weekend update


The market started the week at SPX 2184. After a decline to SPX 2176 on Monday the market rallied to 2193. A pullback followed to SPX 2170 on Thursday, then a gap up opening on Friday, rally to 2188, selloff to 2160, then ended the week at 2169. For the week the SPX/DOW lost 0.75%, and the NDX/NAZ lost 0.40%. Economic reports for the week were mixed. On the downtick: existing home sales, Q2 GDP, consumer sentiment, and the Q3 GDP estimate. On the uptick: new home sales, the FHFA, durable goods orders, plus weekly jobless claims improved. Next week’s reports will be highlighted by monthly payrolls, ISM and the PCE. Best to your week!

LONG TERM: uptrend

The market continues to offer three basic long term counts, as we have been noting in recent weeks/months. Last week we gave the three counts an equal probability. After an additional week of watching the activity, and some improvement in the technicals, we are slightly raising the probability of one count and lowering the other two.


The count we favor is posted on the DOW charts and it is the new bull market Primary III scenario. We do not expect many to agree, but we are raising its probability to 40%. The count suggests the market has only completed Intermediate waves i and ii, and possibility Minor wave 1 of Int. iii at the recent all time high. Since Primary wave bull markets unfold in five Major waves, and we are in the early stages of Major wave 1, this long term trend has a long way to go.


The second count we favor is posted on the SPX charts and is the one we started with: an irregular Primary wave B. This one may be a bit more popular, but we are lowering its probability to 30%. This count suggests the major indices (SPX/DOW/NDX/NAZ) are making new highs during an ongoing long term bear market. As the new highs are part of an irregular counter-trend rally within an overall long term downtrend. The maximum upside potential for this count is SPX 2336 (1.618 times Primary A). Anything beyond that and the count is eliminated.


Our least favorite count is actually the most popular. It is posted on the NYSE charts and suggests the bull market from 2009 is still underway, and the market is currently in Primary V. We are giving this count a 30% probability as well. The current wave structure suggests Major waves 1 and 2 have completed, and Intermediate wave i of Major wave 3 may have topped at the recent high. This index, surprisingly, has not even made a new all time high yet. Even the Wilshire 5000 is outperforming the NYSE. We believe this due to its excess exposure to foreign stocks. Making it more of an international index than a US index.

MEDIUM TERM: uptrend may have topped

Since the trends of all US major indices generally follow each other, the remaining sections will be on the popular SPX. After the Br-exit low at SPX 1992 in late-June an uptrend was underway. We have been tracking this uptrend with five Intermediate waves: 2109-2074-2178-2148-2194. As it unfolded we noticed that wave iii (104 pts.) was shorter than wave i (117 pts.), which requires wave v to be shorter than both. Third waves cannot be the shortest. Thus far wave v is quite short compared to the other two: 46 pts. Less than half of wave iii.


After the SPX 2194 high on August 16th the market became quite choppy, and entered a trading range between SPX 2169 and 2193. On Friday after a rally to SPX 2188 the market broke through the low end of the range, hitting 2160. This suggests, as expected, a downtrend has been underway. In fact, a downtrend confirmation is not too far away from current levels.

Since wave v was so small the likely downtrend support is not at wave iv, but between waves i and ii (SPX 2109-2074). Should the market correct that far, which is really only about 5%, the downtrend will have overlapped the previous uptrends in all the major indices. This overlap would help confirm the subdivisions noted in the DOW/NYSE counts in the long term section. For the SPX count, however, this creates a few more variables within the overall pattern of an irregular Primary B wave. We noted these variables on the daily chart. Medium term support is at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots.


From the potential uptrend high at SPX 2194 we can count a decline to 2169, a three wave rally to 2193, and now a three wave decline to 2160. This would suggest a small a wave at 2169, a small be wave at 2193, then a small c wave: 2170-2188-2160 so far. All of this activity is probably part of a larger a-b-c correction.


