Tuesday update

SHORT TERM: rally then pullback, DOW +6

Overnight the Asian markets gained 0.9%. Europe opened higher and gained 2.4%. US index futures were higher overnight as well. At 8:30 the CPI was reported higher: +0.2% v -0.2%, and at 9:15 Industrial production was reported lower: -0.2% v -0.2%. The market opened two points above yesterday’s SPX 2053 close, dipped to 2050 in the opening minutes, then rallied to 2067 by 11:30. At 10am the NAHB was reported lower: 62 v 64. After that high the market started to pullback. At 1:30 a speech from FED governor Powell: http://www.federalreserve.gov/newsevents/speech/powell20151117a.htm. The pullback continued until just after 3pm when the SPX hit 2046. At 3:30 FED governor Tarullo’s: http://www.federalreserve.gov/newsevents/speech/tarullo20151117a.htm, speech was released. Then the market bounced to close at SPX 2050.

For the day the SPX/DOW were mixed, and the NDX/NAZ ended flat. Bonds gained 1 tick, Crude dropped 95 cents, Gold slid $13, and the USD was higher. Medium term support remains at the 2019 and 1973 pivots, with resistance at the 2070 and 2085 pivots. Tomorrow: Housing starts and Building permits at 8:30, then the FOMC minutes at 2pm.

The market opened slightly higher today, dipped, and then hit a rally high at SPX 2067. With this rally entering the 2070 pivot range, as noted yesterday, we updated the labeling for yesterday’s SPX 2019 low as the end of Major wave 4. Major wave 5 appears to be underway. The rally from SPX 2019 to 2067 fits within the boundaries of what was expected to kick off Major wave 5. The high can be labeled as a Minor 1 or Int. i of Major 5. We will go with Int. wave i until the market suggests a change. Posted that as well. The current pullback should be about 20+ points into the mid to lower SPX 2040’s. After it completes the uptrend should resume, taking the market to all time new highs. Short term support is at SPX 2040 and the 2019 pivot, with resistance at the 2070 and 2085 pivots. Short term momentum hit extremely overbought today, then dropped below neutral. Best to your trading!

MEDIUM TERM: uptrend

LONG TERM: bull market

CHARTS: http://stockcharts.com/public/1269446/tenpp

About tony caldaro

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195 Responses to Tuesday update

  1. Aleksey Zimin says:

    Hello, Tony, first time poster but long time reader of your wonderfully accurate blog.
    Question: why not treating the whole move off 2019 to today’s close of ~2085 as i ?

  2. tommyboys says:

    All I know is Nybis’s target of 2066 – and “black hole to 571” has been shot to poop 🙂

  3. Gary Lewis says:

    Gotta love Tony’s pivot projections. Spot on 2085. Amazing.

  4. mjtplayer says:

    I have this rally as minor 1 of int 3 still, anyone else? I count i,ii,1,2,3,4 and currently in 5 to complete iii. Should get iv and v to finish minor 1? Otherwise it’s hard to find any kind of identifiable minor 2.


  5. with this move today we have passed 200ma (2064 8 ma 2063) and 20ma (2075) This is very bullish next target are the upper bollinger band currently at 2120

  6. H D says:

    I’m hoping for some 85-70 pivot ping pong, at least 1 volley.

  7. Hi Tony,
    It appears that the recent pullback to 2050 may have been minor 4,and today’s rally may have nearly completed minor 5. Next pullback Int. 2 to mid 2040’s.

  8. Gary Lewis says:

    I realize that one commenter called me an idiot for suggesting that the weekly line chart on SPY was forming a reverse head and shoulders. Well, keep calling me an idiot. A breakout above the 210 neckline looks like a sure shot to 225-230. (I think some commentors call me even worse things ;-( but as long as I keep making money, don’t mind.)

  9. Dex T says:

    So interest rates set to rise next month (possibly). Coincides perfectly with the ending of P5.

    • rc1269 says:

      long bond rallying = not bullish

      • Dex T says:

        I’m not bullish and agree that the warning signs continue to pile on.

        You even have many of the banks finally waking up to and discussing the warning signs and scratching their heads, wondering what it could possibly mean- and then going back to sleep convinced that the bull will never die.

        But a few weeks and nominal new highs won’t make a difference in my mind.

