The week started at SPX 2154. After a gap up opening on Monday the SPX hit 2170. Then the SPX started a three day decline, aided by a gap down opening on Thursday, to SPX 2115. After that morning low it rallied to SPX 2139, pulled back, then had a gap up opening on Friday and hit 2149. After that it pulled back to end the week at SPX 2133. For the week the SPX/DOW were -0.80%, and the NDX/NAZ were -1.35%. Economic reports were mostly positive. On the downtick: consumer sentiment, the Q3 GDP estimate, and investor sentiment. On the uptick: export prices, the PPI, business inventories, retail sales and weekly jobless claims improved. Next week’s reports will be highlighted by industrial production, the FED’s beige book and housing. Best to your week!
LONG TERM: uptrend
This week, as expected, the SPX broke the 75 point three month trading range to the downside. The break was only 4 points, and the market quickly reversed to reenter the trading range. The importance of this activity suggests the market may have just ended a two month complex flat Minor wave 2 correction. Setting the stage for a potential Minor wave 3 uptrend in the weeks and months to come.
Our long term count continues to suggest the February 2016 SPX 1810 low ended a Primary II bear market from the then all time high of SPX 2135 in 2015. and a new Primary III bull market is underway. Many other pundits suggest the market is currently in its seventh year of a bull market from the 2009 low. And still others suggests that seven year bull market has ended. There is quite a mix of opinions out there, and a recent survey displayed two-thirds of investors think the market is currently overvalued. While opinions do make markets, no one likes to be heavily long in a bear market or on the sidelines in a bull market. All of this suggests most are on the sidelines now.
MEDIUM TERM: downtrend may have bottomed
We noted last weekend the potential for a retest of the OEW 2116 pivot to end the downtrend. We had observed the specific pattern that unfolded during the first decline: SPX 2194-2119, was being closely tracked by this second decline from SPX 2180. This projected a potential low between the 2116 pivot range and SPX 2100+.
The market gapped up on Monday to SPX 2170. But by Thursday had dropped to SPX 2115, making a slightly lower low than September and potentially completing a complex two month flat. At the low there were positive divergences on all three timeframes: hourly, daily and weekly. The hourly RSI, daily MACD, and weekly RSI. The market responded with a 24 hour, 34 point rally, before pulling back during Friday trading hours.
It is also interesting to note that both uptrends and both corrections have lasted two months each since the February low at SPX 1810. This kind of activity did not occur during the 2009-2015 bull market. Each bull market has its own characteristics. Medium term support is at the 2131 and 2116 pivots, with resistance at the 2177 and 2212 pivots.
As noted above we were tracking the 37-31-69 point pattern made during the SPX 2194-2119 decline. At Thursday’s low from SPX 2180 we observed this pattern potentially end with a 38-33-60. Notice how closely they match. After the low the market rallied 34 points to SPX 2149. Then pulled back 16 points to end the week at SPX 2133. A pullback to SPX 2132 would be a 50% retracement, and SPX 2128 would be a 61.8% retracement. Should the market break the 2131 pivot range (2124-2138), then a retest of the lows is likely.
Since the correction was a tight ranged two month ordeal, it created many concentrated overhead resistance levels that will make it somewhat difficult for a new uptrend to get going. In review we uncovered the following areas: upper 2130’s, mid-2140’s, low 2150’s, mid-2160’s, low 2170’s, 2180, upper 2180’s and 2194.
The first rally off the SPX 2115 low was to 2139, then the market pulled back to 2130. The next rally was to SPX 2149, then the market pulled back to 2133. The advance ran into the first resistance in the upper 2130’s, pulled back, gapped up into the mid-2140’s, ran into resistance just below the low-2150’s, then pulled back again. After this pullback concludes the next resistance level should be the low 2150’s. Then the mid-2160’s and so on, until the market clears SPX 2194. Short term support is at the 2131 and 2116 pivots, with resistance at the above noted areas. Short term momentum hit overbought during the Friday rally, and ended the week just below neutral. Best to your trading!
Asian markets were mostly lower on the week for a net loss of 0.7%.
European markets were mostly higher for a net gain of 0.8%.
The Commodity equity group were mixed and lost 0.3%.
The DJ World index lost 1.3%.
Bonds continue to downtrend and lost 0.2%.
Crude continues to uptrend and gained 1.3%.
Gold is downtrending but gained 0.3%.
The USD is uptrending and gained 1.4%.
Monday: NY FED at 8:30, industrial production at 9:15, then a speech from FED vice chair Fischer at 12:15. Tuesday: the CPI and the NAHB. Wednesday: housing starts, building permits and the FED’s Beige book. Thursday: weekly jobless claims, the Philly FED, and existing homes sales. Friday is option expiration and there will be a speech from FED governor Tarullo. Best to your weekend and week!