Another week of all time new highs in the US indices. The week started off quietly from SPX 2018. Hit SPX 2024 on Monday, made its first lower daily low of the entire uptrend on Tuesday, then hit 2034 on Friday. For the week the SPX/DOW were +0.90%, the NDX/NAZ were +0.05%, and the DJ World index was -0.20%. Economics reports for the week were mixed. On the uptick: ISM manufacturing, the ADP, consumer credit, plus weekly jobless claims and the unemployment rate improved. On the downtick: construction spending, factory orders, ISM services, monthly payrolls, the WLEI, plus the trade deficit increased. Next week we get wholesale/business inventories, export/import prices and retail sales.
LONG TERM: bull market
In the three plus decades we have been applying OEW, the market has experienced five bull markets and four bear markets. Most would even count the 1987-2000 bull market with three bull phases and two bear phases. If we include these three bull phases we are now referencing seven bull markets, with today’s bull market being the seventh. During five of these bull markets the most obvious count, as OEW was quantifying the trends, was the correct count. None of these five bull markets hardly required any labeling revisions at all. One bull market, however, was quite difficult to track: 1990-1998. There were so many wave subdivisions during that advance, that it took several labeling revisions as it progressed.
What sets it apart from the other five is that it took eight years to unfold while the others were 2, 3 or 5 years. Our current bull market is now in its 68th month. In the entire modern history of the US stock market, 1921-2014, there have only been five bull markets that have lasted five calendar years or longer. And, two of those lasted exactly 60 months, or just under. We are currently experiencing the third longest bull market in nearly 100 years. This is obviously quite rare.
The two previous longest bull markets each had a catalyst. During the 1921-1929 bull market it was the introduction and expansion of consumer credit. During the 1987-2000 bull market it was the introduction and expansion of the worldwide web. This bull market has also had a catalyst: Central Bank asset purchasing programs, commonly known as QE. Each of the previous two bull markets ended in a speculative bubble, when short term rates rose beyond what the economy could manage. In 1921-1929 the bubble was the entire stock market, and in 1987-2000 the bubble was formed mostly in the Growth sector.
The reason for these bull market comparisons, in OEW terms, is that this market is currently doing something it has not done since it began in March 2009. It is making new bull market highs without a FED liquidity program underway, announced, or even suggested. In fact, not only has the last QE program ended. But plans are to start raising interest rates next year. This suggests, after 67 months of FED liquidity, the market has reached its most significant inflection point to date. This bull market may be shifting from a liquidity driven market into a more normalized economic cycle. Should the market continue to make new highs into next year, its sixth, this should seriously be considered.
MEDIUM TERM: uptrend
After the September high at SPX 2019 we expected the market to enter a Primary IV correction. We had conservatively counted five waves from October 2011 and surmised that was the high of Primary III. The market then declined 9.8%, in an a-b-c pattern, into a SPX 1821 low in October. Then after a day or so of high volatility, it started the current uptrend. The uptrend, as noted quite early on, was stronger than expected. In fact, the market made new all time highs this week. As we explained in the last weekend update, the correction appeared to be too small to consider it all of Primary IV. Therefore, it was either just Major A of Primary IV or Primary III was extending.
The rationale for this position is quite simple. Second and fourth waves of bull markets are generally similar in the percentage of market decline. In the previous six bull markets from 1982, noted earlier, the differences in the percentage of decline between the second and fourth waves ranged from 0.2% to 6.8%, with just a 2% mean. Therefore, suggesting a 9.8% correction and a 21.6% correction, a difference of 11.8%, were both primary waves would be well beyond the norm for the past 30+ years. Not impossible, but certainly not probable. With this in mind we offered an extending Primary III alternate count that fits all four major indices.
With this week’s rally to new highs, and an uptrend displaying fives waves up thus far, we increased the probability of the alternate count from 50%/50% to 55%/45%. Remaining objective, we will not know for certain if Primary III is extending, or this uptrend is part of a complex Primary IV, until it ends. If it ends with an impulsive five wave structure, an extension is underway. If the uptrend ends with a corrective seven wave structure, we would consider it an irregular B wave with a C wave down to follow. The key is the internal structure of this uptrend. As a result we will maintain both counts until this issue is resolved. For now, the trend is still rising from the recent SPX 1821 low. Medium term support is at the 2019 and 1973 pivots, with resistance at the 2070 and 2085 pivots.
The uptrend from the recent SPX 1821 low now appears to have five waves up: 1898-1878-2024-2001-2034. Since the uptrend has not completed yet we do not know if it will end impulsively, or not. Since we are now giving the extending Primary III a 55%/45% advantage we can label these five waves as Minor waves 1-2-3-4-5. Oddly enough, when we do some Fibonacci projections on this uptrend using the Primary III extending count we arrive at a similar target using the Major wave B Primary IV count.
If this uptrend unfolds in a Major B wave corrective pattern, the maximum upside target would be 1.382 times wave A. This produces a maximum upside target of SPX 2095. If the uptrend unfolds in an impulsive Intermediate wave v pattern, we arrive at several potential Fibonacci targets just under SPX 2095. Minor 5 = Minor 1 @ SPX 2078, Int. v = Int. i @ SPX 2084, and even Major 3 = 4.236 Major 1 @ SPX 2082. Quite an interesting setup no matter how the uptrend unfolds. The weakest Fibonacci relationship is Minor 5 = 0.618 Minor 1 @ SPX 2049. However, this does not fall into the SPX 2078-2084 cluster.
Short term support is at the 2019 pivot and SPX 2000, with resistance at the 2070 and 2085 pivot. Short term momentum ended with a negative divergence on Friday.
Asian markets were mixed on the week for a net loss of 0.3%.
European markets were nearly all lower for a loss of 1.3%.
The Commodity equity group were mostly lower for a loss of 3.0%.
The DJ World index lost 0.2%.
Bonds gained 0.3% on the week but remain in a downtrend.
Crude lost 2.5% on the week and continues to downtrend.
Gold lost 0.3% on the week, thanks to Friday’s surge, but remains in a downtrend.
The USD gained 0.8% on the week and remains in an uptrend.
Wednesday: Wholesale inventories. Thursday: weekly Jobless claims, the Treasury budget, and a speech from FED chair Yellen. Friday: Retail sales, Export/Import prices, Consumer sentiment, Business inventories, and a speech from FED governor Powell. Best to your weekend and week!