If we apply the normal Fibonacci retracements to the SPX 1992-2194 uptrend we arrive with the following support levels: 2117 (38.2%), 2093 (50%) and 2069 (61.8%). Since SPX 2117 is only a 3.5% correction it is not likely to hold support. The other two levels are more in line with moderate corrections of late: 4.6% and 5.7%. With pivots at 2085 and 2070 these two levels also fit quite well.

Short term support is at the 2131 and 2085 pivots, with resistance at the 2177 and 2212 pivots. Short term momentum ended the week just under neutral.


Asian markets were mostly lower on the week for a net loss of 0.7%.

European markets were nearly all higher for a net gain of 1.7%.

The commodity equity group were mixed for a net loss of 0.8%.

The DJ world index lost 0.8%.


Bonds remain in a downtrend and lost 0.5% on the week.

Crude appears to be in an uptrend but lost 3.0% on the week.

Gold appears to be in a downtrend and lost 1.5% on the week.

The USD is trying to uptrend and gained 1.0% on the week.


Monday: personal income/spending and PCE prices at 8:30. Tuesday: Case-Shiller and consumer confidence. Wednesday: the ADP, Chicago PMI and pending home sales. Thursday: weekly jobless claims, construction spending, the ISM and auto sales. Friday: monthly payrolls (est. 190K), the trade deficit and factory orders.

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

About tony caldaro

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182 Responses to weekend update

  1. learnedmylesson25 says:

    I won’t get in a back and forth arguement about manipulation…just facts.Japan and ECB are outright buying stock from the U.S.They state that.China buys their own market.They admit that.Whether we admit it or not,the US is involved in active buying at levels or times deemed necessary(in total coordination with Goldman,Wells,Merrill,Chase etc)It may be through the other entities listed,or PPT has their own method.Too many bearish chart patterns have been reversed,not only in equities,but currency markets.It’s so manipulated,they should call themselves chiropractors instead of Fed governors.Adios.


  2. SPX dividend yield at 2.13%
    10 year T-Bond at 1.59%

    Easy Peasy!


    • You forget to factor in the 30-50% downside risk to capital. When people ignore risk to capital, that is proof of a sentiment driven market, i.e., a bubble.


      • bud67 says:

        Great comment, Christine….


      • johnnymagicmoney says:

        I agree although there is a bubble in bonds too……………..I think the bubble in bonds gets popped after the bubble in equities, high yield and other foreign debt before our Treasury market but that will pop one day too………….

        distortion is distortion. There actually is a ton more distortion in “safe” debt than equities. The FED’s whole process has been for intervention to solve the economies structural issues that would not produce any strong negative consequences and more importantly that they could then unwind that distortion in a way and in a time period that wouldn’t create shock while keeping the economy elevated. This in a nutshell is there whole entire thought process. It is so incredibly flawed. Their historical bubble creating and bubble popping experiments are utterly ignored and the overall investment community has turned a blind eye to their track record and in the process the investment community show more ignorance than the FED themselves which is a massive feat I must say. Why? Because its in most peoples best interest to deny risk and flaws. Think of Enron……………I remember watching the Smartest Guys in The Room and taking away one very basic thought……………..the only way that worked is for everyone to participate. Whether it be fraud or turning a blind eye the masses involved had to deny otherwise it didn’t happen. The massive amount of red flags persisted for a while before it popped. There are a massive amount of red flags now in the global framework but it doesn’t matter. People don’t want to accept the truth. The alternative would be lower prices. Believing in the FED’s strength and efficiency is that denial and its what props up the market.


        • Even Greenspan admitted that the Fed was wrong to ignore the stock market bubble in 2000 and that despite his previous beief otherwise, markets do not act rationally nor do they take care of themselves I also remember the talking analyst heads one after the other insisting that “it’s different this time.” Well, we all know now that it wasn’t, and it probably isn’t this time either.


    • aahmichael says:

      Based on that logic, it would be an even better deal to just go to Vegas and place all your money on either red or black at the roulette wheel. That pays an immediate 100% return on your money.


