SHORT TERM: pullback resumes, DOW -78
Overnight the Asian markets gained 0.4%. Europe opened higher and gained 0.1%. US index futures were about unchanged overnight. The market opened one point below Friday’s SPX 2175 close, and continued lower. The market declined, with only two point bounces, to SPX 2162 by 12:30. Then it tried to rally. The choppy rally continued throughout the afternoon as the market rallied back to SPX 2168 at the close.
For the day the SPX/DOW lost 0.35%, and the NDX/NAZ lost 0.05%. Bonds slipped 4 ticks, Crude dropped $1.10, Gold slid $9, and the USD was lower. Medium term support remains at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Tomorrow: Case-Shiller at 9am, then Consumer confidence and New home sales at 10am.
The market opened lower to start the week. After coming within one point of matching the all time high at SPX 2176 on Friday, the market declined today to within two points of Thursday’s SPX 2160 low. The choppy activity that started last Thursday, 2160-2175-2162, still looks like a Minor wave pullback within Int. wave three. Unless the market breaks much lower it looks like that is the best possibility at this time. Short term support remains at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Short term momentum hit oversold and rebounded to neutral during the day. Best to your trading!
MEDIUM TERM: uptrend
LONG TERM: uptrend
the ELLIOTT WAVE lives on 
I’m a follower market breadth and generally adhere to the principal that breadth deteriorates substantially in advance of major declines. Thus, when breadth is strong, as it is now, probabilities favor continued advances in the major averages. I’ve developed the following chart using % of stocks above their 50dma to assist in identifying when to become defensive.
http://schrts.co/FXJger
It may take a bit of time to decipher the chart when you view it for the 1st time, but the buy and sell signals on the SPY (red and green vertical lines) show that this indicator has done a reasonably good job of staying in sync with the larger trend. When the 2EMA of the indicator is above 80, as it is now, breadth is very strong and any price weakness should be temporary.
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http://www.investing.com/indices/smallcap-2000-futures
2 waves up since late June 2015, notice time-wise the upturn is = to the following flattish correction…and Rut turns up anew 🙂
Look for yourself at the 5h chart.
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Here are some thoughts on the longer term picture, and why I don’t feel any regret at moving my long term holdings to cash when the spx was 2070ish. I don’t feel any need to dip back in, even if this goes higher as I ultimately believe these levels will be revisited on the next down turn, so it’s unattractive being long as a buy and hold investor. That being said, the trend is currently up, from a swing trade perspective I’m selling into 2175 and looking to buy 2100-2130 area. From a day trading perspective, obviously none of this matters and as always opportunities both ways.
1. Fiscal QE, or helicopter money, is some way off in the US and Europe. Japan will be the test case and we’ll see what the impact is. Europe will have difficulty getting it past the Bundesbank. There will need to be recession in the US and all other measures used up before the Fed tries it, so although I think it’s coming sometime, it won’t happen with markets at these levels.
2. Earnings will continue to be weak. We’ve seen a bounce this quarter on a weaker dollar and rising oil, but both are trends that are unlikely to continue. Looking at GAAP earnings, the picture is dismal. We have the standard Wall Street trick of showing earnings beating in the current quarter whilst simultaneously revising down next quarter. There’s only so long valuations can remain this elevated in the hope that earnings lift off, which never comes.
3. Political risk is growing globally. Whether it be brexit, trump or nationalists in continental Europe. People want change away from the status quo. And that probably means an increase in the proportion of GDP received by labour and a fall in capital’s share. That’s not good for stocks.
4. Bond yields have fallen to very low levels, which has supported stocks via the equity risk premium. Markets just don’t believe the fed will raise. Any moves back towards normalising policy could cause a sharp rise in yields and that’s not good for stocks. They’re running low on excuses not to raise, the US economy is doing ok and market volatility has dried up.
In summary, the trend is up, but there are plenty of reasons why it’s unlikely we’ll keep going up and up. Time to be cautious, as it has been for the last 2 years.
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Mc, cogent considerations. Thank you.
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absolutely…and I thought McG might get his 2130 today, with oil a bit higher…..maybe later…
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Great post. Any idea whats helping the DAX move higher is this climate. Is it a weaker Euro?
