were all lower for a net loss of 3.2%.
The Commodity equity group were mixed for a net loss of 1.2%.
The DJ World index may have ended its Primary III and lost 2.35%.
Bonds continue to uptrend but finished about flat on the week.
Crude remains in a downtrend and lost 3.9% on the week.
Gold is close to confirming a downtrend and lost 1.1% on the week.
The USD remains in an uptrend and gained 0.4% on the week.
Tuesday: Factory orders and ISM services. Wednesday: the Trade deficit. Thursday: weekly Jobless claims and Consumer credit. Friday: Wholesale inventories. Nothing scheduled with the FED. Best to your weekend and week!