weekend update

REVIEW

The market started the week at SPX 2052. After a small pullback to SPX 2047 on Monday the market started to rally. Tuesday and Wednesday had gap up openings as the SPX reached 2095. Then for the remainder of the week the SPX only managed to tack on four points, and ended the week at 2099. For the week the SPX/DOW gained 2.2%, and the NDX/NAZ gained 3.4%. Economic reports for the week were nearly all positive. On the downtick: consumer sentiment. On the uptick: new/pending home sales, the FHFA, durable goods orders, Q1 GDP and the Q2 GDP estimate. Next week’s reports will be highlighted by monthly Payrolls, ISM, and the FED’s Beige book.

LONG TERM: bear market rally

Despite the relative strength of this market since mid-February we continue to maintain the view that the market has been in a bear market rally. We counted five Primary waves from 2009-2015 to end the Cycle wave [1] bull market. Primary waves I and II in 2011, and primary waves III, IV and V in 2015.

The first downtrend took the SPX to 1810 in mid-February which we labeled Major wave A. The uptrend that followed to SPX 2111 by mid-April we labeled Major wave B. Since that high the market confirmed a downtrend, but only dropped to SPX 2026 (4%) before rallying again. This would suggest, if a new uptrend is confirmed, that Major wave B has subdivided. Under this scenario the SPX 2111 and 2026 levels would be Intermediate waves a and b of Major B, with a rising Int. c underway now.

MEDIUM TERM: downtrend weakening

From the mid-February Major wave A downtrend low at SPX 1810 we counted an a-b-c Major wave B rally to SPX 2111 by mid-April. Then the market entered a downtrend which hit SPX 2026 just over a week ago. Since that low the market has rallied virtually straight up to SPX 2099 in just 6+ days. We had been expecting a rally off the SPX 2026 low into the 2070 pivot range, or possibly the 2085 pivot range. The market has clearly risen above both.

As noted above, unless the market starts declining soon there is a chance that a new uptrend is underway. This could carry the SPX back to 2111 and even higher. Based upon our analysis this would still be considered a Major B wave that has subdivided. Irregular B waves can make new highs, rising above the previous fifth wave and retracing more than the entire A wave. Should the market turn down next week, and close below the SPX 2026 level, the downturn could be quite severe. Medium term support is at the 2085 and 2070 pivots, with resistance at the 2131 pivot.

SHORT TERM

After doing a somewhat complex a-b-c decline from SPX 2111 to 2026 the market has rallied virtually straight up from that low to 2099. The b wave during the SPX 2111 to 2026 decline was also a quick straight up affair, albeit much shorter. It appears, as of Friday’s close, the market either breaks out to confirm a new uptrend or breaks down to resume the downtrend next week. Turning points often occur over holidays.

Short term support is at the 2085 and 2070 pivots, with resistance at SPX 2111 and the 2131 pivot. Short term momentum ended the week with a negative divergence. Enjoy the Holiday weekend!

FOREIGN MARKETS

Asian markets were mostly higher on the week for a net gain of 2.0%.

European markets were also mostly higher and gained 2.5%.

The Commodity equity group was mixed but gained 1.4%.

The DJ World index gained 2.1%.

COMMODITIES

Bonds appear to be in a downtrend and lost 0.1% on the week.

Crude remains in an uptrend and gained 1.8% on the week.

Gold is in a downtrend and lost 2.9% on the week.

The USD is in an uptrend and gained 0.5% on the week.

NEXT WEEK

Monday: holiday. Tuesday: Personal income/spending and PCE prices at 8:30, Case-Shiller at 9am, the Chicago PMI at 9:45, then Consumer confidence at 10am. Wednesday: Construction spending, ISM manufacturing, Auto sales and the FED’s Beige book. Thursday: weekly Jobless claims, and the ADP. Friday: monthly Payrolls, the Trade deficit, Factory orders, ISM services, and FED governor Brainard speaks at the CFR. Best to your weekend and week!

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