  3. bud67 says:

    Tony just read your recent comment to me. I say.
    ” If, what you say is true, then. Your
    wave counts – “no technical
    analysis-fundamental,, to support
    your SP500 60 min chart, as well.


  4. Personal income and outlays pretty much spell out the streets anticipation of increased consumer health and spending. Wages, saving, spending up at a decent clip compared to inflation. The drive and breakout so far seem warranted based on fundamental data. Only a question of corporate’s ability to push profits. They have a tall order with anticipated surge within 4 to 6 months.

    Anyone believing this market is pure manipulation needs to answer the how. Can any entity force prices high for an extended period? Anyone dismissing the fundamental improvements must go out of their way to do so. Next drop will be over stretched valuations not on health of economy.

    Sandy Jadeja had his day in the sun.


    • purplember says:

      anyone who thinks FED hasn’t manipulated this market is a moron. if fundamentals so strong, why is GDP growth ~1% for 8 years


      • Why are we at a zero interest rate environment and why is a 2 percent growth rate very strong? Why did energy collapse and overseas contract? Why is the domestic economy doing as well as it has during the last 7 to 10 years? You can’t just use “some” data points and dismiss others because they don’t fit into your scheme. Domestic economy is doing very well. The consumer is actually saving money during the last 2 years. Please explain how that’s even possible? The consumer is the driver of the markets. Income, spending, saving have all increased over last few months at a rate that suggests the FED is getting behind the curve on rates.

        The dollar confirms this. In fact I always watch the dollars moves to determine if we are about to accelerate or decelerate economic activity. Impossible to ignore all the signs that show strength and support for the markets. My mantra all along was that the next big drop in the market would be as a result of stretched valuations and inability for corporations to achieve strong profits. Economic health however should not play a roll in next bear phase.

        Continuing to selectively use any chart or data point that keeps you betting a crash has been and will be a losing proposition. With the consumer this strong the question should ONLY be how it impacts the profit margin. I would concentrate on rate hikes, and earnings estimates. FED seems already behind the curve on raising, IMO.


      • It doesn’t take a “genius” to figure out that when the S&P dividend yield is at 2.13% and the 10 year Treasury is at 1.59%, money moves into stocks…. either via corporate stock buybacks or equity fund purchases.


        • I agree. Going forward however stretched earnings will come to play especially if the assumed double digit growth expectation falters. Baked in an 11 percent rise in next 2 quarters. Earnings will matter going forward if the accelerated consumer spending pattern falter or if costs rise above expectations.


          • tony caldaro says:

            Something about relying on earnings.
            From Q3 1989 to Q1 1992 SPX GAAP earnings declined 36%.
            And yet at the earnings low, the SPX was 16% higher than what it was at the earnings peak.


        • mcgcapital says:

          Yes but the market is currently pricing the best of both worlds. Either the economy is going to pick up and yields will rise which isn’t positive for equity markets trading on high valuations. Or the economy is going to slowdown and corporate profits will have a hard time rising which should cause a risk off move. Best case scenario for equities is average growth and edging higher


      • Boom&Bust says:


        Because your information is wrong or maybe it’s RIGGED!


    • The majority of consumer discretionary and consumer staples companies have reduced earnings expectations for Q3, according to this past Friday’s Factset Earnings Insight report.


  5. vivelaamo says:

    Is it fair to say Sandy Jadeja got this call wrong?


  6. NEWBIE says:

    We are in Wave 2 up before wave 3 down to 2140 area.


  7. mtu MTU says:

    [1135am] SPX update –
    Squiggles and tracking counts. See charts.


  8. learnedmylesson25 says:

    Trying to connect some dots here:
    $XJY is 97 and change.Open gap at 96,below the 50d.Not earth shattering if that happens,since it happened in July and it rallied from there.
    GDX open gap at 25.67.Also,a few up to 30.50.Which gaps fill first is the question?More likely is down–then up…sometime this week.Seems like one more decent down day should be a short term bottom.Gap up and hold would confirm.
    Good luck all.


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