Quite a roller coaster week for such a small correction. The market started the week at SPX 1925 and rallied to 1943 on Monday. Then it made a choppy eleven small waves on its way down to SPX 1905 on Thursday. On Friday it turned the whole week’s losses green. For the week the SPX/DOW were +0.35%, the NDX/NAZ were +0.30%, but the DJ World index lost 0.9%. On the economic front positive reports outpaced negative ones 7 to 2. On the uptick: factory orders, ISM services, wholesale inventories, the monetary base, long term investor sentiment, plus both weekly jobless claims and the trade deficit improved. On the downtick: consumer credit and the WLEI. Next week we get reports on Industrial production, Retail sales and the PPI.
LONG TERM: bull market
The bull market continues to unfold as labeled. We have been expecting five Primary waves up from the March 2009 SPX 667 low. Primary waves I and II ended in 2011, and Primary wave III has been underway since that October 2011 low. Primary I divided into five Major waves with a subdividing Major wave 1. Primary III has divided into five Major waves, but this time Major waves 3 and 5 are subdividing. Major waves 1 and 2 completed in late 2011, and Major waves 3 and 4 completed in early 2014. Major wave 5 has been underway since that February 2014 low.
Major wave 5 has been subdividing into five Intermediate waves. Intermediate waves i and ii completed in March/April. Intermediate wave iii completed in July. Intermediate wave iv may have just completed at Thursday’s low. This suggest Intermediate wave v may be underway to new bull market highs. When Int. wave v completes, it will also complete Major wave 5 and Primary III. Then the market should experience its largest correction since the Primary wave II correction in 2011. All corrections during Primary III have been 10.4% or less. Primary II was a 22% correction.
MEDIUM TERM: downtrend may have bottomed
While the recent Int. wave iii uptrend had a tricky ending, this Int. wave iv downtrend has also been a bit tricky as well. Early in the week we gave the SPX 1916 level an opportunity to display a downtrend low. It didn’t pass our test. Then by mid-week we gave the SPX 1911 low an opportunity. It passed our test on Thursday, but turned lower any way and much lower than that overnight in the futures. On Friday the market acted like none of that had happened, and took off to the upside for the largest single wave rally since the downtrend began: 1905 to 1932.
We counted the decline from SPX 1985 as a double zigzag Minor A to 1916. Then after a Minor B rally to SPX 1943, Minor C was underway. This was the tricky part. We counted a five wave Minute a to SPX 1911, a three wave Minute b to 1929, with a Minute c underway. We did get three waves down to SPX 1905, a rally to 1915, but then a very short decline to 1909. When the SPX cleared a downtrend line from 1943, 1929 and 1918, it surged and closed at the highs of the day. So the last expected wave reversed 4 points short of the low. Nevertheless it looks like we have completed three Minor waves down for Intermediate wave iv. The next objective for the market would be to rally above the Minor B wave high at SPX 1943 to confirm.
Looking ahead, should SPX 1905 be the downtrend low we have several levels for a potential Primary III high: SPX 2003, the 2019 pivot range, 2028, and the 2070 pivot range. The all time high is SPX 1991.
Should the downtrend continue, the next support level is still within the OEW 1901 pivot range at SPX 1897. This is the actual high of the previous uptrend. Should the market drop much below this it would suggest the SPX is creating a diagonal triangle Major wave 5. This does not change the projection of all time new highs to end Major 5, only the wave pattern labeling and the additional short term risk to the downside. Medium term support is at the 1929 and 1901 pivots, with resistance at the 1956 and 1973 pivots.
Short term support is at the 1929 and 1901 pivots, with resistance at SPX 1943 and the 1956 pivot. Short term momentum ended the week quite overbought. The short term OEW charts are positive from SPX 1917 with the reversal level now SPX 1921.
This current/recent downtrend can best be counted as a complex zigzag, alternating somewhat with the irregular Int. wave ii zigzag in March/April. Since there is no overlap between the Int. i high and the Int. iv low the count/labeling remains the same. At Thursday’s low all four major indices displayed daily positive divergences at their lows. This is usually a very positive sign for a completed downtrend. We had the same exact situation at the downtrend low in February. Naturally, the hourly charts are also displaying positive divergences. Best to your trading!
The Asian markets were mostly lower for a net loss of 1.6%.
The European markets were all lower losing 3.6%.
The Commodity equity group were all lower losing 1.3%.
The DJ World index was lower losing 0.9%.
Bonds continue to uptrend gaining 0.5% on the week.
Crude is still downtrending but finished about flat on the week.
Gold is still uptrending and gained 1.2% on the week.
The USD is uptrending but finished about flat on the week also.
Monday: a speech from FED vice chair Fischer before the open. Tuesday: Budget deficit. Wednesday: Retail sales and Business inventories. Thursday: weekly Jobless claims and Export/Import prices. Friday: the PPI, the NY FED, Industrial production, Consumer sentiment and its Options expiration Friday. Best to your weekend and week!