weekend update

REVIEW

Quite a wild week as DJ Trump is now president-elect. The market started off at SPX 2085, gapped up on Monday, and rallied to 2147 by Tuesday afternoon. Apparently on the assumption that Clinton would win the election. After hours when results started to roll in the ES futures tanked, and hit the 5% limit down just when Trump appeared to be the winner. Then after a continued volatile overnight session, the market gapped down on Wednesday to SPX 2125 and then started to rally. The rally ran into resistance on Thursday at SPX 2182. Then the market pulled back on Thursday into Friday. For the week the SPX/DOW gained 4.6%, and the NDX/NAZ gained 2.9%. On the economic front, except for the election, it was a quiet week. On the downtick: consumer credit, investor sentiment and the WLEI. On the uptick: wholesale inventories and consumer sentiment, plus the budget deficit and weekly jobless claims both improved. Next week’s reports will be highlighted by industrial production, retail sales and the CPI.

LONG TERM: uptrend

Six years ago, after the 2010 election, we posted a special report: https://caldaro.wordpress.com/2010/11/04/politics-and-secular-bullbear-markets/. Over the years our opinion didn’t change much, as this analysis was based on human psychology and historical repetitive cycles. The Saeculum conclusion was spot on. And, we even got the city correct, but not the man. We had not considered a reality TV star could carry a presidential election. That was then, this is now.

In the report we provided several links. One link describes the four turnings, which we call secular cycles, of a entire four generational Saeculum cycle. The fourth turning, which we call the Crisis secular cycle began in the year 2000, and made its presence known by the 911 event. The Fourth Turning is a Crisis. This is an era in which America’s institutional life is torn down and rebuilt from the ground up—always in response to a perceived threat to the nation’s very survival. Civic authority revives, cultural expression finds a community purpose, and people begin to locate themselves as members of a larger group. In every instance, Fourth Turnings have eventually become new “founding moments” in America’s history, refreshing and redefining the national identity. In Parsons’ terms, a Fourth Turning is an era in which the availability of social order is low, but the demand for such order is high.

When the Crisis period ends it starts a new Saeculum cycle which starts with the first turning. What we call the Growth secular cycle. We are not there yet, as the transition is still underway. But we believe it just made its presence known with the election of DJ Trump – a non-politician and non-CFR member. The First Turning is a High. This is an era when institutions are strong and individualism is weak. Society is confident about where it wants to go collectively, even if those outside the majoritarian center feel stifled by the conformity. In Parsons’ terms, a First Turning is an era in which both the availability of social order and the demand for social order are high.

Our long term count remains on track. We continue to believe a new bull market started in February 2016 at SPX 1810. From that low the market advance 300 SPX points, which we labeled Intermediate wave i. Then after a three wave decline to the Br-exit low at SPX 1992, which we labeled Int. wave ii, the market had a 200 point SPX rally to the 2194 all time high. After that, another three wave correction into last Friday’s SPX 2084 low. The last uptrend and downtrends we labeled Minor waves 1 and 2. With this week’s uptrend confirmation in the SPX, Minor wave 3 of Intermediate wave iii should be underway.

MEDIUM TERM: uptrend

An interesting wave pattern has unfolded since the February SPX 1810 low. A 300 point uptrend, followed by a 200 point uptrend, separated by three wave corrections of 120 and 110 points respectively. We have not observed a pattern like this since 1984, which had several similar characteristics. With the SPX/DOW now in confirmed uptrends we should now expect another 300 point uptrend to continue the pattern.

At last week’s low, as noted, the weekly/daily RSI was at levels normally associated with downtrend lows. And the hourly RSI ended that week with a positive divergence. Since then, with this week’s rally, all of these indicators have turned positive. We also had a WROC uptrend signal. It was quite an impressive advance in the cyclicals. The growth indices are lagging somewhat, as there appears to be some rotation out of the heavily weighted growth sector into underweighted cyclical stocks. Once this rotation ends the market should move higher as a whole. Medium term support is at the 2131 and 2116 pivots, with resistance at the 2177 and 2212 pivots.

SHORT TERM

Despite a volatile week the rally from last Friday’s SPX 2084 low looks quite impulsive. We have not been able to make that statement since August. At Thursday’s SPX 2182 high it looked like the rally had completed five small waves with many subdivisions: 2099-2085-2147-2125-2182. After that high the market had its largest pullback of the entire advance, dropping to SPX 2151 on Thursday. Then after a rally to SPX 2178 the market pulled back to 2152 on Friday. If our short term count is correct there is probably more sideways to downside activity ahead to complete this pullback.

We will tentatively label the SPX 2182 high as Minute wave one of this Minor wave 3 uptrend. And the current pullback as Minute wave two. We would expect the hourly RSI to get oversold, which it does quite often, when this pullback ends. Short term support is at SPX 2151 and the 2131 pivot, with resistance at the 2177 pivot and SPX 2194. Short term momentum ended the week around neutral. Best to your trading!

FOREIGN MARKETS

Asian markets were mostly higher for a gain of 1.4%.

European markets were also mostly higher for a gain of 2.1%.

The DJ World index gained 1.6% on the week.

COMMODITIES

Bonds continue to downtrend and lost 2.5%.

Crude continues to downtrend as well and lost 1.5%.

Gold resumed its downtrend and lost 6.2%.

The USD remains in an uptrend gaining 2.0% on the week.

NEXT WEEK

Tuesday: retail sales, export/import prices, the NY FED and business inventories. Wednesday: the PPI, industrial production and the NAHB index. Thursday: weekly jobless claims, the CPI, housing starts, building permits and the Philly FED. Friday: options expiration. Best to your weekend and week!

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