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Euro looks fairly rangebound the last 6 months:
https://www.ecb.europa.eu/stats/exchange/effective/html/index.en.html
Although the correlation between dax and euro is clear. I’m not an expert on the dax but I would think sector rotation over the last month is generally positive for the dax given a high concentration in cyclical stocks.
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Thank you for the info sir.
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The irrational period of the tops can last for quite some time. But yes it’s good to start being cautious.
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http://www.cnbc.com/2016/07/26/breakout-economic-indicator-has-wall-street-buzzing.html
The other argument. It’s a strong one. I’ll stick with the markets interpretation since we had a classic breakout after a 2 year transitional phase. To look for reasons other than the daily domestic cumulated reports is foolish since that’s how the market interprets a trend 6 months out. A 13 percent increase in earnings is STILL expected over next 6 months. Jobs, housing, even spending is hitting 8 year highs. Me, I’ll trust these reports and it’s implications. The technical picture matches this interpretation as well. Sitting on the sidelines during a breakout wastes most of the possible easy money. Why do people insist on their own interpretation of how the economy works instead of trusting the street? The latest on new home sales suggests there will be no recession for at least 6 months out. In fact such a high pace has always produced accelerated consumer spending. But hey, I have been pounding this message a long while ago and laughed at as if I had no idea what to expect. the last 2 dismal GDP reports I used as proof of what to expect. It was bad but in reading the health of the consumer it showed a strong improvement during that same period. Imagine seeing very weak earnings and corporate and consumer spending but noticing a future trend that was explosive. Exploding it is. That’s why I use fundamental data. It gives you an edge in interpreting choppy long period. Was adamant 2035 would be breached. just as adamant we are in a new up channel that’s well established from mid-February on.
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Well done on your trades Gary, you’ve been spot on the last few months. That article actually says most of the surprise is because of low expectations being exceeded rather than data being very strong. And will the expected rise in earnings materialise or will it be pushed back again? On past form there’s a big risk it doesn’t come through. My point was more around being happy with the gains made over the last 5 years and to wait for the next compelling buy and hold opportunity, which I accept could take years. Despite the technical breakout, most of the issues that have caused volatility over the last 18 months haven’t been resolved so it leaves the market vulnerable. We had a fakeout down out of the range only a month ago. If we have a pullback of 3-4% in August it would then potentially look like a fakeout up. Swing trading longs yes, invest and forget is a big no for me given where we’re at.
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for 8 years, they kept saying strong GDP growth. it never makes it; however, they say in 2 qtrs strong GDP. market chasing a carrot.
He will be first president in USA history to never have 1 year of 3% GDP growth. even after a low bar due to recession. think about that !
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Forget charts and stats that pertain to an environment pre-mortgage debacle. Dynamics changed. Huge overshoot on the downside that is slowly rebounding. zero rate environment, while rare, does have parameters that fit with current situation. Clearly in an accelerated phase from consumer buildup. GDP was dismal when I made my observation. Quarterly earnings in-line with past hits and misses. market is setting up for an explosive earnings growth of 13 percent in next 6 months. Earnings do matter and it had better come thru or the bears will rejoice. Environment suggests we are entering accelerated spending phase which will help the earnings portion somewhat but bring in play the longer term damaging affect of rising rates. I believe when rates start to rise the street will react unkindly, despite the economic numbers.
Waiting for the pullback on fear we are once again about to crash is unwarranted. I myself am surprised we didn’t retrace already some of the gains. The other option is a slow churn setting up the next surge. that now is in play. The bias bear has a tendency to look at the trajectory and height of the move and see only a chasm awaiting. The bull sees a 2 year ceiling that broke thru and rejoices that the surge will continue. I try to temper the two views and become devils advocate against my natural inclinations. caution is always good. Can’t let it stop you from playing the game at the moment of strongest action.
Immediate action: How will the street interpret the FOMC announcement along with key players in SP500 earnings announcements. AMZN and AAPL are two such names. Current action looks to be consolidation and not topping. Way too controlled and with a slow grind up after the initial surge. Odds favor another move higher respite everyone’s angst and lack of retrace. Should have a strong clue tomorrow leading into Thursday.
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Thank you tony for all of your work!
Some interesting point of view…
Considering world growth is based on more consumers… it paints a very grey picture.
https://www.globalfinancialdata.com/gfdblog/?p=3554
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