The market started the week at SPX 2057. After a slight rising day on Monday, the market gapped up on Tuesday hitting the week’s high at SPX 2085. On Wednesday the market sold off, gapped up again on Thursday to a lower high, then sold off on Friday to end the week at SPX 2047. For the week the SPX/DOW lost 0.85%, and the NDX/NAZ lost 0.25%. On the economic front reports came in nearly all positive. On the downtick: weekly jobless claims rose. On the uptick: wholesale/business inventories, export/import prices, the PPI, retail sales, consumer sentiment, Q2 GDP estimate, and the treasury budget remained in a surplus. Next week’s reports will be highlighted with the NY/Philly FED, the FOMC minutes and Industrial production.
LONG TERM: bear market
For the past several weeks we had been noting that the Tech sectors, NDX/NAZ, had been displaying a clearer view of the growing weakness in the general market. We hold this belief because the Cyclical sectors, SPX/DOW, have been greatly aided by the upward surge in the commodity sector. The following few charts should add clarity to this belief.
The NDX topped with the rest of the major indices in late 2015. Then it declined 18% over the next two months into a mid-February low. After that it rallied for two months into a mid-April high, retracing 80% of the decline. Since that high it has rolled over and entered a new downtrend, which has already declined 6%. The NDX does not have any commodity stocks.
During the mid-February to mid-April uptrend, in the four major indices, the Transportation index was in the midst of its largest rally since it topped in late-2014. During its uptrend the TRAN rallied 27%, led by the surge in energy and commodities, and this clearly overflowed into the Cyclical sectors. It recently has confirmed a downtrend as well.
After the SPX bull market topped in late-2015 its first downtrend lasted until mid-February as well. Its decline, however, was only 15%. During its two month uptrend it nearly retraced the entire initial downtrend, falling only five points short. With surging energy and commodity stocks making up 10% of the index, this may have added the extra strength. While it has yet to confirm a downtrend, the DOW has already done so.
MEDIUM TERM: downtrend probable
With three of the four major indices now in confirmed downtrends, DOW/NDX/NAZ, it is fairly clear the mid-April high ended the recent two month uptrend. Continuing with the SPX/NDX comparison we would like to make note of some shorter term relationships.
After December 2015 bull market top the NDX’s first decline was about 260 points. After the mid-April uptrend high its first decline was about 290 points. Both of these first waves are about equal.
In comparison, after the December bull market high in the SPX its first decline was about 110 points. Yet, due probably to the continued strength in energy stocks, its first decline after the mid-April high was only about 70 points. Clearly commodities are having an impact on the Cyclical sectors. This suggests, however, when the Tech sectors start making new lows commodities will probably selloff, as the SPX/DOW have a lot of catching up to do on the way down. Medium term support is at the 2043 and 2019 pivots, with resistance at the 2070 and 2085 pivots.
After the Major B uptrend topped in mid-April at SPX 2111 the market has been working its way lower. The first decline was five overlapping waves to SPX 2039. We have labeled this with Intermediate waves i/a, while we await some further market activity to clarify which label it is. The rally that followed to SPX 2085 we labeled Int. ii/b. After that high occurred on Tuesday we have been tracking an Int. iii/c decline.
Thus far we have noted three small waves: 2053-2071-2043. We could label these waves as Minor, but think they are of a smaller degree since we are expecting a significant decline during this downtrend. On Friday the SPX ended with a positive divergence on the hourly chart. If the market gaps down on Monday it will likely get cleared. If not, the market could rally 15+ points off the SPX 2043 low to clear the oversold condition. After that it should resume the downtrend. Short term support is at the 2043 and 2019 pivots, with resistance at the 2070 and 2085 pivots.
Asian markets were mixed on the week and lost 0.4%.
European markets were mostly higher and gained 0.8%.
The Commodity equity group were all higher and gained 0.5%.
The DJ World index lost 0.5%.
Bonds remain in an uptrend and gained 0.4%.
Crude is still uptrending and gained 5.3%.
Gold is uptrending as well but lost 1.3%.
The USD appears to be in an uptrend and gained 0.7% on the week.
Monday: the NY FED at 8:30, then the NAHB at 10am. Tuesday: the CPI, Housing starts, Building permits, Industrial production and Capacity utilization. Wednesday: the FOMC minutes. Thursday: weekly Jobless claims, the Philly FED, and Leading indicators. Friday: Existing home sales, a speech from FED governor Tarullo, and Options expiration. Best to your weekend and week!