        We have gone nowhere for a year so I am ready for this to end!

      • phil1247 says:

        ZBZ5 LOOKS like it wants to rally but has more to prove

        it still cannot trade above sundays high 0f 154 07

        no bond selloff with stock rally is encouraging

    • tommyboys says:

      I still see the first several rate increases as bullish and I have history on my side. Time will tell.

      • rc1269 says:

        i think you’re misreading history, unfortunately. first, let’s start with the fact that it was not rising rates that led stocks higher, but rather the improving economy that predicated the FOMC to decide to hike rates. one is causal, the other coincident. i believe you are mixing them up. your argument is akin to saying that higher marginal tax rates must make you richer, because look at those high marginal tax rates for all those millionaires out there.

        this cycle does not have a good parallel in modern history. the loosening regime was much larger and longer than any other period for which we have good records (or for when there was even a Fed Funds rate.) other recent tightening cycles such as 86, 94, 99 and 04 all exhibited a few very key differences.

        2004: the spx was still 25% below all time highs and the economy was building steam. if the Fed had started to hike in 2012 as they should have, this would be a reasonable comparison, other than the fact that companies were actually investing at 5-10% per year. 3 years later, new highs, much higher multiples,and slower growth makes this not comparable.

        1999: this one hardly counts since it merely followed the ill-advised non-tightening of the mid 90s. unemployment was low and had been low. GDP was just fine. this was a “burst the tech bubble” move. not comparable.

        1994: more of a real hike than that of the late 90s, this one at least followed a fairly long loosening cycle. as with now, stocks were at the highs for the most part. in fact, after that hike stocks decline about 10% and wallowed for a long time, only getting back to new highs a full year later. and that was when GDP was growing faster than now and capital spending was growing 5% per year. not comparable.

        1986: more comparable, but still not. stocks were at all time highs, inflation had been decline for a couple years, though unemployment was worse than it is now. back then they had been easing for a whopping 2 years (sound comparable so far?). also, upon hiking, stocks dropped 5%. they did indeed rally in a great move, which as we all know culminated a year later in a swift 30%+ drop. incidentally, that drop took it back to the level it was when rates were hiked.

        so what are the main differences? a) they didn’t actually all rally after the hike, b) there are no single instances of what happens when a hike happens after a period that is 2x longer than the normal policy cycle, c) none of the hikes occurred at the end of a credit cycle, d) headline inflation was not zero during any past hikes

        others, if you want to get into ancient history…
        1983: near market top
        1980: 3 months prior to top
        1976: market top, nailed it right on

        • Dex T says:

          Excellent comprehensive post!

          The truth is we don’t know what will happen. There are different conditions today than in previous hikes. The fact that it coincides with so many counts and other bearish data lead me to believe it will be bearish.

        • tommyboys says:

          Note the infancy of rate increase – not the last several – the FIRST several.

          • tommyboys says:

            Then there’s this. No real correlation. Although my case is that the BEGINNING of increases is bullish. Its only when they over due it rates damage equitites near the end of rising cycles.

          • rc1269 says:

            regarding the above chart – i’m not sure what 5yr swap rates have to do with the Fed Funds rate. they’re only marginally related. those rates go up when the economy is improving and it’s ‘risk on.’ nothing more. so yes it would coincide with a rising market. if the Fed hikes FF rates at the wrong time you could see that rate decline, fwiw.

            regarding the second chart i’m pretty sure it makes my point – that it’s not rates that cause the market to go up and down. it’s the economy, and rates merely follow or coincide. so thank you for that one.

          • tony caldaro says:

            Let’s compare apples with apples.
            This deflationary period to the last deflationary period.
            Cycle [1] has thus far lasted from 2009-2015, and the FED is considering raising rates.
            During the last Cycle wave [1] 1932-1937 the FED did try to raise rates.
            In Oct 1936 the FED raised rates from 0.10% to 0.35% with the GNP at +1.8%.
            Then in March 1937 they raised it again to 0.60% with GNP at +3.3%.
            The stock market topped on the second increase and lost 50% in the next 12 months.
            GNP dropped to -12.2% during the rest of 1937.
            Deja vu ?

  10. Ok folks let’s go go to challenge early november highs:))

  11. TC, you’re awesome! Market is following your pattern by the book.

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